Budget 2026: Healey grants HMRC sweeping powers to chase tax debts

The Chancellor, John Healey, has granted HM Revenue and Customs (HMRC) increased funding and extensive powers to recover overdue tax payments from individuals and businesses who can afford to pay but ignore repeated attempts. This move is part of the government's efforts to curb tax evasion and recover lost revenue. In his speech, Healey announced plans to reform the administration of self-assessed income tax as of 2029, aiming to encourage taxpayers to make smaller, regular payments instead of facing larger, more burdensome bills.

To enforce this, HMRC will now have the authority to directly deduct funds and interest from the bank accounts of non-responsive individuals and businesses. Current rules allow HMRC to take money from accounts only if the debt exceeds £1,000 and would leave a minimum of £5,000 in the account to avoid hardship. Labour has been pushing for greater tax collection through their 'Close the Tax Gap' initiative, estimating that tax evasion cost £5.5bn in 2022-23, about 0.7% of all taxes owed.

The PAC report suggests this figure could be an underestimate. Former Chancellor Rachel Reeves allocated £1.4bn in the 2024 Budget to hire 5,000 new compliance staff over five years, and in the 2025 Spring Statement, she added £154m to modernize HMRC's debt-management case system. Additionally, Reeves specifically targeted tax evaders during the Spring Statement, promising to bolster HMRC's compliance staff by 500 more personnel.

The Labour government has also expanded HMRC's criminal investigation powers and policies to address suspected fraud and delayed payments, including stricter penalties for late payments and focused crackdowns on tax loopholes. HMRC's influence has been notable in recent years, with a rise in 'winding-up petition' applications filed against businesses and sports clubs, including acclaimed chef Gino D’Acampo.