If you’re a freelancer, the phrase “feast or famine” is one you’re probably very familiar with. For most of us, income rarely arrives in neat, predictable amounts. Even just one late-paying client or a quiet quarter can mean cash flow gets tense.
So when HMRC recently confirmed it will resume using powers to withdraw unpaid tax directly from bank accounts (without going through the courts), many of us felt a chill in the back of our necks.
But what will this actually mean in practice, and how worried should we be, exactly?
Headlines versus reality
The rollout of a policy entitled ‘Direct Recovery of Debts’ sounds alarming at first glance. In the words of video producer, animator and creative director Nick Hill: “Do we want ‘the government’—or anyone—to be able to just dive into our bank accounts and scoop money out of them? Of course not.”
However, that doesn’t mean we shouldn’t necessarily panic. Nick points out that HMRC has held these powers since 2015, and their use has been remarkably limited. Between 2015 and 2018, just 19 direct recoveries were made, clawing back £361,678. The powers were paused during the Covid pandemic and are now being reintroduced under HMRC’s “test and learn” approach.
The safeguards, too, are significant. To be targeted, you must owe £1,000 or more, have ignored multiple HMRC communications, and be judged able to pay but refusing to do so. Crucially, HMRC won’t take funds if less than £5,000 would remain in your account afterwards. Before any money is touched, an HMRC agent must visit you at home or work to verify the debt, discuss alternative repayment options, and check you’re not vulnerable.
“In theory, you could owe the bank a few hundred pounds, and have your home repossessed,” Nick explains. “But in practice that isn’t how it works: there’s a whole process, and a load of things that would have to happen before it got to that stage.”
Why context matters
Of course, for individual freelancers, the devil is in the details… and those details often don’t show up on a bank statement. Money sitting in your account might already be earmarked for rent, equipment, or childcare: expenses that enable you to work in the first place. As marketing professional Caroline Addison says: “Who is to say what’s affordable? I have about £5,000 in the bank, but that’s all earmarked for childcare. Without childcare, it’s not possible to work at all.”
Similarly, the bank statements of photo retoucher and creative artworker Sandrine Bascouert will often show large sums sitting there… but only because she needs to pay rent in advance every three months. “I can’t count the many times I had to explain why I had that much money in my account, particularly three days before being due to pay the rent,” she observes.
Beyond the system’s raw mechanics, some question whether the government has earned the trust required to wield these powers fairly. “With the Post Office scandal and hard facts on the past 20 years of financial mismanagement, dishonesty and tax evasion by MPs in various parties, I wouldn’t trust HMRC to flush a toilet,” says creative director Man Made. “Surely they should be gaining public trust, and targeting multi-billion pound industries that find creative ways to avoid UK tax first?”
Sandrine raises a further concern. “I’d be okay for them to do it if they had a court order,” she says. “But you can’t be jury, judge and executioner in a democracy.” For her, this worry isn’t theoretical. “HMRC has a long history of messing up things, so I don’t trust them without proper process.” The Low Incomes Tax Reform Group shares these concerns, and is currently seeking clarification on how HMRC will identify vulnerable customers and what support will be provided.
Don’t panic
Not everyone, though, sees this as cause for alarm. Paul Leon reckons the tax body’s reputation
has been unfairly tarnished. “HMRC aren’t actually the monsters the press makes of them,” he believes. “It’s worth mentioning that most average people and businesses pay their taxes with no problem. If you pay your taxes on time, you will be fine, and this will never apply to you.
“I’d argue this is press scare mongering,” he adds, “to get momentum from the bottom of the scale because those at the top have had five years and much more of profitable ‘tax efficiency’.”
So if you’re a freelancer concerned about these powers, what should you actually do about this? Well, it’s pretty simple, really. Above all, communicate with HMRC. As I mentioned earlier, ignoring correspondence is precisely what triggers escalation.
If you’re genuinely struggling to pay, HMRC typically takes a sympathetic approach and can arrange a time-to-pay agreement. You also have a 30-day appeal window if a direct recovery is initiated, during which HMRC won’t transfer funds. Appeals can also be made to county courts on specified grounds.
Overall, the system may not be perfect, but as Nick concludes, “With the right safeguards in place, I don’t think that what they’re proposing sounds problematic. And you can imagine the headlines if they get this wrong.”
