HMRC Officially Issues New Rule – £350 Bank Deduction for Pensioners from 26 November

HMRC Officially Issues New Rule – £350 Bank Deduction for Pensioners from 26 November, from 26 November, the HM Revenue & Customs (HMRC) is introducing a new automatic deduction of £350 from the bank account of certain pensioners. This new measure has generated concern and uncertainty among older adults living on fixed incomes. While the change does not affect all pensioners, those who fall into specific categories of tax under–payments, pension over-payments or mis-reported income stand to be impacted.

HMRC Officially Issues New Rule-Overview

Article on	HMRC Officially Issues New Rule – £350 Bank Deduction for Pensioners from 26 November
Start Date	26 November
Deduction Amount	Up to £350
Who Is Affected	Pensioners with unpaid tax or overpayments
How It Works	HMRC automatically deducts from bank accounts
What To Do	Check HMRC account or contact HMRC if unsure

Why HMRC Is Introducing the £350 Deduction

HMRC states that the new deduction is part of a broader drive to recover unpaid tax, pension-overpayments and incorrect reporting of income. Under the policy, smaller amounts (in this case up to £350) will now be automatically taken from bank accounts rather than relying solely on manual notices or letters. The logic is that older tax or pension liabilities can accumulate over time and may become harder to recover.

By introducing an automatic deduction mechanism, HMRC intends to simplify and speed up recovery. The measure also aims to avoid the situation where pensioners receive repeated letters and warnings but then struggle with larger collections later on.

Who Will Be Affected by the Rule

It is important to stress this rule does not apply to all pensioners. The deduction targets pensioners who meet one or more specific criteria:

• Individuals with unpaid tax from previous years amounting to under £350.
• Pensioners who have received an overpayment of the State Pension or other pension-related benefit.
• Those whose income has been under-declared for example interest on savings or small self-employed earnings that were not reported.
• Pensioners who received earlier letters or notices from HMRC, did not respond, and therefore triggered recovery action.
• Pensioners whose tax code for a private pension was incorrect, leading to underpayment via PAYE.

How the Deduction Will Be Applied

From the launch date, the automatic deduction will be processed by HMRC as follows:

• The amount will be taken directly from bank accounts linked to the pensioner’s State Pension payment or to other relevant HMRC-related benefits.
• It may also apply to private pension payment accounts, but only if the pension is processed through PAYE and HMRC has the authority to deduct.
• On bank statements the transaction will appear under headings such as “HMRC Adjustment”, “Tax Underpayment Recovery” or “Pension Overpayment Correction”.
• The pensioner will not need to sign off or approve the payment in advance; unless they act beforehand, the deduction will happen automatically.

Why Many Pensioners Are Surprised

Despite the policy aiming for clarity and efficiency, thousands of pensioners are caught off-guard. Reasons include:

• Letters from HMRC either never arrived or were confusing and failed to explain the automatic deduction clearly.
• Pensioners assumed that small underpayments would be written off or ignored.
• Some believed HMRC would always send a second working-age or pensioner-specific notice before taking any money.
• Pensioners on fixed or low incomes were unaware that tax codes or savings interest could trigger such a deduction.

Financial Impact and Considerations

For many pensioners, £350 is a significant sum particularly when considered against the backdrop of rising living costs. Some key financial pressures pensioners face include:

• Rising energy, food and heating costs.
• Higher mortgage or rent payments for older homeowners.
• Increased council tax and other local authority charges.
• Dependence on fixed or relatively low State Pension incomes.

Are Some Pensioners Exempt?

Yes there are categories of pensioners who should not face the £350 deduction. These include:

• Those with no outstanding debts owed to HMRC or from pension over-payments.
• Pensioners for whom the debt arises entirely because of an HMRC error.
• People already on a hardship-based arrangement or whose income is so low that automatic PAYE deduction is not applicable.
• Pensioners receiving certain benefits or reliefs which legally cannot be adjusted by HMRC via deduction.
• Pensioners whose debt is above £350 (in such cases, HMRC normally pursues a manual arrangement rather than an automatic deduction).

What Happens If You Ignore the Deduction Notice

Failing to act when a prior notice has landed or you suspect a deduction is scheduled can lead to:

• The full £350 being taken in one go from your bank account.
• Further deductions later if you owe additional amounts.
• Possible penalties if HMRC determines the pensioner knowingly ignored tax notices.

Frequently Asked Questions