Building on the package of tax gap measures which were announced at the Autumn Budget, a further series of announcements were made which included the extension of Making Tax Digital for income tax to even smaller businesses which we report on in more detail in a separate news item.
Debt management and compliance investment
According to the government, at the end of 2024, the stock of tax debt (unpaid tax liabilities owed to HMRC) was over £44 billion, more than double the level five years ago. In order to reduce this, the government is further investing in HMRC’s debt management capacity which will include ‘an innovative test and learn pilot to collect more aged debts whilst also moving towards more automated debt recovery.
The government is also investing £87 million over the next five years in HMRC’s existing partnerships with private sector debt collection agencies to collect more unpaid tax debts. An additional £114 million will be invested over the next five years to recruit an additional 600 HMRC debt management staff; 500 more HMRC compliance staff will also be recruited via a £100 million investment.
Late payment penalties
Late payment penalties for VAT and income tax self-assessment taxpayers (as they join MTD) will increase from April 2025 onwards. The new rates will be 3 percent of the tax outstanding where tax is overdue by 15 days, plus an additional 3 percent where the tax is overdue by 30 days, plus an additional 10 percent per annum when overdue by 31 days or more.
Consultations
The government also published four new consultations to support HMRC’s efforts in closing the tax gap:
Counter-fraud capability and investigations
Additional criminal investigations will focus on delivering a strong deterrent. This will include tackling those who undermine legitimate trade and small business, fraud committed by the wealthy, fraud facilitated by those in large corporations, and by individuals and companies who make it possible for others to hide money offshore. Investigations will also address organised criminal attacks, focusing on illicit finance and complex money laundering schemes.
As part of the overall investment in HMRC resourcing, HMRC is overhauling its approach to offshore tax noncompliance by the wealthy, recruiting experts in private sector wealth management and deploying AI and advanced analytics to help identify and challenge those who try to hide their wealth, wherever they try to hide it.
During the next five years, the government will increase HMRC’s resources assigned to tackling wealthy offshore noncompliance by around 400 people, who are estimated to bring in over £500 million over the forecast period.
New informant reward scheme
A new HMRC reward scheme for informants will be launched later this year, with the aim of targeting serious noncompliance in large corporates, wealthy individuals, offshore and avoidance schemes. The new scheme will take inspiration from the successful US and Canadian models, rewarding informants with compensation linked to a percentage of any tax taken as a result of their actions.
Phoenixism
To tackle ‘phoenixism’, HMRC, Companies House, and the Insolvency Service will deliver a joint plan to tackle those using contrived insolvencies to evade tax and write off debts owed to others. This includes increasing the use of upfront payment demands, making more directors personally liable for company taxes, and increasing the number of enforcement sanctions to double the amount of tax protected to £250 million by 2026/27.
Change at HMRC
The government will also accelerate change at HMRC, including through introducing voice biometrics, using AI in taxpayer services and compliance, and running a customs digitalisation pilot sharing trusted trader credentials with US Customs and Border Protection.
Tax simplification
Further measures will be announced later in the spring to simplify the tax and customs systems, and in the summer, HMRC will publish a transformation roadmap. These measures will aim to collectively reduce administrative burdens so businesses and individual taxpayers spend less time on tax and customs administration.
Direct recovery of tax debts
HMRC will re-start ‘direct recovery’ of tax debts owed by individuals and companies who have the ability to pay but choose not to do so. The government will also explore options to automate the process for collecting lower value tax debts.
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