HMRC is preparing for a major surge in compliance and debt-recovery activity after the Budget unveiled 36 measures aimed at closing the £46.8bn tax gap. In the following update, Ian Robotham, Legal Director at Pinsent Masons, warns that with almost £43bn in outstanding tax debt, businesses, particularly those in high-risk supply chains, should expect far tougher enforcement in the months ahead.
Robotham says: “On the tax gap side of things, the Budget Red Book contains no less than 36 items under the heading ‘Closing the tax gap’. New measures that have been announced today include a policy that targets businesses in the construction industry that knew or ought to have known that their supply chains were fraudulent.”
“Most of the measures are actually expected in the coming months and years. These are very wide-ranging, with some ‘traditional’ anti-avoidance measures, making changes to existing regimes where a loophole has been identified; some administrative measures targeted at enhancing and enabling HMRC to collect more of the tax that is due more quickly; and some new powers and changes to the tax regime that HMRC has previously consulted on and is now proceeding towards legislating.”
The Budget lands at a time when HMRC is sitting on a huge backlog of unpaid tax. The latest figures show £37.2bn in ‘debt available for pursuit’ — tax that HMRC can actively chase — and a further £6.8bn being ‘managed’ through repayment plans.
Abigail McGregor, Legal Director at Pinsent Masons, says, “The ‘tax debt’ – a figure associated with the tax gap – is tax that is due to HMRC (i.e. it is not in dispute that the tax is owed) but has not been paid.”
Abigail McGregor says, “HMRC issued their four-pillar strategy to tackle the tax debt in 2023 and has today issued an updated strategy. This new strategy highlights that ‘tax debt’ covers a whole spectrum of ills.”
With outstanding tax debt now at nearly £43bn*, HMRC is expected to increase pressure on late payers.
Abigail McGregor says, “At one end, 45% of tax debts are actually resolved within one month – taxpayers who pay a bit late and then catch up. HMRC are keen to reduce the volume of these late payments, not least because it costs them money and resources to chase it up.”
“Ideas here include possible compulsory direct debt for PAYE and VAT; in-year payment of self-assessment debt through PAYE coding; and compulsory e-invoicing for VAT.”
Abigail McGregor says, “At the other end, the size of the debt mountain that is over 12 months has more than trebled in the last five years. HMRC’s main strategy here seems to be recruiting more staff into their internal debt collection and management teams; making greater use of external debt collection agencies and considering other ways to recover including automated payments of debt.”
