Commenting on the Chancellor’s Spring Statement and tax elements in particular, Jon Claypole, Head of Tax Dispute Resolution at accountancy and business advice firm, BDO, said:
“While today’s Spring Forecast was mercifully light on new tax announcements, there were some notable measures designed to clamp down on unpaid tax debt and increase tax compliance.
“At the Autumn Budget last October, HMRC announced that late payment interest would increase by a further 1.5 percentage points from 6 April this year.
“Today, the Chancellor went one step further by increasing late payment penalties by 50% or more. These new penalties will apply from next month to businesses that fail to pay their VAT liabilities on time. These will then be extended to those who will start to pay income tax through the new Making Tax Digital regime for Income Tax starting in April 2026. This group will initially include sole traders and landlords with incomes above £50,000. From April 2027, this threshold will be lowered to £30,000 and from April 2028, this will include those with relevant incomes of more than £20,000.
“Currently if tax remains unpaid after day 15, the taxpayer incurs a penalty of 2% of the tax outstanding and if it’s still unpaid after day 30, the penalty is 4 per cent. These rates will rise to 3 per cent and 6 per cent respectively. An additional 10% per annum penalty will apply for tax overdue by 31 days or more.
“With businesses under increasing cost pressures this year, it’s like to get harder for HMRC to collect tax arrears. There is already an eye-wateringly high level of tax that’s owed to the Exchequer but remains unpaid. The latest figures suggest that tax debt levels have reached £44.3bn, more than double the level five years ago. Of this amount, £38.4bn is classed as being ‘available for pursuit’ while £5.9bn is being collected through Time to Pay arrangements.
“The Chancellor also announced new investment in compliance resource, a no-brainer for a Government seeking to increase receipts. Indeed, HMRC’s latest annual report found that every £1 spent on the compliance workforce delivered a return on investment of £22.
“The new investment of £100m is earmarked for the recruitment of an additional 500 compliance staff over the next five years, while £114m is for 600 more HMRC debt management staff. A further £87m is for HMRC to employ more third-party tax debt collectors.
“This is understood to be in addition to the Autumn Budget 2024 announcement that the government would recruit an additional 5,000 compliance staff and provide funding for 1,800 debt management staff.
“The Government is rightly keen to close the tax gap, the difference between what should be paid versus what is paid. The latest figures (for 2022-23) suggest that the UK tax gap is 4.8% of total theoretical tax liabilities, or £39.8 billion in absolute terms. This has also remained stubbornly high.
“The Chancellor also announced an expansion of HMRC’s counter-fraud capability to increase the number of criminal prosecutions against those suspected of tax fraud. This will include those who undermine legitimate trade and small business, as well as fraud committed by the wealthy and large corporations.
“In recent years, HMRC has tended to focus its efforts on cases where higher amounts are at stake, but there needs to be a credible deterrent at all levels to stop those who are intent on evading tax and committing fraud. Ultimately, those who don’t pay their fair share raise taxes on those that do.”
