Every year, billions of pounds in unpaid taxes deprive the UK’s public services of crucial funding. To tackle this issue, Chancellor Rachel Reeves has unveiled an ambitious strategy to close the tax gap, ensuring a fairer system where individuals and businesses contribute their fair share. With measures projected to generate over £1 billion annually by 2029/30, the government is ramping up enforcement, digitalisation, and anti-avoidance efforts to create a more equitable tax landscape.
Tackling the tax debt crisis
The scale of unpaid tax in the UK is staggering. By December 2024, HMRC reported tax debt exceeding £44 billion—more than double the figure from five years ago. Shockingly, around £20 billion of this debt is over a year old, making recovery increasingly difficult.
To combat this crisis, the government is enhancing HMRC’s capabilities with a targeted debt recovery programme. This includes:
- Automating debt collection processes to focus on older debts.
- Hiring 500 additional compliance staff on top of the 5,000 recruited last year.
- Strengthening enforcement measures to ensure debts are pursued efficiently and fairly.
Modernising tax through digitalisation
A major pillar of reform is the continued rollout of Making Tax Digital (MTD), designed to simplify tax management for individuals and businesses. From April 2028, sole traders and landlords earning over £20,000 will be required to use MTD for income tax Self Assessment (ITSA).
For smaller taxpayers earning below the MTD threshold, the government is working on enhancing reporting systems to ease compliance. Additionally, stricter penalties for late payments on VAT and ITSA will reinforce timely submissions, reducing the risk of tax shortfalls.
Cracking down on tax avoidance and non-compliance
The government is intensifying efforts to combat tax avoidance and fraudulent schemes, with a focus on:
- Using third-party data and automation to detect non-compliance.
- Increasing accountability for tax advisers who facilitate evasion.
- Cracking down on marketed tax avoidance schemes that leave individuals facing unexpected bills.
As part of a new tax fraud initiative, HMRC aims to increase criminal prosecutions, particularly targeting wealthy individuals, corporate fraud, and offshore tax evasion. By 2029/30, HMRC plans to process 600 serious tax fraud cases annually, up from 500 today.
Encouraging whistleblowers and combatting ‘Phoenixism’
To further strengthen compliance, HMRC is revamping its whistleblower reward scheme, offering financial incentives linked to tax recovered from tip-offs. Inspired by successful models in the US and Canada, this initiative aims to target large-scale tax evasion.
Additionally, a joint task force with HMRC, Companies House, and the Insolvency Service is tackling ‘phoenixism’—a practice where businesses dissolve to avoid tax liabilities. New measures include:
- Upfront tax payment demands for at-risk companies.
- Personal liability for directors found engaging in phoenix activity.
- Doubling enforcement efforts to protect an estimated £250 million in tax revenue by 2026/27.
Strengthening offshore tax enforcement
The government is also reinforcing offshore tax compliance by investing in AI, data analytics, and private sector expertise. These advancements will help HMRC detect hidden wealth and recover an estimated £500 million in offshore tax revenue over the next five years.
Further modernisation efforts include:
- Voice biometrics and AI-driven customer service to streamline tax processes.
- Partnerships with international bodies, such as US Customs, to tackle global tax evasion.
A fairer, more efficient tax system for the UK
These reforms mark a crucial step toward closing the UK’s tax gap, ensuring fair contributions from all taxpayers while safeguarding essential public funding. By embracing digitalisation, enhancing enforcement, and cracking down on tax avoidance, the government is creating a tax system that is both fair and future-ready.
With HMRC’s transformation roadmap expected this summer, businesses and individuals can anticipate a streamlined, transparent tax framework designed to support economic growth and financial integrity across the UK.
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THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
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