The Chancellor plans to raise over £1bn in additional gross tax revenue, as her Spring Statement singled out tax evaders.
At the end of December 2024, unpaid tax liabilities owed to HMRC were over £44bn, more than double the level five years ago.
The government said that around £20bn of these outstanding tax debts are over 12 months old, stressing this is more challenging for HMRC to collect.
“The government is determined to reduce this level of debt,” she stated.
Building on Labour’s ‘Close the Tax Gap’ initiative, Rachel Reeves announced plans to raise over £1bn in additional gross tax revenue annually by 2029-30.
The proposals include expanding and modernising the tax agency, with plans to recruit 500 more HMRC compliance staff. This is on top of the 5,000 new compliance staff that was announced at the Autumn Budget.
This is expected to bring in an extra £15m over 2026-27, £50m over 2027-28, £80m over 2028-29 and £95m over 2029-30.
The government is continuing its roll-out of making tax digital (MTD) for income tax self-assessment (ITSA), with sole traders and landlords with qualifying income over £20,000 joining from April 2028.
However, late payment penalties for Value Added Tax (VAT) taxpayers and ITSA taxpayers will increase as they join MTD from April 2025 onwards.
This is expected to bring in £105m over 2028-29 and £125m over 2029-30.
Increasing charging decisions
Additionally, the Chancellor set out plans to increase the number of tax fraudsters charged each year.
The number of annual charging decisions for the most harmful fraud will increase by 20 per cent, compared to current levels, from 500 to 600 per year by 2029-30.
However, Kate Ison, partner at law firm BCLP pointed out that “utimately, the decision to charge lies with the CPS, so unless HMRC investigators identify the right cases we won’t see a meaningful increase in prosecutions.”
The Treasury highlighted that HMRC’s new powers to reward informants will be launched later this year.
The scheme is taking inspiration from the US and Canadian models, rewarding informants with compensation linked to a percentage of any tax taken due to their actions.
HMRC, along with Companies House and the Insolvency Service, are joining up to focus on 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 £250m by 2026-27.
As part of the overall investment, over the next five years, the government will increase HMRC’s resources assigned to tackling wealthy offshore non-compliance by around 400 people, which is estimated to bring in over £500m over the forecast period.
The Labour government scrapped the non-dom regime at the Autumn Budget, which kicks into action from 6 April, 2025.
Additionally, the Treasury said it “is accelerating change at HMRC” by introducing voice biometrics and using AI in customer service and compliance.
The Treasury confirmed that later this Summer, a transformation roadmap to simplify the tax and customs systems will be published.
Michelle Sloane, partner at law firm RPC stated that the announcement on tax evasion is “unsurprising” as “last month the Public Accounts Committee issuing a scathing report calling for the government to have a clear strategy to tackle tax evasion”.
‘Reality is very difficult’
Robert Salter, director at accounting firm Blick Rothenberg, said: “Reeves’s ambitions for tackling tax fraud are the type of policy which every Chancellor in the last 30 years has announced.”
“However, the reality is that it is very difficult to tackle tax fraud in a valid, coherent manner and obtain any meaningful improvement in this area without significant investment in HMRC staff and – in effect – proper pay for HMRC officials.”
“Sadly, HMRC have previously advised that 1/3rd of their staff are on the National Minimum Wage and it should therefore be no surprise that the performance of HMRC continues to disappoint,” he added.
While Nicky Owen, tax partner at Crowe went on to add that while she is all for limiting and restricting tax evasion.
She added: “I am concerned whether we have enough technically skilled people to run and deal with the investigations in a timely basis.”
“An enquiry needs to get to the issue quickly and be dealt with promptly and not to leave taxpayers waiting for responses months on end because there isn’t a technically qualified individual that understands the issue. AI will assist in the process but again skilled people will need to analyse the results,” she said.