Closing the tax gap 

The measure

Closing the tax gap was the biggest tax revenue raiser in Labour’s manifesto, and actions in this area were a focus of the Autumn Budget 2024.  Further announcements were made today with a view to raising a further £1billion per year from closing the tax gap by 2029/30. 

The items highlighted by the government for their focus include: 

1. Reducing outstanding tax debt, which at the end of December 2024 was over £44billion.  Around £20billion of that debt was more than 12 months old, making it harder for HMRC to collect. The government will achieve reductions  by expanding and modernising its debt management capacity, including through an innovative test and learn pilot to collect more aged debts and moving towards more automated debt recovery.  The government is additionally investing in recruiting 500 more compliance staff, building on the 5,000 which were announced in the last budget, plus a further 600 debt management staff.  
2. Publishing four consultations on:  
   • How HMRC can make better use of third-party data to increase automation and close the tax gap. 
   • Proposals to strengthen HMRC’s ability to take action against those tax advisors who facilitate non-compliance by their clients. 
   • A comprehensive package of measures to close in on promoters of marketed tax avoidance, whose schemes can leave their clients with unexpected tax bills. 
   • Options to simplify and strengthen HMRC’s powers to penalise inaccuracy and failure to notify.  
3. Continue to take stronger action against the most egregious behaviors leading to lost revenue and impact on others, such as tax fraud and other crimes, by: 
   • Prosecuting more tax fraudsters – by increasing charging decisions by 20% from current levels. 
   • Reforming reward for informants – with a new scheme to be launched later this year aimed at targeting serious non-compliance by large corporates, wealthy individuals and through offshore and avoidance schemes. 
   • Tackling “phoenixism” – with HMRC, Companies House and the Insolvency Service delivering a joint plan to tackle those using contrived insolvencies to evade tax and write off debts owed to others.   
4. HMRC will overhaul its approach to offshore tax non-compliance by the wealthy, with recruitment from the private sector and the use of AI.  It is estimated that in the next five years HMRC will increase their resources in this area by 400 people.   

Who will be affected?

All taxpayers could be impacted by these changes.  

When will the measure come into effect?

These measures are a continuation of, and seek to build on, the announcements made in the Autumn Budget 2024.