Recommendation 5

HMRC’s investment in debt management has not sufficiently reduced the amount of tax owed to it. In 2023–24, the government announced £303 million additional funding for HMRC to improve its capacity to manage tax debts. This followed £47.2 million announced in 2022–23. Despite this investment, the tax debt balance fell only marginally in 2023–24, from £43.9 billion at 31 March 2023 to £43.0 billion at 31 March 2024. This is still much higher than the five years before the pandemic, where tax debt was typically around £15 billion. HMRC is still seeing high levels of new tax debt, largely driven by small businesses’ cash flow issues. HMRC says its efforts are focused on pursuing these new debts, which are easier to collect. We are concerned, though, that HMRC is not effectively pursuing older debts. It has estimated it may not be able to collect 45% of established taxpayer liabilities not yet received. In 2023–24, HMRC wrote off £5.0 billion of debts as uncollectable, an increase from £3.2 billion in 2022–23. HMRC expects the amount of write-offs to remain high in 2024–25 as the impact of the pandemic on insolvencies continues to work its way through the criminal justice and tax systems. In the 2024 Autumn Budget, HMRC received funding for 1,800 more debt management staff. 5 recommendation Now that HMRC has secured even more resources to manage the debts owed to it, it should set out what reduction in the debt balance it is aiming for and by what date, and a plan for how it will recover older debts before they become uncollectable.