Reducing tax debt 

In December 2024, unpaid tax liabilities due to HMRC totalled over £44bn. Although this is significantly lower than the peak of £66bn on 30 September 2020, it is almost three-times higher than before the pandemic (debt on 31 December 2019 was £15.5bn). HMRC estimates approximately £20bn of tax debts that are currently outstanding are over 12 months old.  

The government took steps to tackle tax debt at the Autumn Budget 2024 and has announced the following new measures at the Spring Statement 2025: 

• increasing late-payment penalties for VAT from April 2025 and for income tax self assessment (ITSA) taxpayers as they join Making Tax Digital (MTD) income tax; 
• investing £87m over the next five years in HMRC’s existing partnerships with private sector debt collection agencies;
• recruiting an additional 600 HMRC debt management staff at a cost of over £144m over the next five years; and
• re-starting direct recovery of tax debts owed by individuals and companies. The government will also explore options for automating the process for some lower value debts.   

Increased late payment penalties 

VAT and tax paid under MTD for income tax (whether signed up voluntarily or mandated) are subject to a different penalty regime than other taxes. The table below shows the penalties currently applying for late payment of VAT and MTD income tax and the increased penalties announced at the Spring Statement 2025.  

HMRC has published guidance which explains in more detail how the penalties work. This has yet to be updated for the Spring Statement 2025.  

The changes will take effect: 

• for VAT, from April 2025 (presumably 1 April although it’s not stated); and
• for taxes paid under MTD income tax, from the tax year in which the taxpayer signs up to MTD income tax.  

Frank Haskew, Head of Taxation Strategy, ICAEW, said:  

“These changes significantly increase the penalties for late payment of VAT and MTD income tax, making timely payment more critical than ever for businesses. Taxpayers who are worried should focus on getting a time to pay arrangement in place as soon as it is clear they cannot pay in full. It is important that businesses are made aware of the changes, especially as they apply from April 2025 for VAT, which is not far away.” 

At the Autumn Budget 2024, the government announced that the interest rate charged by HMRC on unpaid tax liabilities will increase by 1.5 percentage points with effect from 6 April 2025. However, with the changes made to late payment penalties, businesses could pay the interest rate of 8.5% plus the daily 10% penalty rate. The penalty element can be avoided if a time to pay arrangement is put in place in time. 

Closing the tax gap 

Measures announced at the Spring Statement 2025 include recruiting an additional 500 HMRC compliance staff at a cost of £100m and consulting on the following areas: 

• Making better use of new and improved third party data: The consultation builds on the 2023 consultation Improving the data HMRC collects from its customers. The datasets in scope are those relating to financial account information, such as bank, building society and other interest and sales data provided by providers of card acquiring services.
• Behavioural penalties reform: This considers potential reform of the tax penalty regime where the taxpayer's behaviour influences the size of the penalty. The consultation considers penalties relating to inaccuracies in returns and failure to notify. It also considers potential simplification and alignment across the various heads of tax, as well as an alternative model to the penalties currently in place. The government is seeking views on which of these two approaches is preferable, or whether a combination of elements from both would create a system that is fairer, simpler and more effective.
• Enhancing HMRC's ability to tackle tax advisers facilitating non-compliance: The consultation seeks views on several potential measures, including expanding information powers against tax advisers and introducing stronger penalties against tax advisers who contribute to the tax gap. Developing appropriate safeguards will be key to ensuring that agents are not penalised for isolated errors, and that they are not prevented from assisting taxpayers to bring their tax affairs up to date.
• Closing in on promoters of tax avoidance: HMRC is consulting on proposals that would give it additional powers and stronger sanctions to allow it “to more efficiently and effectively disrupt the business model promoters rely on”. The proposals include the possibility of creating a new criminal offence of failing to disclose notifiable arrangements to HMRC under the disclosure of tax avoidance scheme (DOTAS) rules. 

The government also provided an update on its Autumn Budget 2024 commitment to expand HMRC’s counter-fraud capability, announcing that it will increase the number of annual charging decisions from 500 to 600 per year by 2029/30. 

Other measures 

The following documents have also been published: 

• Consultation: Advance tax certainty for major projects. At the Autumn Budget 2024, the government announced that it would be consulting on a new process to provide increased tax certainty in advance for major projects. This consultation sets out how the new process could work.
• Consultation: Research and development (R&D) tax relief advance clearances. The government is seeking views on “options for a revised system of clearances that will aim to reduce error and fraud in the R&D reliefs, provide certainty to businesses, and improve the customer experience”. 
• Consultation: Stamp duty and stamp duty reserve tax (SDRT) exemption for PISCES transactions. This is a consultation on a draft statutory instrument that provides exemptions from stamp duty and SDRT for transfers of Private Intermittent Securities and Capital Exchange System (PISCES) shares in some circumstances. 
• Technical note: Tax implications for companies and employees in relation to employees trading their shares on PISCES. The note explains how PISCES trading events will interact with enterprise management incentives and company share option plans and sets out the tax implications for employees selling their shares on PISCES. 

Further information 

• Spring Statement 2025