HMRC has written off nearly £13bn in unpaid tax, according to a new report from the National Audit Office (NAO). The tax authority now expects not to collect £12.9bn in revenue, with £9.8bn of that total classified as outright write-offs.
Business collapses drive record tax losses
The write-offs came after a wave of business collapses, the NAO report shows. Formal insolvencies remain at historically elevated levels, according to Glen Flannery of law firm CMS, who said: “What we’re seeing now is the cumulative effect of inflation, higher interest rates and increased employment costs landing at the same time.”
Nimesh Shah of accountancy firm Blick Rothenberg added: “The UK tax burden is at its highest levels in modern peace time and changes to tax, labour laws and the minimum wage increase have added significant burden to businesses. The irony is that the Government increasing the tax burden has had the effect of increasing HMRC’s tax losses.”
Pandemic backlog and enforcement changes
However, the surge in business closures is partly because the courts and HMRC have been working through a “backlog of insolvencies and bankruptcies” built up during the pandemic, when the tax office suspended its debt collection activity.
John Hood of Moore Kingston Smith said: “HMRC was reluctant during and after the pandemic to wind up companies, but the situation has changed over the past 18 months. HMRC has increased resources to enforce the debt and where necessary will remove companies that have no real prospect of paying their debts.”
HMRC defends its record
A spokesman for HMRC said: “We welcome this report, which recognises the progress we’re making in collecting the vast majority of tax debts while supporting customers who owe tax. We make it easy for those who can pay, support those who need help, and take firm action against those who choose not to engage with us about their tax debts.”
The NAO report comes as the government faces scrutiny over the rising tax burden and its impact on business viability. The £12.9bn figure represents a significant increase in uncollected revenue, with implications for public finances and future tax policy.
