Tax debt increased significantly during the COVID-19 pandemic and remains stubbornly high. ICAEW looks at what HMRC is doing to collect overdue tax and to help taxpayers manage their tax payments.
At 31 December 2024, tax debt (ie, tax that is due for payment but has not yet been paid to HMRC) was estimated at £44bn, almost three times higher in cash terms than before the COVID-19 pandemic. Of that figure, approximately £20bn related to debts over 12 months old, which tends to be more difficult for HMRC to collect.
HMRC has been given additional funding to tackle tax debt at recent fiscal events. A package of measures was announced at the Spring Statement on 26 March 2025, including increasing late payment penalties for some taxes, including VAT, from April 2025. This is in addition to the increase in the interest rates for most overdue taxes by 1.5 percentage points from April 2025, as announced at the Autumn Budget 2024.
In October 2023, HMRC published its tax debt strategy. The strategy is based around four pillars, which HMRC hopes will help it to reduce tax debt while being a responsible creditor.
Taxpayers can help manage their tax debt by negotiating time to pay arrangements with HMRC. The taxpayer can call HMRC or it may be possible for the taxpayer to set up the plan online, depending on their circumstances. Late payment penalties will not be charged where a payment plan is in place and kept to. However, interest will still be payable.
