- HMRC carried out a call for evidence entitled ‘Modernising Tax Debt Collection from Non-Paying Businesses’ to gather evidence and test their initial thinking. The summary of responses included four proposals where the previous government intended to carry out additional consultation and develop policy and/or new legislation. These are:
- extending taking control of goods to those with no UK assets, or assets at a principal place of business such as a premises where they carry out a trade or business, such as a fulfilment centre or third party warehouse;
- extending taking control of goods to in-house leasing which have historically been used to avoid civil recovery action against debts owed by the main business;
- extending Direct Recovery of Debt to Digital Wallets; and
- security deposits to recurring non-paying businesses. This regime can currently only be used in cases where there is serious non-compliance with reporting the correct tax liability due to avoidance and evasion of tax and not in cases where a business simply does not engage with HMRC.
- Two further areas were also identified (extending taking control of goods to intangible assets and extending Directors Personal Guarantees), however, HMRC believe that these require careful consideration and stakeholder engagement to determine the best way of implementation.
- At the Autumn Budget 2024 the government announced that HMRC would improve their debt management system to ensure tax debt enquiries can be dealt with faster, this will include recruiting 1,800 debt management staff.
- At the Spring Statement 2025 the Chancellor announced plans to boost HMRC’s debt management capacity by investing £87 million over the next five years in its existing partnerships with private sector debt collection agencies to collect more unpaid tax debts and additional £114 million over the next five years to recruit additional 600 HMRC debt management staff.
- The government has also increased the late payment penalties for VAT taxpayers and Income Tax Self Assessment (ITSA) taxpayers as they join Making Tax Digital (“MTD”), from 1 April 2025 onwards. The new rates are 3% of the tax outstanding where tax is overdue by 15 days, plus 3% where tax is overdue by 30 days, plus 10% per annum where tax is overdue by 31 days or more.
- Finally it was announced that HMRC will re-start “direct recovery” of tax debts owed by individuals and companies who have the ability to pay but choose not to do so. The government announced that they will also explore options to automate the process for collecting lower value tax debts.
- From April 6th 2025, the late payment interest rate charged by HMRC has increased, by 1.5% to the Bank of England base rate plus 4%.
- Timing: there is no set timeline for implementing any changes, other than those mentioned above.
Resources (click to open)
- Increasing VAT and other taxes late payment penalties percentage rate relating to penalty reform (HMRC, April 2025)
- Modernising tax debt collection from non-paying businesses – summary of responses (HMRC, summary of responses, April 2023)
- Call for evidence: modernising tax debt collection from non-paying businesses (HMRC, consultation, November 2021)
