HMRC investment promise could impact taxpayers needing support

While the government’s pledge to invest in HMRC to reduce the tax gap has been welcomed, there are concerns that this could negatively impact those needing tax support.

In last week’s Budget, Chancellor Rachel Reeves announced a £1.4bn investment over the next five years to recruit an additional 5,000 HMRC compliance staff, with additional revenues of over £6.5bn over this period.

However, the Chartered Institute of Taxation (CIOT) has expressed its concerns that the lack of additional investment in customer service will prejudice those needing support to get their tax right.

Ellen Milner, CIOT Director of Public Policy, explained, “This is a bold, billion-pound bet on tackling the tax gap, but the additional revenue estimates are ambitious and taxpayers can be forgiven for wondering whether they will be delivered.

“In recent years the tax gap has grown in absolute (albeit not in percentage) terms, and the illegal behaviours which HMRC define as evasion, hidden economy and criminal attacks have proven difficult to tackle. This investment is a clear indicator that the government will not tolerate this sort of non-compliance.

“However, almost half of the tax gap relates to taxpayers not getting things right through what HMRC categorise as either error or a failure to take reasonable care. And there appears to be little in the Budget to address this.

“The estimated income from this additional compliance activity is massive – over £2.7bn a year, or around 7% of the current tax gap, by 2029-30, and only time will tell whether these estimates are overly-optimistic.”

Commenting on the government also announcing £262m over the same period to fund 1,800 HMRC debt management staff, while increasing the interest rate on unpaid tax from April 2025, Ellen said, “These measures make it clear that HMRC do not consider themselves a bank, so are ramping up their collection efforts and increasing the cost of owing the money in the meantime.

“While we recognise the government’s intentions to minimise the tax liabilities owed to it, the playing field has been further sloped in HMRC’s favour, as no equivalent rate increase is being made to money owed by HMRC.”

Ellen added, “We remain concerned that, in a Budget about fixing the foundations, no additional investment has been made to underpin the commitment to improve HMRC’s customer service. Our own research tells us that whilst recent investment may have improved connection rates to helplines, there is much to do to improve HMRC customer service, including the resolution of queries, while it continues to have a detrimental impact on the tax system as a whole, the ability to do business and the wider economy.

“We believe that poor customer service from HMRC, coupled with other factors such as inadequate guidance, are contributors to the high levels of mistake which form nearly half of the tax gap.”

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