What HMRC is doing to close the tax gap
HMRC aims to bring in £7.5 billion extra per year by 2029-30 through new compliance, debt recovery and enforcement measures. (gov.uk) As of 2023-24, the tax gap—unpaid tax vs theoretical liabilities—is estimated at 5.3%, amounting to broad £46.8 billion. (gov.uk)
Key reforms include:
- Hiring over 600 new debt-management caseworkers from 6 April 2026, to deal with aged and overdue tax debts. (gov.uk)
- Recruitment of 500 compliance staff to expand enforcement operations starting April 2025. (gov.uk)
- Making Tax Digital (MTD) expansion: from April 2028, sole traders and landlords with trading or property income over £20,000 will be required to use software-based accounts for Self Assessment. (gov.uk)
- Stiffer late payment penalties: effective from 6 April 2025, VAT and ITSA taxpayers will face 3% of outstanding tax overdue by 15 days, another 3% at 30 days, and 10% per annum on amounts past 31 days. (gov.uk)
- Higher late payment interest rates across various unpaid liabilities (tax, duty, corporation tax instalments), increased by 1.5 percentage points from 6 April 2025. (gov.uk)
What you must do as a taxpayer or business
- Raise cash-flow buffers: with stiffer penalties and interest, even small late payments can become costly.
- Invest in compliant accounting software well ahead of MTD expansion deadlines.
- Review internal controls to ensure deadlines are met—VAT, Self Assessment, corporation tax instalments—no missed dates.
- For affected entities, ensure accurate forecasts of tax liabilities and plan for timely payment to avoid interest/penalties.
- Maintain thorough documentation of overseas income/gains, asset base values (especially for non-dom & CGT rules), and remittances.
Missteps to avoid
- Underestimating how quickly penalties/interest accumulate after due dates.
- Failing to anticipate being caught under MTD requirements if your income crosses thresholds—for sole traders or landlords, if gross trading or property income rises above £20,000, you’ll need MTD software by April 2028.
- Relying on old non-dom or remittance basis planning without updated professional advice.
Example scenario
John & Emma, landlords own several rental properties. Their gross rental income exceeds £20,000, so they’ll need to move to full MTD reporting by 6 April 2028. If they miss this, late penalties begin. If they pay any property-derived income late, interest charges will be steeper. So, they decide now to invest in MTD-certified software and plan their distributions of foreign income to ensure any remittances are taxed properly.
Conclusion
Compliance is getting more stringent in the UK. With the government expanding enforcement staff, upping penalties, and making digital real-time reporting inevitable, taxpayers and businesses can no longer afford laxity. But with proactive planning and modern tools, you can stay ahead—reduce risk, stay compliant, and manage costs effectively.