HM Revenue & Customs (HMRC) admits it is unlikely to recover over £19 billion in unpaid taxes, highlighting significant service failures.
- Total unpaid taxes have surged to £43 billion, nearly tripling since pre-pandemic levels.
- Proportion of unrecoverable debts has escalated to 45%, significantly affecting businesses and individuals.
- Customer service performance has plummeted, with unprecedented delays and frustration among taxpayers.
- Significant losses due to error and fraud in pandemic-related tax schemes have compounded HMRC’s challenges.
According to HMRC’s latest annual report, unpaid taxes have soared to £43 billion—almost three times the amount recorded before the pandemic. Nearly 45% of these debts are now considered unlikely to be recovered, a substantial increase from 32% the previous year, driven by accumulating older debts and adverse economic conditions affecting businesses and individuals.
HMRC’s customer service metrics are at an all-time low, with the department missing every service target set by the previous government. Taxpayers have faced unprecedented hold times and frustrations, with nearly 56,000 customers cut off after waiting over an hour, a dramatic rise from the 6,900 affected the previous year. Average waiting times for phone calls reached 23 minutes and 14 seconds, up 42% from last year.
Sarah Olney, the Liberal Democrat Treasury spokeswoman, sharply criticised this situation, attributing it to ‘years of Conservative Party economic vandalism.’ She urged the Labour government to ‘properly invest in the organisation’ to break what she described as a ‘cycle of decline.’
HMRC has also reported significant losses due to error and fraud in pandemic-era tax schemes, particularly those aimed at boosting research and development (R&D) in businesses. Since 2020, the department has lost an estimated £4.1 billion through these schemes, with £1.2 billion lost specifically in the scheme for smaller businesses. Previous investigations revealed companies exploited these R&D tax breaks for dubious ‘innovations,’ such as vegan pub menu options and launderette washing temperatures.
Tax advisers have lambasted HMRC’s oversight, claiming the department ‘almost never checks’ claims under the R&D scheme, effectively making it ‘free money’ for companies. The department has since revised its fraud loss estimates from 5.5% to 25.8% over the past year. Gareth Davies, an independent government auditor, remarked that this level of fraud is ‘among the highest reported across all government spending programmes, including those administered in response to Covid-19.’
An HMRC spokesperson highlighted the critical importance of timely tax payments to fund public services, stating, ‘We do everything we can to help those who engage with us to get out of debt. With research and development claims, public money is at stake, which is why we have increased compliance activity.’
HMRC’s struggle with unpaid taxes, service failures, and fraud prevention underscores the broad challenges it faces in the post-pandemic economic environment.
