The UK’s Autumn Budget 2024 placed greater emphasis on reducing the tax gap by amplifying both financial pressure on overdue taxes and enforcement mechanisms.

This double-edged approach, unveiled by Chancellor Rachel Reeves, aims to tackle tax avoidance and raise revenue amid growing public sector demand. Among the most notable developments is the introduction of a 1.5% increase in interest rates on overdue taxes, effective April 2025. This increase will push unpaid tax rates to their highest ever level of recent history.

“The increase in interest rates on unpaid taxes, now at their highest level in recent memory, combined with a strengthening of debt collection, reflects a clear intention: to deter tax delinquency while closing the gap revenue,” says Jonathan Dowding, tax director at MHA.

HMRC’s reinforced debt recovery army

In addition to interest rate adjustments, the Budget allocates £262 million over five years to employ 1,800 new HMRC debt collectors, who are expected to contribute an extra £2 billion a year to public revenue by 2029 -30.

With these recruits, HMRC intends not only to expand its debt management but also to modernize its operations using advanced technology and data from credit agencies. The debt recovery system upgrade, funded with £154 million, will improve HMRC’s efficiency in identifying and pursuing overdue accounts.

These modernized practices could mean a faster and more systematic approach to debt collection, which could impose a significant compliance burden on businesses.

Implications for the UK business community

The combination of high interest rates and intensified debt collection is expected to impact cash flow management, particularly for SMEs which may struggle to meet tax deadlines amid more financial challenges. vast. This could mean that businesses with outstanding debts will face more difficult, and even more costly, decisions about managing their tax obligations as HMRC’s enforcement capabilities increase.

The measures are part of an ambitious program to reduce the UK’s tax gap, which currently stands at £35 billion, according to the latest HMRC estimates. The Budget suggests that strengthening compliance will play a vital role in ensuring that all taxes owed are collected, which aligns with HMRC’s wider mandate to ensure the management of public finances.