- While the overall tax debt balance stands at £43.8 billion at
the end of 2025-26, HMRC has reduced tax debt as a proportion of
receipts for three consecutive years
- Tax debt is getting older and increasingly more difficult to
collect, with half of debts having been on HMRC's books for more
than a year
- New measures introduced since 2021, such as more staff and
greater use of debt collection agencies, have generated £10.7
billion in additional revenue
- The NAO recommends that HMRC focuses on improving workforce
productivity and ensuring the successful delivery of a new IT
system to manage debts
HM Revenue and Customs (HMRC) has had success in reducing tax
debt as a proportion of tax receipts for three consecutive years,
while managing significantly more new debts since the pandemic,
the National Audit Office says in a report published today
(Friday 23rd October 2026).
Taxpayers owed a total of £43.8 billion in tax debts at the end
of 2025-26, 4.7% of tax receipts. This is down from 5.6% in
2022-23, though remains far higher than before the
pandemic.1
HMRC achieved this while dealing with £103.6 billion of new tax
debt in 2025-26, around twice the annual average in the five
years before the pandemic. Cost of living pressures caused by the
pandemic and Russia's invasion of Ukraine have increased new tax
debts and made it harder for some taxpayers to pay, whilst HMRC
is also facing an increasing challenge from debtors who do not
engage.
Nearly half of new debts are resolved within a month2,
which suggests that taxpayers forgetting to pay their tax bill or
having short-term cash-flow problems are likely causes. HMRC
considers many new debts preventable, but dealing with them still
places significant pressure on its staff.
About half of the remaining debt balance is now older than a
year, making it harder and less likely to be recovered, with HMRC
estimating that 46% of the tax debt owed at the end of 202526 may
not be collected.
Debt that was more than a year old and not covered by a payment
plan increased from £5.3 billion before the pandemic to £18.6
billion at the end of 2025-26.
Since 2021, HMRC has introduced new measures to manage tax debt,
including recruiting more staff3, increasing its use
of private sector debt collection agencies and using data to
tailor its approach to different debtors. HMRC estimates that
this generated £10.7 billion in additional revenue by the end of
2025-26, against spending of £368 million.
HMRC has consulted on introducing direct debits to help eliminate
payment errors and expanding the scope of its powers to directly
recover debt from taxpayers' bank accounts for smaller debts,
with outcomes expected to be announced in the upcoming Autumn
Budget. It has other improvements in train to tackle some of the
inefficiencies in its work, including introducing a new IT
system, but needs to do more to manage the key delivery
risks.
HMRC expects to reduce tax debt to between 2.9% and 4.2% of
receipts by 202930, but these forecasts are highly sensitive to
economic shocks and the flow of new debt. The NAO now recommends
that HMRC brings together and updates the lessons it has learned
from the pandemic and subsequent economic shocks, so it is better
prepared to manage tax debt during a future crisis.
The report says that HMRC now needs to go further in tackling the
inefficiencies in its processes and systems and improving the
productivity of its existing workforce. Further recruitment would
deliver increasingly diminishing returns, as staff increasingly
deal with tackling lower-value and harder-to-reach debts.
The watchdog also recommends that HMRC make payment plans more
automated and easier to manage digitally, and use better evidence
to identify which interventions work best for different debtors
and in different circumstances. This could reduce demand on staff
and allow them to concentrate on older and harder-to collect
debts, as well as taxpayers who do not engage with HMRC.
, head of the NAO,
said:
HMRC has made good progress on tax debt in the challenging
circumstances of recent years, but faces an increasing problem of
old debt which is harder to collect.
HMRC should now focus on preventing avoidable debt and acting
quickly when debts arise. It has some promising improvements in
train but needs to continue its efforts to get more productivity
out of its staff and systems.
ENDS
Notes to editors
- Compared with a pre-pandemic average of around £15 billion,
or 2.5% of receipts.
- Around 45% of new tax debts are resolved within a month, and
90% within a year
