Measures introduced in the budget in the furtherance of closing the tax gap are expected to raise an additional £2.4 billion of tax revenue in 2029/30, bringing the total expected additional revenue raised by closing the tax gap during this Parliament to £10 billion in 2029-30 by tackling those who try to bend or break the rules, collecting more unpaid taxes and modernising the tax system.
This includes launching a strengthened reward scheme for informants who provide valuable information which allows HM Revenue and Customs (HMRC) to tackle high-value avoidance or evasion, modelled on the US scheme. For cases over £1.5m of tax recovered, rewards up to 30% will be paid, designed to incentivise whistleblowing, however with such attractive terms, HMRC will need to undertake a significant level of testing on the information provided to weed out malicious or speculative reports, in the hope of securing the financial rewards on offer.
The government is intending to disqualify more rogue directors who abuse the insolvency process to evade tax and will invest £25 million over the next five years to recruit additional Insolvency Service staff to achieve this. The government will also amend the Company Directors Disqualification Act 1986 to extend the circumstances in which directors who break the law can be disqualified to assist in increasing disqualifications. This will be legislated for in a future Finance Bill.
Further, the government is investing further in HMRC’s debt management work and publishing a new tax debt strategy which outlines plans to deliver year-on-year reductions to the overall tax debt balance as a percentage of tax receipts. The government will invest significantly over the next 5 years, with £89 million to fund additional debt management staff and £64 million in HMRC’s existing partnerships with private sector debt collection agencies to collect more tax debt.
Staying on the theme of the allocation of HMRC’s resource, the government will establish a new dedicated small business evasion and enforcement team and deploy 350 HMRC criminal investigators to carry out more targeted criminal interventions tackling the most serious fraud and evasion by small businesses on the high street. In addition, with respect to electronic sales suppression, in early 2026 a consultation will be published relating to software standards for the Electronic and Mobile Point of Sale Sector to explore how best to embed standards across the latest products and innovations.
Turning to measures announced in respect of HMRC’s powers, starting with the intention to enhance HMRC’s powers and sanctions against tax adviser facilitated non-compliance, to be legislated for in Finance Bill 2025/26. We expect the sanctions are likely to contain provisions for criminal prosecution of tax advisers, in order to underline the seriousness of such facilitation. The government will introduce new powers to close in on promoters of marketed tax avoidance. These will be legislated for in Finance Bill 2025-26. The government will publish a consultation on further measures to tackle promoters in early 2026.
The UK intends to participate in a new international agreement which will tackle tax evasion by providing for the automatic exchange of readily available information on real estate from 2029 or 2030. HMRC already receives information about worldwide financial accounts under a similar automatic exchange agreement, which provides a rich seam of information on which nudge letters and enquiries are based.
A consultation is to be published in early 2026 on the introduction of a new ‘recklessness’ criminal offence for fraudulently evading direct taxes, to align with existing indirect tax offences. We understand the concept of recklessness is slightly less than deliberate behaviour, where tax is a knowingly and fraudulent evaded, however relates to where the taxpayer concerned ought to have known of the evasion.
On penalty reforms, it was announced the government will not apply late submission penalties for quarterly updates during the 2026-27 tax year for Income Tax Self Assessment (ITSA) taxpayers required to join Making Tax Digital (MTD) in order to smooth the transition. The government will apply the new penalty regime for late submission and late payment to all ITSA taxpayers not already due to join the new system from 6 April 2027. This will be legislated for via secondary legislation. The government will increase the penalties due for late payment of ITSA and VAT from 1 April 2027. This will be legislated for via secondary legislation.
There will also be a summary of responses to the ‘Reform of Behavioural Penalties’ consultation published following the Budget. The government intends to modernise HMRC’s inaccuracy and failure to notify penalties and HaysMac participated in this consultation earlier in the year.
As part of the tax debt strategy mentioned, the government is taking steps to ensure income tax Self Assessment taxpayers pay tax automatically via regular payments throughout the year. The government will require income tax Self Assessment taxpayers with Pay As You Earn (PAYE) income to pay more of their Self Assessment liabilities in-year via PAYE from April 2029, which is a significant change. The government will publish a consultation in early 2026 on delivering this change, and on timelier tax payment for those with only Self Assessment income, for whom we expect in-year direct debits to be one of the main proposals.
The government will publish a consultation in early 2026 considering ways VAT and Pay As You Earn (PAYE) liabilities can be paid promptly without the taxpayer falling behind on their payments, including requiring more tax payments by direct debit.
Loan charge
The Loan Charge Review was published in conjunction with the Budget and in a surprising move, made a number of recommendations for a generous new settlement opportunity which involves flexible repayment terms, calculating the tax owed in the years the income was earned and most interestingly of all recommending a number of suspensions, therefore reducing the overall liability and making the settlement opportunity particularly favourable. The suspensions include up to 10% of the liability to account for promoter fees suffered, and suspension of late payment interest. The reason for this is that it has been identified that a significant number of those who have not yet settled are not in a position to be able to afford to do so, so the proposed settlement opportunity is intended to draw a line under this matter. The suspensions proposed will be subject to the individual exhibiting positive tax compliance and not engaging in any further tax avoidance over a set period, in addition to meeting other conditions as yet to be agreed.
With a more generous approach, the Review would expect the Government to make clear that this will be the last opportunity to resolve matters, other than through the usual HMRC enquiry (and, where necessary, litigation) process. All previous concessions might be removed where an individual refused to engage with the settlement process or otherwise refused to engage with HMRC.
The government’s response to the review was also published on the same day and accepts the vast majority of the recommendations. In fact the response actually goes further and proposes writing off rather than suspending specific elements of the settlement, in addition to proposing a write-off of the first £5,000 of an individual’s liability. The response stipulates that the maximum write-off will be capped at £70,000, however this will be welcome news to many. One point to note is that when the earlier Morse review of the Loan Charge was carried out, a redress scheme was introduced to compensate those who had already settled on less favourable terms than those recommended in the review. Here we can see no mention of a similar redress scheme for those who have settled before now, and unfortunately for those who have, we do not expect this to be introduced, based on the stated intention of resolving Loan Charge matters “with targeted solutions that have the minimum possible impact on the public finances.”
The government will legislate in the forthcoming Finance Bill to grant HMRC the power to administer a new settlement opportunity for taxpayers within scope.
We expect HMRC to begin writing to those affected in early 2026. Should you receive such a letter from HMRC and require assistance please do not hesitate to contact us.
