In HMRC’s November 2025 update to its tax debt strategy, it stated a key target for HMRC is “reducing the debt balance year on year as a percentage of receipts”.
The NAO has examined HMRC's performance in meeting that target in its latest report and found that HMRC "has had some success in reducing tax debt". However, the NAO also identified several challenges facing HMRC and has made recommendations for how HMRC could improve its management of tax debt.
The scale of tax debt
At the end of financial year 2025/26:
- tax debt totalled £43.8bn, equivalent to 4.7% of total tax receipts; and
- approximately 8.2m taxpayers were in debt to HMRC.
Revenue losses recognised in 2025/26 totalled £12.9bn (12.7% as a proportion of all debt resolved).
Definitions
Tax debt is tax that is overdue for payment, is legally enforceable and which HMRC believes to be collectable.
Tax debt that arises during a financial year (1 April to 31 March) is referred to as new tax debt.
Tax debt that has been outstanding for more than one year is generally regarded as older tax debt.
Where tax debt is irrecoverable, and HMRC stops its debt collection activities, HMRC recognises a revenue loss.
Revenue losses comprise write-offs, where the debt is irrecoverable, and remissions, where HMRC has deemed that the debt is not worth recovering relative to the costs involved.
Progress made by HMRC
As shown by the table below, the tax debt balance as a proportion of tax receipts has fallen year on year for the previous three financial years. This is due in part to a 20% increase in HMRC debt collection staff between 2023/24 and 2025/26, at a cost of £61m.
| Financial year | Tax debt balance as a proportion of tax receipts |
|---|---|
| 2025/26 | 4.7% |
| 2024/25 | 5% |
| 2023/24 | 5.2% |
| 2022/23 | 5.6% |
| 2021/22 | 5.5% |
Overall, it is estimated that HMRC generated £10.7bn in additional revenue through strategic measures introduced since 2021, following investment of £368m.
However, tax debt remains high historically. In the five years between 2015/16 and 2019/20 (ie, before HMRC suspended its debt collection activities during the COVID-19 pandemic), tax debt was typically around 2.5% of tax receipts.
Further, revenue losses have increased significantly in recent years. In its annual report and accounts for 2025/26, HMRC notes that “the increase in revenue losses reflects the continued unwinding of formal insolvency delays, caused by pandemic related court restrictions imposed throughout 2020 and 2021, together with the effects of government support measures available at that time”.
| Financial year | Write-offs | Remissions | Total revenue losses |
|---|---|---|---|
| 2025/26 | £9.8bn | £3.1bn | £12.9bn |
| 2024/25 | £6.2bn | £1.2bn | £7.4bn |
| 2023/24 | £5.2bn | £0.6bn | £5.7bn |
| 2022/23 | £3.2bn | £0.6bn | £3.8bn |
| 2021/22 | £2.1bn | £0.5bn | £2.8bn |
| 2020/21 | £1.7bn | £0.5bn | £2.2bn |
| 2019/20 | £3.7bn | £0.6bn | £4.2bn |
Note: Figures in the table may not total exactly due to rounding
Challenges facing HMRC
In 2025/26, taxpayers incurred £103.6bn of new tax debt, equivalent to 11.0% of receipts. Although the amounts involved are often small (60% of new debts in 2025/26 were worth less than £500) and are cleared relatively quickly (with nearly half being paid within a month of being incurred), this is said to place huge pressure on HMRC’s operational capacity.
Further, tax debts have been getting older on average and are therefore becoming more difficult to collect. At the end of 2025/26, 51% of tax debt was older tax debt, compared with 28% at the end of 2019/20. HMRC estimates that it collects 81.5% of debts less than one year overdue, but just 15% of debts more than two years overdue.
Next steps
HMRC continues to take steps to tackle tax debt and earlier this year consulted on proposals to:
- extend its existing direct recovery of debts powers to help it recover lower value tax debts (read more);
- require more timely payment of income tax (read more); and
- mandate the payment of VAT and pay as you earn by direct debt (read more).
An update on the measures is expected at the Autumn Budget 2026, which will be delivered on 28 October 2026. Find out more at Latest tax news | ICAEW after the Budget or by joining the Tax Faculty’s Budget Webinar, on 2 November 2026.
NAO recommendations
The NAO has recommended that HMRC:
- makes the granting and management of payment plans more automated and efficient;
- builds upon its work to tackle the inefficiencies in its debt management processes and systems;
- does more to mitigate the key risks to the delivery of its new case management system;
- improves its understanding through further research and evaluation of what interventions work and in which circumstances; and
- updates its plans for managing tax debt in a crisis.
“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 [...] but needs to continue its efforts to get more productivity out of its staff and systems.”
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