Tax debt continues to rise amid fears about HMRC powers

Overdue tax owed to HMRC had reached £44.7bn at the end of March, according to the latest official figures released in July, up from £44bn at the same time last year. This included new debt of £103,592m for the full year to the end of March, which is up on the £96,944m for last year’s figures at the same point.

Resolved debt meanwhile has risen to £101,851m for the end of March this year, up from £96,738m cleared during the equivalent period for the previous year. In total, 884,319 customers were in Time to Pay arrangements at the end of March this year, down from 913,209 in the previous year, according to analysis of the figures by BDO. For 2024 to 2025, HMRC said its tax gap – the amount of money that should be paid to HMRC in tax and the amount that is actually paid – was at 6.4%.

So, it is little surprise that HMRC is consulting on changing the rules about when tax is paid, and on whether it should have new powers to take money directly from a taxpayer’s bank account to pay their tax debt back.

Is this likely to happen?

HMRC is consulting on getting these new powers, so it could happen. But whether it happens is another story. One of the most vocal opponents to this extension of HMRC’s powers is the Low Incomes Tax Reform Group (LITRG).

It’s concerned that allowing HMRC to recover lower-value debts directly from taxpayers’ bank accounts could lead to taking money in error and creating hardship as a result, if the safeguards aren’t sufficiently tight to eliminate such mistakes.

These lower-value debts could be collected in greater volumes, and while the LITRG says it recognises “the importance of collecting tax that’s due”, it’s concerned that “some vulnerable taxpayers could be adversely affected if adequate protections are not built into the new process”, said Victoria Todd, Head of LITRG.

She added: “We understand why HMRC is looking for more effective ways to collect tax debts. However, the proposals raise some important questions about how taxpayers will be protected.

“It is important that, before any action is taken to recover a debt directly, HMRC are satisfied that the debt has been correctly identified and is genuinely due.”

What safeguards are in place to prevent financial hardship?

This would be an extension of the existing Direct Recovery of Debts powers, which are currently used only where debts exceed £1,000 and even then, only in certain circumstances. These current powers have caveats which mean HMRC must leave at least £5,000 across the taxpayers’ accounts once any money has been taken.

Under the proposed extension of these powers, the smaller tax debts of up to £5,000 for individuals or £10,000 for companies could be taken directly from their bank accounts on a monthly basis rather than as a single lump sum, and there is currently no specified minimum that must be left in the taxpayers’ accounts listed in the consultation. So, anyone already living on a tight budget could be left in real hardship and struggling to meet their essential living costs such as rent and food.

Ms Todd said: “One of the key questions is how HMRC will assess what is affordable where a taxpayer has not engaged, or cannot engage with them. Without up-to-date information about an individual’s circumstances, there is a risk that deductions could be set at an unaffordable level.

“HMRC will need to be confident that they can correctly identify potentially vulnerable taxpayers and distinguish them from those who are simply choosing not to engage.

“We welcome HMRC’s recognition that strong safeguards and clear routes for taxpayers to challenge decisions will be essential.”

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If you think you may be affected by the proposed changes, or have any other concerns about your tax position and the current tax regime, then please contact us and we will do everything we can to assist you.

Deadline nearing for those claiming roll-over relief in 2022/23

Business owners who need to claim roll-over relief for the 2022/23 tax year are being reminded by HMRC that if they made a provisional claim for business asset roll-over relief in their self-assessment for that year and haven’t yet replaced it with a final claim, they need to do so.

Roll-over relief can be claimed by a taxpayer who is trading and where a qualifying asset is sold and a new qualifying asset is acquired within a set period. If a valid claim is made, then the payment of Capital Gains Tax (CGT) on the sale of the original asset can be deferred.

A provisional claim would be made if the taxpayer intended to buy the replacement asset, but has not yet done so by the time they need to claim roll-over relief, says the ICAEW. But once the asset is acquired, they need to replace the provisional claim with the final valid claim.

When is the deadline for claims?

The final deadline for these claims is January 31, 2027, and if the final valid claim isn’t made by this time, then HMRC will withdraw any provisional claim, which would mean CGT would need to be paid.

The letter being sent out to taxpayers now by HMRC shows how to make a valid final claim, including what information needs to be provided for the claim to be accepted by HMRC. You can use form HS290 to make the claim, and anyone who doesn’t intend to buy a qualifying asset before the January 31, 2027, deadline should contact HMRC now.

This will start the process of HMRC withdrawing the provisional claim early, reducing the amount of interest you may owe on any tax due. If you are intending to buy the asset either shortly before or soon after the January 31, 2027, deadline, then HMRC will consider “reasonable time” to make the final claim, according to the ICAEW.

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If you need help with roll-over relief, then please get in touch with us and we will do what we can to help you.

Long-awaited pension dashboard expected next year

Pension dashboards, which are designed to make it easier for people to decide where their pension is best placed, are expected to be released next year along with league tables for pensions. The aim is to allow pension savers to see how their workplace pension schemes compare to other pension providers in the marketplace.

The pension dashboard has been discussed for years, by everyone from the government to scheme providers and financial advisers. But the FCA and the TPR are consulting on a new ‘Value for Money’ framework for workplace pensions, and assessments are due to be published from 2028.

Savers will be able to compare providers, including workplace pensions, based on charges, returns, and quality of service once the dashboards are fully set up. It will help people to get the best value for money for their pension contributions by checking their provider against the league table.

What benefits will people see?

The aim of the pension dashboard has always been to create an easier way of comparing pension providers for the general public. Pensions at their simplest are tax-efficient savings vehicles – you put in £80 as a basic rate taxpayer and the government gives you tax relief of £20 to make your contribution up to £100. Higher rate and additional rate taxpayers would pay £60 and £55 respectively, and get £40 and £45 respectively in tax relief to make up a £100 contribution.

Rachel Vahey, head of public policy at AJ Bell, said: “The Government has set out an ambitious programme of reforms that has the potential to transform workplace pensions, making it easier for people to compare pensions and switch to get a better deal.

“Pension savers deserve to know how well their pension scheme is performing. ‘Traffic lights’ league tables must be easy to understand and help people make more informed decisions about their retirement savings, rather than burying them in technical language or complex metrics.”

What will I be able to see through the pension dashboard?

You will be able to see all the details of all your pension plans in one place once the dashboard is launched. This will include both state and private pensions, and which pension scheme provider your pension is with. You will see contact details, and the current value of the pension, along with a prediction of what it could generate for you in income once you reach retirement age, according to AJ Bell.

The first incarnation of the dashboard will be accessed through MoneyHelper, which is run by the Money and Pensions Service (MaPS). But it’s expected that other companies, such as pension providers, banks or your employer, will all offer a pension dashboard eventually. The MaPS dashboard is expected to be available to the public in financial year 2027/28.

Ms Vahey said: “Greater transparency should empower people to take control of their retirement planning. Whether that means increasing contributions, reviewing their investment strategy or consolidating pension pots with a provider that better meets their needs for better information, service, price, or wider investment choice, giving them more opportunity to improve their long-term retirement outcomes.”

What else can we expect?

Aside from the impending launch of the pension dashboard, and the league table of pension funds, the Government has also set out a ‘roadmap’ timetable for workplace pensions reform. This includes aiming to create 20 defined contribution ‘megafunds’. A defined contribution pension is a pension where what you eventually receive depends on what you put in and how that money has grown over time.

It has also suggested other reforms, such as the consolidation of dormant small pension pots, and introducing a series of default retirement options for workers saving into their workplace pension. These so-called ‘guided retirement’ options, which are due to start from 2029, could include pension income solutions such as a combination of annuity and drawdown, or a collective solution, designed by pension trustees and providers. You wouldn’t have to accept these options, you could be offered other solutions, or even transfer your pension elsewhere if you prefer.

Larger workplace pension schemes will have to publish Value for Money assessments from 2028, leaving them competing to show how well their scheme is performing. This is based on cost, investment returns, and how good the scheme’s administrative support is. They will be scored from red to green in a traffic light system, which goes from poor value, to outperforming on value. The worst performers will be expected to improve, or close.

Other changes to workplace pensions include the scale provisions, which require “all defined contribution multi-employer schemes which are used for automatic enrolment to have assets of at least £25 billion in a single main default arrangement”, said Ms Vahey.

She added: “This will mean that some pension savers are moved to different pension schemes, as their workplace pensions go through a transitional period.

“Combined with pensions dashboards, these reforms have the potential to create a new generation of more engaged savers. For the first time, people will be able to see what pension savings they have built up across different providers, alongside clearer information about how well those pensions are delivering for them.”

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If you would like to find out more about how the pension dashboard and other changes will affect you or your business, then please get in touch with us and we will explain what you need to know.