Background to the report

HM Revenue & Customs (HMRC) administers the UK’s tax system. In 2025-26, HMRC collected £938.8 billion in tax, which can then be used by the government to fund public services. When taxpayers fail to make their scheduled payments for their tax liabilities, the overdue amounts are recorded as tax debts. At the end of 2025‑26, 8.2 million taxpayers were in debt to HMRC, with their tax debts totalling £43.8 billion, or 4.7% of total tax receipts. HMRC’s debt management directorate leads its work to follow up and collect these debts, employing approximately 5,600 full-time equivalent staff in 2025-26, with staffing costs of £237 million.

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Since our 2021 report, HMRC has been allocated £1.3 billion of additional funding to be spent between 2021-22 and 2030-31 to, for example, recruit additional debt collection staff, increase its use of private sector debt collection agencies, purchase data from credit reference agencies (CRAs) to segment its debtor population, and introduce a new case management system.

HMRC published its tax debt strategy in October 2023, and in November 2025 published an update, with a particular focus on preventing tax debt and dealing with non-engaged debtors. Since its strategy update, its stated aim has been to reduce the tax debt balance each year as a proportion of receipts. This followed a separate target set by the then Exchequer Secretary to the Treasury in July 2025 that debt must fall to at least pre-pandemic levels. The Exchequer Secretary did not set a time limit to achieve the target.

Scope of the report

This report examines whether HMRC is well placed to reduce the tax debt balance in line with its stated aim while managing the flow of new tax debt. It covers:

  • HMRC’s performance in managing the tax debt balance
  • HMRC’s productivity and use of its resources to manage tax debt
  • HMRC’s strategic approach

Conclusions

HMRC has faced considerable challenges in recent years in managing the tax debt balance, with the pandemic and then the cost-of-living crisis leading to more tax debts and affecting taxpayers’ ability to pay those debts. So HMRC should be given credit for its success in reducing tax debt from 5.6% of tax receipts in 2022‑23 to 4.7% in 2025-26.

A 20% increase in staff between 2023-24 and 2025-26 has been key, but HMRC has also had some success in using credit reference data to understand debtors’ ability and propensity to pay, and targeting its approach accordingly. The measures it has introduced since 2021 have delivered an estimated £10.7 billion in additional revenue.

HMRC aims to continue to reduce tax debt as a proportion of receipts each year and expects it will be between 2.9% and 4.2% by 2029-30. It does not expect to hit the former Exchequer Secretary to the Treasury’s target of 2.5% until after this date. It has proposed policy changes in sensible areas, to help it prevent new tax debts and deal with non-engaged debtors, with debt prevention being key to driving down the debt balance sustainably and cost-effectively in the long term.

HMRC gets a good return on investment from its debt management work: £350 of collected debts for every £1 it spent on staff in 2025-26. Additional staff have brought diminishing returns as they are dealing with lower-value and harder‑to‑reach debts, so HMRC must exploit opportunities to extract more productivity from the staff that it currently has. HMRC has some improvements in train, including a new case management system, and has consulted on introducing direct debits to help eliminate payment errors.

It will need further work to optimise the use of self-serve payment plans and reduce the demand on debt management staff. HMRC has some insight into the aspects of its tax debt strategy that have had the most impact, but it will need a better understanding of which interventions are best in different circumstances if it is to optimise the most productive approach.

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