Tax Administration

Boosting HMRC resources

As part of a package of measures to close the so-called Tax Gap, the government has earlier announced it is recruiting an additional 5,000 compliance staff - with the first 200 starting training in November - and providing funding for 1,800 debt management staff. The intention is to ensure more of the tax that is owed is paid and that more taxpayers pay outstanding tax due. The government will invest £1.4bn over the next five years on the recruitment drive and estimates it will raise £2.7bn per year in additional revenue by 2029/30.

The government will also increase collaboration between HMRC, Companies House, and the Insolvency Service to tackle those using contrived corporate insolvencies and dissolutions, often referred to as "phoenixism", to evade tax. The government will expand HMRC's counter-fraud capability to address high value and high harm tax fraud.

The government is also investing in modernising IT and data systems to improve HMRC's productivity and improve taxpayers' experience of dealing with the tax system, delivering the modern and digital service businesses and individuals expect.

Given the low levels of "customer" satisfaction with HMRC helplines, it can only be hoped that some of the investment will go to improving this frontline service.

Tax policy making and simplification

The Budget Red Book notes that a stable and predictable tax system is vital to create the conditions for sustained economic growth: it provides businesses with the stability and certainty needed to make long-term investment decisions, it ensures that taxpayers pay the right amount of tax the first time round, and it reduces the administrative burden on taxpayers allowing businesses and workers to focus on adding value to the economy.

With this in mind, the government will engage with stakeholders over the coming months to understand their views on where the tax policy making process works well, and what could be improved.

The government will simplify the tax system and will take this forward as part of its three strategic priorities for HMRC: closing the tax gap, modernisation and reform, and improving service. The government will announce a package of measures to simplify tax administration and improve the customer experience in spring 2025 with a focus on reducing burdens on small businesses. The government will meet stakeholders to understand the priorities for administration and simplification, ensuring that this work is driven by the views of taxpayers.

Finally, there is a promise to stick to a single major fiscal event per year. This is, however, a promise that tax lawyers have heard many times down the years and it remains a promise that is yet to be fulfilled.

Broadening Tax Conditionality

HMRC has launched a consultation aimed at extending tax conditionality checks to the waste, animal welfare, and transport sectors. This move is part of a broader effort to ensure tax compliance across various industries and to tackle the hidden economy.

The focus is on integrating tax compliance checks into the licensing processes for specific sectors, with the consultation running from 30 October 2024 to 31 January 2025. Stakeholders, including businesses and licensing bodies within these sectors, are encouraged to contribute their insights.

Following the successful implementation of tax conditionality in the taxi and scrap metal sectors, the initiative seeks to level the playing field for compliant businesses by ensuring that all licence holders meet their tax obligations.

The proposed expansion requires businesses in the targeted sectors to be prepared for compliance with new tax checks as part of their licensing requirements. This development underscores the importance of understanding and adhering to tax registration obligations to avoid penalties and ensure business continuity.

Tackling non-compliance in the umbrella company market

The UK government has recognised a significant issue within the temporary labour market, particularly in the context of umbrella companies. These companies, which act as intermediaries between workers and employers, have been found to frequently engage in non-compliant activities, including tax avoidance and fraud. This has not only led to substantial losses for the Exchequer, estimated at £500m due to tax avoidance schemes in 2022/2023 alone, but also placed workers at risk of facing large unexpected tax bills.

In response, the government announced a new legislative measure in the 2024 Budget aimed at tackling these challenges. Starting from April 2026, the responsibility for ensuring that Pay As You Earn (PAYE) taxes are correctly accounted for will shift from the umbrella companies to the recruitment agencies that supply workers to their end clients. If no agency is involved, this responsibility will fall to the end client directly. This change is intended to improve compliance, protect workers from non-compliant tax arrangements, and ensure a fairer playing-field for all businesses in the labour supply chain.

The measure is expected to safeguard against the tax loss arising from non-compliance which is estimated to be £2.8bn across the period to 2030. While this change will not affect the underlying tax and National Insurance contributions liabilities for workers employed through umbrella companies, it aims to make the tax position consistent across different types of agency workers. The government plans to work closely with businesses and the recruitment sector to smoothly implement this reform and will in the near future provide further details, draft legislation, and technical guidance.

Call for evidence: personal tax offshore anti-avoidance legislation

On 29 July 2024, the government announced its intention to conduct a review of certain offshore anti-avoidance legislation in recognition of the likelihood that the removal of non-domicile status from 6 April 2025 may bring new offshore structures into the scope of these rules. HMRC has now issued a call for evidence in connection with this review, which covers the Transfer of Assets Abroad, Settlements and Capital Gains Tax legislation.

The call for evidence runs from 30 October 2024 to 19 February 2025 and will be followed by a government consultation on reform proposals in 2025. Further details on the call for evidence can be found here.

Policy paper: tackling offshore tax non-compliance

HMRC has published a paper focussing on its approach to offshore tax non-compliance in respect of income covered by AEOI (Automatic Exchange of Information).

The paper first explains some of the measures adopted to date in relation to tax transparency and offshore non-compliance and then sets out some further measures to address what it calls the remaining challenges on offshore tax non-compliance. The further measures include 'significant' additional resources, enhanced analytical capabilities, better use of data and intelligence drawn from domestic and international data sharing sources, and further efforts with international partners to plug remaining gaps in global tax transparency frameworks.

Consultation outcome: raising standards in the tax advice market

HMRC has published the outcome of a consultation into standards in the tax advice market, announcing that, from April 2026, all tax advisers who interact with HMRC on behalf of a client will have to register with HMRC before doing so. HMRC will publish a technical consultation on the legislation ahead of Budget 2025 and will communicate further detail to relevant stakeholders in due course.

HMRC explains that it intends to consult on further reforms to (1) improve HMRC's ability to act against a tax adviser where the adviser facilitates a taxpayer's non-compliance and (2) require advisers to obtain an Advanced Electronic Signature from their client if they wish to submit an income tax repayment claim on their behalf.

The Tax Administration Framework Review: enquiry and assessment powers, penalties, safeguards

In February 2024, the government published a call for evidence, "The Tax Administration Framework Review: enquiry and assessment powers, penalties, safeguards". This covered a range of reform opportunities within the existing UK tax administration framework.

HMRC has now published a summary of responses to the call for evidence, announcing that it intends to consult further on three specific areas:

• potential reforms designed to make it quicker and easier for taxpayers to correct mistakes early compared to a lengthy investigation;
• opportunities to reform HMRC's use of behavioural penalties to make these simpler and more effective; and
• ways to improve taxpayer access to alternative dispute resolution and statutory review to help resolve more disputes before they reach the Tax Tribunals.  

At the same time, HMRC has opened a consultation in relation to the first of these three areas, seeking views on the proportionality and efficiency of HMRC's current correction powers and their potential modernisation and reform, as well as the potential for a new power which would require taxpayers to self-correct their return.

The consultation runs from 30 October 2024 to 22 January 2025. Further details on the consultation can be found here.

Evaluation of the change to UK Deemed domicile policy 2017

The government has published an evaluation report looking at the Exchequer revenue change and mobility response of deemed domiciled taxpayers as a result of the 2017 Deemed Domicile reforms.

The reforms meant that individuals born in the UK with a UK domicile of origin and those who had been UK residents for at least 15 of the previous 20 tax years were deemed domiciled for tax purposes. This 2017 change aimed to increase tax revenue by bringing more people into the scope of UK taxation on their worldwide income and gains.

The new report finds that the majority of taxpayers impacted by the reforms remained in the UK and, on average, made higher tax contributions than expected. The evaluation indicates that the reforms have successfully raised additional revenue from deemed domiciled taxpayers, with over £700 million collected in the tax year ending 2018 and over £1 billion by the tax year ending 2020. The report also concludes that the UK remains an attractive place for non-domiciled taxpayers, with many choosing to stay due to factors such as family, employment ties, and cultural connections.