HMRC expects £12.9bn of tax debt to go uncollected, three times the level recorded before the pandemic, according to a National Audit Office report published today.
The public spending watchdog said the amount of tax debt HMRC does not expect to recover rose from £4.2bn in 2019-20 to £12.9bn in 2025-26. Over the same period, the total owed to the tax authority more than doubled, from £19bn to £43.8bn.
According to the NAO, £9.8bn of the £12.9bn, around three quarters, was made up of write-offs, which it linked to a rise in company closures and personal bankruptcies. A write-off is recorded when HMRC decides a debt is irrecoverable because there is no practical way of pursuing the liability.
The NAO’s analysis found that business insolvencies rose 39 per cent between 2019-20 and 2025-26.
Part of that increase reflects the courts and HMRC working through a backlog of insolvencies and bankruptcies that built up during the pandemic, when the tax office suspended its debt collection activity.
HMRC can force a company into liquidation if it is persistently in tax arrears. The number of winding-up petitions HMRC secured through the court rose 185 per cent between 2022-23 and 2025-26, the NAO said.
John Hood, of accountancy firm Moore Kingston Smith, said: “HMRC was reluctant during and after the pandemic to wind up companies, but the situation has changed over the past 18 months.
“HMRC has increased resources to enforce the debt and where necessary will remove companies that have no real prospect of paying their debts.”
Annual company insolvencies rose from around 14,000 in 2021 to 25,000 in 2023 and stood at about 24,000 in 2025, a level that has been broadly flat since 2024. Construction recorded the highest number of insolvencies of any sector in the 12 months to September, according to the latest Insolvency Service figures.
Advisers pointed to a combination of cost pressures on companies. Glen Flannery, of law firm CMS, said: “Formal insolvencies remain at historically elevated levels.
“What we’re seeing now is the cumulative effect of inflation, higher interest rates and increased employment costs landing at the same time.”
Employer National Insurance contributions and the minimum wage both increased following the autumn Budget in 2024. Insolvency specialists have previously cited higher costs, tighter credit and weak demand as the main sources of strain on companies.
Nimesh Shah, of accountancy firm Blick Rothenberg, said: “The UK tax burden is at its highest levels in modern peace time and changes to tax, labour laws and the minimum wage increase have added significant burden to businesses.
“The irony is that the Government increasing the tax burden has had the effect of increasing HMRC’s tax losses.”
The NAO found that 8.2 million taxpayers were in debt to HMRC at the end of 2025-26, owing £43.8bn in total, equivalent to 4.7 per cent of tax receipts. Half of that debt was more than a year old, the watchdog said.
The NAO report also credited HMRC with reducing tax debt from 5.6 per cent of tax receipts in 2022-23 to 4.7 per cent in 2025-26. It said measures introduced since 2021 had delivered an estimated £10.7bn in additional revenue.
Gareth Davies, the Comptroller and Auditor General, who heads the NAO, said: “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 in train but needs to continue its efforts to get more productivity out of its staff and systems.”
A spokesman for HMRC said: “We welcome this report, which recognises the progress we’re making in collecting the vast majority of tax debts while supporting customers who owe tax.
“We make it easy for those who can pay, support those who need help, and take firm action against those who choose not to engage with us about their tax debts.”
