HM Revenue and Customs recorded £12.9 billion of tax losses in 2025/26, three times the £4.2 billion it recorded in 2019/20, the last year before the pandemic. The National Audit Office, reporting on 23 October, found that HMRC "has also not evaluated the effectiveness of the overall strategy" it uses to collect tax debt.
Losses are debts HMRC stops pursuing. Most are write offs, where there is no practical means of pursuing the liability, driven mainly by company liquidations and personal bankruptcies. The rest are remissions, where HMRC decides not to pursue a debt on value for money or hardship grounds. Losses were 12.7 per cent of the debt HMRC resolved in 2025/26, against 8.9 per cent in 2019/20. The NAO does not say how much of the £12.9 billion could have been avoided.
In July 2025 James Murray, then Exchequer Secretary to the Treasury, wrote in HMRC’s transformation roadmap that "debt must fall each year towards at least pre-pandemic levels." The NAO notes that he "did not set a time limit." HMRC’s own forecasts show it will not meet the target "until 2030-31 at the earliest."
At the end of 2025/26, 8.2 million taxpayers owed HMRC £43.8 billion, 4.7 per cent of tax receipts. In the five years before the pandemic the balance was typically around £15 billion, or 2.5 per cent of receipts. HMRC expects it to fall to between 2.9 and 4.2 per cent by 2029/30.
That share has fallen for three years running, from 5.6 per cent in 2022/23, while HMRC dealt with considerably more new debt: £103.6 billion in 2025/26, around twice the annual average before the pandemic. Since 2021 HMRC has been allocated £1.3 billion of extra funding, running to 2030/31, to recruit debt collection staff, make more use of private sector debt collection agencies, buy credit reference agency data and build a new case management system. It estimates the measures have brought in £10.7 billion against spending of £368 million, 13 per cent more than first forecast, mainly because additional staff and private agencies returned more than expected. Debt management staff rose by 20 per cent, or 920 full time equivalent posts, between 2023/24 and 2025/26, and each additional £1 spent on staff brought in £31 on average.
The NAO found that HMRC "has not formally evaluated or embedded learning from some significant policy measures, particularly its approach to hiring and allocating new staff", and that it "only has limited evidence on the effectiveness of its enforcement tools." Its research into the debt journeys that set how often and in what tone it contacts debtors found they "have had little impact on response and repayment rates." Buying credit reference data to vary its approach according to debtors’ ability and propensity to pay has brought an estimated £70 million in benefits against a cost of about £623,000. HMRC has a dedicated evaluation function and a formal evaluation framework for debt management, but its end to end analysis of debt "has not yet produced results due to issues with HMRC’s IT infrastructure."
Debt more than a year old and not covered by a payment plan stood at £18.6 billion at the end of 2025/26, against £5.3 billion at the end of 2019/20. HMRC estimates it collects 81.5 per cent of debts less than a year overdue but only 15 per cent of those more than two years overdue. It estimates it may be unable to collect 46 per cent of the £43.8 billion balance. That is a forecast about existing debt, separate from the £12.9 billion already recorded as lost, and the two cannot be added together.
Debt collectors can have to work through up to 17 systems to deal with a straightforward case, and through mismatches between the data on the case management system and HMRC’s accounting records, while backlogs and bottlenecks hold up cases. HMRC is replacing its debt case management system at a whole life cost of £272 million, including five years of running costs after implementation, and forecasts benefits of at least £643 million between 2021/22 and 2029/30. It has so far rolled the system out to only a small subset of tax regimes. Moving Corporation Tax debts depends on resolving problems with older technology, with a solution expected around the start of 2028. The NAO recommended that contingency planning be built into the programme’s governance at key milestones, including for a failure to migrate Corporation Tax debts.
The forecast also depends on how much new debt taxpayers run up. HMRC’s central forecast assumes new debt equal to 10.5 per cent of tax receipts each year, but it averaged 11.6 per cent between 2023/24 and 2025/26. The NAO warns that a shock similar to the pandemic "would make it difficult for HMRC to meet even its upper-bound forecast."
Around 45 per cent of tax debts are resolved within a month and 90 per cent within a year, and HMRC says debts that arise from forgetting to pay or short term cash flow problems are largely preventable. The NAO concluded that HMRC "should be given credit for its success in reducing tax debt" and that preventing debt is the key to reducing the balance over the long term.
The Public Accounts Committee said in 2022 that it lacked confidence in HMRC’s ability to return tax debt to pre pandemic levels. In 2025 it found that HMRC’s investment in debt management "had not sufficiently reduced the amount of tax owed." The committee plans to question senior HMRC officials on the new report.
HMRC’s debt management directorate leads its collection work. John-Paul Marks, HMRC’s First Permanent Secretary and Chief Executive, is its Principal Accounting Officer. HMRC’s annual report for 2025/26 names Dan Tomlinson, Exchequer Secretary since 1 September 2025, as the minister responsible for HMRC. Murray’s target, which he set without a deadline, remains in place. HMRC does not expect to meet it before 2030/31.