News
Spring Statement 2025 Takes Aim at the Tax Gap
03 Apr 2025
Following the October Budget, the Spring Statement 2025 continues the government’s drive for economic growth and prosperity. While sweeping tax changes are mercifully absent, the spotlight has shifted firmly onto tax compliance. The message is clear: non-compliance will no longer be tolerated.
A New Era of Compliance: What’s Changing?
The government’s approach focuses on reducing the tax gap by increasing enforcement, deterring tax avoidance, and collecting unpaid debts. Key measures include:
- Debt Collection Overhaul:
A “test and learn” pilot program aims to streamline the collection of long-standing unpaid taxes, focusing on efficiency and effectiveness. - Boosted Compliance Workforce:
An additional 500 compliance officers will be recruited, backed by a £100 million investment. This move aims to enhance HMRC’s capacity to track down unpaid taxes and enforce compliance, while making processes more efficient in the long-term. - Higher Late Payment Penalties:
From April 2026, new penalty rates will apply for taxpayers in the Making Tax Digital (MTD) program:- 15 days late: Penalty rises from 2% to 3%.
- 30 days late: Penalty rises from 2% to 3%.
- 31+ days late: Penalty jumps from 4% to 10%.
VAT taxpayers will see these changes with effect from next month, while self-employed individuals and landlords earning at least £50,000 annually will face the updated penalties from April 2026.
- MTD for Income Tax Extended:
The scope of MTD for Income Tax will expand to include self-employed individuals and landlords earning £20,000 or more annually from April 2028.
Cracking Down on Tax Avoidance
To combat tax avoidance, the government is taking bold new steps:
- Whistleblower Incentives and Enforcement:
To bolster enforcement, HMRC will reward whistleblowers with a share of proceeds from successful tax avoidance investigations in a move that emulates similar schemes in place across the pond in the US and Canada. Additionally, HMRC seek to increase the number of annual charging decisions for the most harmful tax fraud committed by 20%. - Consultation on Tougher Measures on Promoters of Tax Avoidance, including:
- New penalties for failing to disclose certain tax-avoidance arrangements, potentially carrying criminal charges and unlimited fines.
- A “Universal Stop Notice” will prevent promoters from using “phoenix” companies to continue prohibited schemes.
- Expanded powers for HMRC to investigate solicitors and barristers currently protected by legal professional privilege.
- Consultations to Tackle Non-Compliance:
The Spring Statement also introduces consultations on behavioural penalty reform, advance clearance for R&D tax relief, and improved use of third-party data.
Practical Changes for Taxpayers
For the majority of compliant individuals, the practical implications of the statement are limited, particularly in the shadow of the landmark October budget. However, there are some key takeaways:
- High Income Child Benefit Charge (HICBC) – payment through PAYE
From the summer, employed individuals subject to the HICBC will be able to make payment through their employer’s payroll, rather than having to file a tax return, taking away this unnecessary administrative burden.
- Interest Rate Increase for Late Payments:
The HMRC interest rate for late payments, linked to the Bank of England base rate, now stands at 7.00% as of 25 February 2025. This measure is expected to raise £1.2 billion over the course of the parliament. - MTD and late payment penalties
As noted above, late payment penalties are rising for taxes reported through Making Tax Digital.
Conclusion: a clear warning, but industry scepticism lingers
While the measures reflect a firm stance against tax non-compliance, many tax agents and advisors remain sceptical. Successive governments have invested heavily in HMRC, yet service levels continue to fall short, causing frustration among compliant taxpayers. Without significant improvements in service delivery, HMRC’s capacity to effectively enforce these new measures appears questionable.
Nevertheless, the Spring Statement 2025 delivers a strong message: those who evade their tax obligations will face increasing scrutiny, tougher penalties, and enhanced enforcement. For those navigating the increasingly complex tax landscape, seeking professional advice remains crucial to stay ahead of these changes.
Contact us if you need to talk to a tax expert.
