HMRC wants more of your money

Some letters manage to spoil your morning before you have opened them. HMRC has maintained a strong position in that market for years.

But behind the familiar anxiety is a change worth understanding. The government wants to raise more revenue by collecting tax that should already have been paid.

If you pay the right amount, that is a perfectly reasonable ambition. It is also a reason to make sure your financial administration has kept pace with your finances.

A £10 billion ambition

HMRC’s provisional estimate puts the tax gap for 2024/25 at £59.2 billion: the difference between tax expected to be paid and what was actually collected.

The government expects its measures to close that gap to raise an additional £10 billion a year by 2029/30. Funding has been allocated for another 5,500 compliance staff and 2,400 debt-management staff.

The broader modernisation plan is called HMRC’s Transformation Roadmap. It includes greater use of data, automation and artificial intelligence, alongside stronger compliance and debt collection. 

That is quite a lot of people whose day job is to ask further questions.

Meet Connect

One of HMRC’s existing tools is Connect, its data-analysis system. It brings together information from sources including tax returns, banks, online marketplaces and property records to identify possible inconsistencies. It is an established system, now part of a growing emphasis on data-led scrutiny. 

Find out more: Financial Times reporting on Connect

The name sounds like a networking event. The follow-up can be rather less sociable.

This does not mean a computer knows everything or that every discrepancy proves wrongdoing. It means information sitting in different places can be compared. Disorganised paperwork does not make the underlying transactions disappear.

It is also paying people to talk

The newer Strengthened Reward Scheme gives individuals a financial incentive to report serious tax avoidance or evasion.

Where qualifying information leads to at least £1.5 million in tax being collected, an informant could receive between 15% and 30% of the recovered tax, excluding penalties and interest. Rewards are discretionary and subject to eligibility conditions. 

That gives “someone ought to tell the taxman” a rather more commercial flavour.

The scheme targets serious cases. It is not an invitation to earn commission on a neighbour’s untidy receipts.

Honest still needs to be organised

The tax gap is not all deliberate evasion. HMRC attributes 35% of its latest estimate to failure to take reasonable care and another 16% to error. 

Perfectly respectable people can have complicated affairs: several pensions, investments, rental income, business interests and transactions whose significance only becomes clear when someone asks a question later.

An overlooked account, an incorrect purchase cost when calculating a gain, or information never passed to the accountant can create an entirely avoidable problem.

“I thought somebody else was dealing with it” remains popular. It is not much of an operating system.

An enquiry is not a verdict, either. HMRC can misunderstand a transaction or work from incomplete information. Clear records let you explain what happened and challenge an incorrect position, rather than reconstructing several years of financial history from memory.

Your accountant needs complete information. Your financial planner needs to understand the wider arrangements. Where solicitors or trustees are involved, responsibilities need to be clear.

Pay the right amount

Greater scrutiny does not make legitimate tax planning improper. Pensions, ISAs and available reliefs still deserve attention where appropriate, within the rules. Their benefits depend on your circumstances, and tax rules can change.

Tax should also remain part of the decision, rather than become the whole decision. Giving assets away or locking money into an unsuitable arrangement to save tax can leave you worse off overall.

Keep records, check assumptions and coordinate advice before significant transactions. If something has been missed, get help correcting it promptly.

HMRC is entitled to the tax you owe. There is no need to add a voluntary contribution through disorganisation.