The UK tax authority projects £12.9 billion in unpaid tax liabilities by 2025-26, far exceeding the £4.2 billion it had forecast before the pandemic. The total debt owed to HM Revenue and Customs has more than doubled since 2019-20, climbing from £19 billion to £43.8 billion in the same span. This surge stems from a sharp rise in write-offs, now totaling £9.8 billion of the outstanding amount.
Such write-offs occur when HMRC determines debts are unrecoverable, often because companies have closed or individuals have filed for bankruptcy. A write-off is recorded when HMRC decides a debt is irrecoverable because there is no practical way of pursuing the liability, and the NAO links roughly three-quarters of the £12.9 billion forecast loss to such write-offs stemming from company closures and personal bankruptcies.
Backlog of Insolvencies Fuels Tax Write-offs
The National Audit Office report attributes the increase partly to a backlog of insolvency cases that accumulated during pandemic-related collection delays. Business insolvencies rose by 39% between 2019-20 and 2025-26, as courts and HMRC worked through accumulated cases. The number of winding-up petitions HMRC secured through the court rose 185% between 2022-23 and 2025-26. 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 reached approximately 25,000 in 2023, then dipped slightly to 24,000 in 2025, though both figures remain well above pre-pandemic levels. The construction sector faced the highest insolvency rates in the year ending September, according to Insolvency Service data. Industry advisers point to a combination of inflation, raised interest rates, and rising labor costs as key drivers. These pressures include increases in employer National Insurance contributions and the minimum wage following the 2024 Budget.
Rising Tax Burden Exacerbates Debt Crisis
Nimesh Shah of Blick Rothenberg noted that the UK’s tax burden has reached its highest point in decades, and government policies—such as wage increases and labor law reforms—have intensified financial strain on businesses. He said the irony is that the Government increasing the tax burden has had the effect of increasing HMRC’s tax losses. Glen Flannery of law firm CMS observed that formal insolvencies remain at historically raised levels, showing the cumulative effect of inflation, higher interest rates and rising employment costs.
At the end of 2025-26, 8.2 million taxpayers owed HMRC a combined £43.8 billion, equivalent to 4.7% of total tax receipts. Half of that debt had remained unpaid for more than a year. The NAO report also credited HMRC with reducing tax debt from 5.6% of tax receipts in 2022-23 to 4.7% in 2025-26, through measures introduced since 2021, which generated an estimated £10.7 billion in extra revenue.
HMRC’s Response and Future Priorities
Gareth Davies, the Comptroller and Auditor General, who heads the National Audit Office, 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.”