HMRC's management of tax debt: what the NAO report found

The National Audit Office (NAO) found that 8.2 million taxpayers owed HMRC £43.8 billion at the end of 2025-26, equal to 4.7% of tax receipts. HMRC has brought the ratio down from a peak of 5.6% in 2022-23, but debt that is more than a year old and not on a payment plan has more than tripled since before the pandemic. The report, HC 617, was published on 23 October 2026.

What did the NAO report find?

HMRC is reducing tax debt, but the remaining debt is older and harder to collect. The NAO report gives these headline figures for 2025-26.

HMRC collected £938.8 billion in tax in 2025-26. Before the pandemic, debt averaged around £15 billion, or 2.5% of receipts, according to the NAO press release.

How has tax debt changed since the pandemic?

Debt as a share of receipts has fallen every year since 2022-23. ICAEW’s summary of the report, published on 26 October 2026, gives this trend:

• 2021-22: 5.5%
• 2022-23: 5.6%
• 2023-24: 5.2%
• 2024-25: 5.0%
• 2025-26: 4.7%

HMRC forecasts debt of 2.9% to 4.2% of receipts by 2029-30. It does not expect to reach the pre-pandemic level of 2.5% until after 2029-30. The target set by the Exchequer Secretary in July 2025 is for debt to fall to at least pre-pandemic levels, with no deadline.

Why is older debt the main problem?

Old debts are much less likely to be paid. HMRC estimates it collects 81.5% of debts less than one year overdue, but only 15% of debts more than two years overdue, ICAEW reports.

About half of the remaining balance is more than a year old. Debt older than a year and not on a payment plan grew from £5.3 billion before the pandemic to £18.6 billion at the end of 2025-26.

Most new debt is cleared quickly. Nearly half of new debts are paid within a month and 90% within a year. About 60% of new debts in 2025-26 were under £500.

How much is HMRC writing off?

Revenue losses reached £12.9 billion in 2025-26, made up of £9.8 billion of write-offs and £3.1 billion of remissions. That compares with £7.4 billion in 2024-25 and £4.2 billion in 2019-20.

HMRC links the rise to insolvency cases delayed by pandemic court restrictions now working through, and to the after-effects of pandemic support schemes.

What has HMRC done so far?

HMRC has added staff and data. The NAO says:

• debt management employed about 5,600 full-time equivalent staff in 2025-26, at a cost of £237 million
• staff numbers rose by 20% between 2023-24 and 2025-26
• HMRC received £1.3 billion of extra funding covering 2021-22 to 2030-31
• measures since 2021 raised an estimated £10.7 billion, for £368 million of spending
• HMRC collected about £350 for every £1 spent on debt staff in 2025-26

The return per £1 is falling because the extra staff now work on smaller and harder debts. HMRC also uses credit reference data to judge whether a debtor can pay, and is building a new case management system.

What did the NAO recommend?

The NAO wants HMRC to prevent debt and act faster when it arises. Gareth Davies, head of the NAO, said HMRC “should now focus on preventing avoidable debt and acting quickly when debts arise.”

1. Improve the productivity of debt management staff.
2. Deliver the new debt case management system and manage its risks.
3. Make payment plans more automated and easier to manage online.
4. Use better evidence on which interventions work for which debtors.
5. Update its lessons from the pandemic and later shocks to prepare for future crises.

What it means for clients

HMRC is moving towards earlier, automatic collection. Budget 2026 on 28 October set out several measures in this direction:

• compulsory Direct Debit instructions for VAT and PAYE from April 2029; see Direct Debit for VAT and PAYE
• smaller, more regular payments on account from April 2029; see payments on account reform
• deductions from bank accounts for lower value debts from July 2029; see direct recovery of tax debts

Late payment interest also rises to 8.00% from 24 November 2026, so unpaid debt gets more expensive. See HMRC late payment interest.

What advisers should do

1. Contact clients with overdue tax before HMRC escalates, as old debts attract firmer action.
2. Set up a payment plan early for clients who cannot pay in full; GOV.UK explains what to do if you cannot pay.
3. Review clients with repeated small debts, such as late VAT, and move them to Direct Debit now.
4. Read our guide on HMRC debt you cannot pay before the January 2027 deadline.

Frequently asked questions

How much tax is owed to HMRC?

The NAO says 8.2 million taxpayers owed HMRC £43.8 billion at the end of 2025-26, which is 4.7% of tax receipts.

When was the NAO tax debt report published?

The NAO published HMRC’s management of tax debt (HC 617) on 23 October 2026.

How much tax debt does HMRC expect never to collect?

HMRC estimates that 46% of the debt balance at the end of 2025-26 may not be collected. It wrote off or remitted £12.9 billion in 2025-26.

When will tax debt return to pre-pandemic levels?

HMRC does not expect debt to fall to 2.5% of receipts until after 2029-30. It forecasts 2.9% to 4.2% by 2029-30.

What did the NAO recommend HMRC do?

It recommended better staff productivity, safe delivery of the new case management system, more automated payment plans, better evidence on what works and updated crisis planning.