HMRC concedes £19bn in unpaid taxes unlikely to be recovered amidst soaring call centre failures

HMRC has admitted it is unlikely to recover more than £19 billion in unpaid tax, as the department faces a huge rise in uncollected tax debts and a huge increase in customer service failures.

According to the latest annual report from HMRC, the total amount of unpaid tax has risen to £43bn, almost three times the level seen before the pandemic. The proportion of these debts unlikely to be collected has risen to 45%, up from 32% the year before, due to a build-up of old debts and the economic conditions that have hit businesses and individuals hard.

The report also revealed worrying shortcomings in HMRC’s customer service. The service targets set by the previous government were all but missed, with taxpayers facing unprecedented delays and frustration. Some 56,000 customers were disconnected after waiting on the phone for more than an hour – seven times more than the 6,900 affected the previous year. The average waiting time for phone calls rose to 23 minutes and 14 seconds, a 42 per cent increase on last year.

Sarah Olney, the Liberal Democrat treasury spokeswoman, criticised the situation, attributing it to “years of Tory economic sabotage”, and urged the Labour government to “properly invest in the organisation” to break what she described as a “downward cycle”.

In addition to the challenges around unpaid tax, HMRC has also acknowledged significant losses due to error and fraud in pandemic-related tax schemes, particularly those designed to encourage research and development in businesses. The department has lost an estimated £4.1bn through these schemes since 2020, with £1.2bn lost to the scheme for small businesses.

A previous investigation by The Times revealed that companies were exploiting these R&D tax breaks for dubious “innovations”, such as adding vegan options to pub menus or adjusting washing temperatures in laundries. Tax consultants have criticised HMRC’s oversight, claiming that it “almost never verifies” claims under the scheme, effectively turning it into “free money” for companies.

The department has since revised its estimate of fraud under the R&D scheme, with the figure rising from 5.5 per cent to 25.8 per cent over the past year. Gareth Davies, the independent auditor of government departments, said the level of fraud was “among the highest reported across all government spending programmes, including those run in response to Covid-19”.

A HMRC spokesperson stressed the importance of paying tax on time to fund public services, saying: “We are doing everything we can to help those who deal with us get out of debt. With R&D claims, public money is at stake, which is why we have increased compliance activity.”

The challenges facing the department in recovering unpaid tax, addressing systemic issues in customer service and preventing fraud highlight the wider difficulties HMRC faces in the post-pandemic economic landscape.