Amongst the Autumn Budget’s headline-grabbing increases to employer NICs and CGT (designed to contribute to an additional £40bn of tax revenue), Labour has unveiled further details on their “most ambitious ever package to close the tax gap” which they estimate will raise a further £6.5bn a year by 2029-30. 

Back in April when Labour published their plan to close the tax gap, there was a real focus on tackling tax avoidance and evasion to, as Rachel Reeves put it, “take on the tax dodgers”. However, avoidance is the smallest portion of the tax gap at just 4% and, while evasion (including the “hidden economy” which is also a form of evasion) makes up 19% of the tax gap, the main contributor to the gap at 30% is taxpayers' failing to take reasonable care. It was, therefore, evident that while targeting tax evasion may help to reduce the tax gap (which would, clearly, be a positive result), Labour would also need to look to other areas of compliance to raise the large sums they were pledging.

The Budget now reveals where Labour are anticipating the additional tax revenue will come from and, while there are a number of measures that target avoidance and evasion, the bulk of the £6.5bn in 2028-29 is estimated to come from the increased collection of overdue tax debt (£2bn), and the increased collection of tax due (£2.7bn). It is also estimated that further unpaid tax of £215m will be brought in as a result of a 1.5% increase to the late payment interest rate, bringing it to a sizeable (some may say punitive) 4% above base rate. While these figures will encompass tax due as a result of avoidance and evasion, they also include tax due as a result of a much broader range of non-compliance activity. To achieve this significant increase in tax collection, there are to be 5,000 additional compliance staff hired (consistent with Labour’s initial plan) and a further 1,800 debt management staff.

A consultation published alongside the Budget, gives an idea of “new ways” these additional staff may collect some of the missing billions, through a review of the tax administration framework. This follows on from the February call for evidence on HMRC’s enquiry and assessment powers, penalties and safeguard. The focus of the current consultation is on “exploring whether HMRC’s approach to correcting mistakes by large numbers of taxpayers could be improved” which, as noted, makes up a big chunk of the tax gap. Measures suggested include reforms to existing powers, such as introducing a “partial enquiry” which would allow HMRC to open an enquiry into an aspect of a return without affecting the normal enquiry window, as well as a new power to require taxpayers to self-correct their return. It is proposed that the requirement to self-correct would oblige taxpayers to amend their returns or explain why they did not need to, with sanctions in place if the taxpayer failed to do so.  

As for specific measures to be introduced in the avoidance space, perhaps the strongest is the plan to tackle non-compliance in the umbrella company market from April 2026. Umbrella companies are commonly used as intermediaries to employ temporary or casual workers on behalf of agencies and end clients. The plan will shift the responsibility for deducting income tax and NICs from a worker’s pay from the umbrella company to the employment agency or, where there is no agency, to the end user. This means that, even where an umbrella company is used to operate payroll, the agency or end user will bear the burden of any shortfall paid to HMRC. Agencies and businesses who employ casual or temporary workers will need to review their employment supply chains and carefully scrutinise any umbrella companies they use going forward.

This Budget also signals a strong focus on the actions of tax advisers and their role in facilitating non-compliance, with mandatory registration of tax advisers who interact with HMRC on behalf of clients from April 2026 and further measures to strengthen HMRC’s powers in the tax advice market to come. We can also expect to see further measures to tackle promoters of marketed tax avoidance, with a consultation to be published in early 2025.

Also targeted at avoidance and evasion is the previously foreshadowed focus on offshore non-compliance. As tax gap estimates do not include all of the offshore tax gap, it is difficult to know how productive the resources Labour are intending to commit to this area will be.

In light of these imminent new measures and, for the first time, with a government minister as Chair of HMRC’s Board, it is clear that taxpayers (and, indeed, HMRC themselves) can expect increased scrutiny.