UK Spring Statement 2025: chancellor's raft of tax measures signal ramping up of compliance activity

The UK chancellor, Rachel Reeves, delivered her spring statement on 26 March, which outlined the government's plans to introduce further measures designed to close the "tax gap": the difference between the amount of tax that should, in theory, be paid to HMRC and what is actually paid. The measures aim to raise a further £1 billion by the end of the forecast.

These measures were not surprising, following on from the Labour Party's pre-election plans for closing the tax gap and the ambitious package of anti-avoidance measures announced at the Autumn Budget 2024. A focus on ramping up compliance activity is inevitable while the government continues to rule out major tax rises.

Increased prosecutions

The spring statement sets out how the government intends to take stronger measures against tax fraud, which includes expanding its counter-fraud capability in order to increase the number of decisions to prosecute for the most serious fraud by 20% by 2029-30.

To secure this target, the statement anticipates launching additional criminal investigations to help focus on delivering a "strong deterrent". HMRC conduct criminal and civil investigations under separate processes. At present, HMRC's policy is to deal with cases of suspected tax fraud by using a civil procedure known as "Code of Practice 9", wherever it is appropriate. Broadly, if individuals are offered the opportunity to make a full disclosure of fraudulent behaviour and pay any amounts due, HMRC, in return, will agree not to open a criminal investigation. Criminal investigation is normally reserved for cases where HMRC wants to establish a deterrent or the conduct involved means that only a criminal sanction would be appropriate. The new prosecution target is therefore likely to see a switch from Code of Practice 9 (or other civil procedures) in some cases.

The statement also makes clear that the prosecution target will include tackling tax fraud "facilitated by those in large corporations". Although not expressly stated, this is a reference to the Criminal Finances Act 2017 (CFA) which introduced corporate criminal offences for failing to prevent the facilitation of tax evasion.  This echoes the Labour Party's statements relating to tax disputes during the general election. It is the clearest signal yet that there might soon see the first CFA prosecution and that this is likely to be reserved for a high-profile corporate to establish a "strong deterrent".

US-style whistleblower scheme

HMRC will launch a new reward scheme later in 2025 targeting "serious non‑compliance in large corporates, wealthy individuals, offshore and avoidance schemes". The scheme will be modelled on US and Canadian whistleblower schemes, rewarding informants with compensation linked to a percentage of any tax taken as a result of their actions.  

Specific details of the new scheme are yet to be announced. HMRC is currently considering what level of compensation might be appropriate, but an HM Treasury press release on reform of tax returns indicated that informants could expect to receive "significant" amounts. Under the US scheme, for example, the Internal Revenue Service currently pays 15-30% of the relevant proceeds collected provided certain conditions are satisfied. This may inevitably incentivise "bad faith" actors to make misleading or frivolous claims – this will be the subject to a separate article soon.

Tackling tax debt

At the end of December 2024, the amount of tax debt owed by taxpayers to HMRC was over £44 billion (more than double the level five years ago). The spring statement outlines plans for expanding and modernising the debt recovery system. This includes the recruitment of 500 more HMRC compliance staff (in addition to the recruitment of 5,000 additional staff as announced at last autumn's Budget).

HMRC, Companies House and the Insolvency Service are also delivering a joint plan to tackle those using contrived insolvencies to evade tax and write off debts owed to others. This includes increasing the use of upfront payment demands, making directors personally liable for company taxes and increasing the number of enforcement sanctions to double the amount of tax protected to £250 million by 2026-27.

Increased resources to tackle offshore tax non-compliance

As part of the overall investment in HMRC resourcing, HMRC is apparently "overhauling its approach to offshore tax non-compliance" by recruiting experts in private sector wealth management and deploying AI and advanced analytics to help target those trying to hide their wealth. The government plans to increase HMRC's resources in this area by around 400 people in order to raise over £500 million over the next five years.

Tax-related consultations

In addition, the government also published a range of tax-related consultations:

• Options to simplify and strengthen the behavioural tax penalty system with the intention of providing a stronger deterrent for those who deliberately avoid tax.
• How HMRC can make better use of third-party data to increase automation and close the tax gap.
• Proposals to strengthen HMRC's ability to target tax advisers who facilitate non-compliance from their clients.
• A comprehensive package of measures to close in on promoters of marketed tax avoidance.

Osborne Clarke comment

The latest announcements indicate that HMRC's compliance activity will continue to increase.

More broadly, the pressure on the government to close the tax gap is likely to result in HMRC taking a more aggressive stance in their investigations (something we are already seeing). While this will affect all taxpayers, Labour's previous statements have made clear that additional resource for HMRC will be strategically focused to maximise returns, in particular on larger businesses where the scope and scale of any tax issues are invariably larger. We are also convinced that we will soon see the first criminal prosecutions under the CFA and that this may be reserved for a high-profile corporate.