HMRC debt levels remain high as interest rates increase

The increase in interest rates will make it harder for taxpayers to clear these debts according to latest HMRC analysis.

The HMRC says it is seeing more taxpayers getting into debt and the average value of those debts is increasing as the economic situation remains challenging. The majority of tax debt is owed by small and medium-sized businesses.

HMRC’s debt balance at the end of June 2023 was £44.5 billon, a reduction from £45.9 billion at the end of March 2023, but higher than the £42 billon figure in June 2022. The HMRC forecasts that the figure will remain close to this level in 2023/24.

The pandemic-related peak debt figure hit £67 billion in August 2020. For context, the balance just before the pandemic was £16 billion (in January 2020).

At the end of March 2020, HMRC had £2 billion worth of debt, spread across 647,000 taxpayers with time to pay arrangements. By the end of March 2023, HMRC had around £5.7 billion split between 912,000 taxpayers with time to pay arrangements. This means that most debt is not included in a time to pay arrangement.

HMRC has indicated that while it is resolving debts at levels significantly above the pre-pandemic average, the volume of new debt exceeds the level that it is able to resolve. The value of new debt was over 50% higher in 2021/22 than the average for the period April 2017 to March 2020. The flow of new debt remained at this elevated level throughout 2022/23.