The National Audit Office (NAO) said 8.2 million taxpayers owed money to HM Revenue and Customs at the end of the 2025-26 financial year, with the total equivalent to 4.7% of all tax receipts.
The spending watchdog warned that the problem is increasingly being driven by debts that have been left unpaid for more than a year, with cost-of-living pressures making it harder for some people to settle their bills.
Tax debt more than a year old and not covered by a payment plan has soared from £5.3billion before the Covid pandemic to £18.6billion at the end of 2025-26.
More than half of the total tax debt balance was over a year old at the end of the financial year, compared with just 28% at the end of 2019-20.
HMRC estimates that 46% of the outstanding tax debt balance at the end of 2025-26 may never be paid.
The findings raise questions about how effectively the tax authority is collecting money owed to the public purse, as well as the difficulties facing taxpayers who are struggling to keep up with bills.
HMRC tax debt has grown since the pandemic
The NAO said the proportion of tax receipts represented by unpaid tax has fallen from 5.6% in 2022-23 and the peak of 9.3% recorded at the end of 2020-21, when HMRC paused debt enforcement activity during the pandemic.
However, the overall balance remains significantly above pre-pandemic levels.
The report said: “The tax debt balance remains significantly higher than the pre-pandemic period: in the five years between 2015-16 and 2019-20, tax debt was typically around £15 billion, or 2.5% of tax receipts.”
Nearly half of new tax debts are resolved within a month, suggesting that forgotten bills or temporary cash-flow problems account for many cases.
But debts that remain unpaid for longer become more difficult to recover, particularly when taxpayers stop engaging with HMRC.
The report said: “Tax debts have been getting older on average and are therefore more difficult to collect, with HMRC estimating that 46% of the tax debt balance at the end of 2025-26 may not be paid.”
HMRC has recovered billions through debt collection
HMRC has introduced a series of measures since 2021 to tackle unpaid tax, including recruiting additional staff, making greater use of private-sector debt collection agencies and using data to tailor its approach to different taxpayers.
The tax authority estimates these measures generated £10.7billion in additional revenue by the end of 2025-26, against spending of £368million.
However, the NAO said HMRC needs to do more to improve the efficiency of its systems and make better use of its existing workforce.
It recommended making payment plans more automated and easier to manage online, alongside improving the evidence used to identify which interventions work best for different types of debtor.
This could free up staff to focus on older debts and taxpayers who are not responding to attempts to contact them.
HMRC could get new powers to collect unpaid tax
The watchdog also highlighted proposals that could change how HMRC collects money owed by taxpayers.
HMRC has consulted on introducing direct debits to reduce payment errors and expanding its powers to recover smaller debts directly from taxpayers’ bank accounts.
The outcomes of the consultations are expected to be announced in the upcoming Budget, according to the NAO report.
Recommended reading:
Gareth Davies, head of the NAO, said: “HMRC has made good progress on tax debt in the challenging circumstances of recent years, but faces an increasing problem of old debt which is harder to collect.
“HMRC should now focus on preventing avoidable debt and acting quickly when debts arise.
“It has some promising improvements in train but needs to continue its efforts to get more productivity out of its staff and systems.”
