The Autumn 2024 budget sees the UK’s new Labour government act on a number its pre-election manifesto pledges (discussed here), and intentions stated in its ‘Close the Tax Gap’ document, to decrease the UK’s ‘tax gap’. This is the difference between tax collected and the amount HMRC considers ought to have been paid, which HMRC recently estimated at £39.8 billion for 2022/23 (or 4.8% of total theoretical liabilities). In its budget, the government intends to raise an additional £2.7 billion per year by 2029/2030 by tackling this figure.

Tanja Velling and I considered some of Labour’s policy suggestions in a previous blog post. A number have made it into the budget, while others have not. Some related measures are also being proposed through consultations into the UK tax administration framework. The key budget takeaways on closing the UK tax gap are:

• A focus on high-risk taxpayers: Umbrella companies, which employ workers as intermediaries for agencies and end clients, will no longer be responsible to account for Pay As You Earn and employer and employee National Insurance Contributions (together, Employment Taxes) obligations. Instead, the contracting agency or end client will do this from April 2026. Taxpayers (particularly wealthy individuals) with offshore income or property are also a focus for HMRC’s compliance activities given the often complex and high-value arrangements. 
• A response to increasing compliance activity: £1.4 billion will be invested in HMRC over the next 5 years to recruit an additional 5,000 compliance staff. This will help support additional compliance activities such as those suggested in the government’s consultation: The Tax Administration Framework Review: New ways to tackle non-compliance which I'll refer to as the “Compliance Consultation”. 
• An update to HMRC’s investigative and enforcement powers: The government has published the summary of responses to its call for evidence on, broadly, updating, harmonising and developing HMRC’s powers and penalties alongside taxpayer safeguards. In addition, the government announced that late payment interest charged on unpaid tax liabilities would increase from base rate plus 2.5% to plus 4%. 
• A decision to regulate tax advice: The government considers that a minority of tax advisors are harming the tax system. From April 2026, tax advisors wishing to interact with HMRC on their client’s behalf will need to be registered with HMRC, and further regulation is expected.

This post considers the effect of these measures on predominantly corporate clients and key points they may wish to consider. 

High risk taxpayers

Temporary staff are an important resource for many companies, often engaged through agencies. In turn, those agencies may outsource administrative employment-related obligations to umbrella companies (which employ those workers), helping ensure the efficient functioning of the temporary labour market. 

Umbrella companies are currently required to account for Employment Taxes in respect of the workers they employ. However, in 2022/23, around £500 million in tax was lost to disguised remuneration tax avoidance schemes facilitated by umbrella companies not properly accounting for those Employment Taxes. This has resulted in unexpected tax bills for those workers. Given that 275,000 workers were employed by umbrella companies that failed to comply with their obligations in 2022/2023 (of around 700,000 during that period), the government has decided to act. 

As set out in its policy paper (Tackling tax non-compliance in the umbrella company market), from April 2026 agencies contracting with umbrella companies will be responsible for deducting Employment Taxes from payments to the umbrella company in respect of the workers they engage, and paying those amounts to HMRC. Should an end user directly contract with an umbrella company to engage a worker, they will be responsible for those Employment Taxes instead. 

Response to increasing compliance activity

Greater complexity of taxpayers’ tax affairs (arguably, commensurate with an increasingly complex tax code) and digitisation mean HMRC receive more claims for relief or repayment for inaccurate filings than previously. However, a number of HMRC’s key compliance powers depend upon one-to-one engagement with taxpayers, which can be time consuming and disproportionate in these circumstances. The government is therefore consulting on ways to streamline certain HMRC powers.

Whilst a number of proposals are likely to prove broadly uncontroversial, a suggestion that HMRC could open ‘partial enquiries’ into particular elements of a taxpayer’s tax return is likely to be of greater interest. Currently, HMRC can only enquire into a tax return once and within specified time limits (after which it must rely, subject to conditions, upon discovery assessments to recover historic lost tax). However, partial enquiries would allow HMRC to enquire into different elements of returns separately, effectively allowing HMRC multiple ‘bites of the cherry’. The Compliance Consultation’s suggestion that this measure only “might include an obligation on HMRC not to re-open any risk that had already been dealt with under a partial enquiry” risks taking this further and is concerning for taxpayer certainty. 

Update to HMRC’s investigative and enforcement powers

More generally, the government has published the summary of responses to its previous consultation on reform to (i) HMRC’s powers to check the accuracy of information submitted to it, (ii) financial penalties that can apply when taxpayers fail to meet their tax obligations and (iii) safeguards to ensure taxpayers are treated fairly.

Two key themes emerged in relation to reform of HMRC powers and penalties. First, if HMRC powers are unified across tax regimes, this should not be at the expense of the taxpayer. Second, whilst unification of powers or penalties regimes could simplify the tax system, a ‘one size fits all’ approach is unlikely to be appropriate in all cases. The government has decided to reform HMRC powers, but its approach to penalties and taxpayer safeguards are both subject to further review. 

More concrete, however, was the governments announcement that late payment interest charged on unpaid tax liabilities would increase from base rate plus 2.5% to plus 4%. Meanwhile, the interest taxpayers receive on repayments remains set at base rate less 1% (with a 0.5% floor), meaning the spread from which HMRC benefits grows from 3.5 to 5 percentage points. This change is particularly relevant to those that have not paid tax liabilities that are engaging in the appeals process, which can be lengthy. 

Regulation of tax advice

Finally, the government has confirmed that, from 2026, tax practitioners wishing to interact with HMRC on behalf of clients must register with HMRC. Observing that, currently, “almost anyone can provide tax advice and services to clients and can do so with limited or no oversight if they are not a member of a processional body”, the government hopes this will start to address the existence of a “minority of practitioners who cause harm, to their clients and the wider tax system”.

Summarising its consultation outcomes in Raising standards in the tax advice market: strengthening the regulatory framework and improving registration, the government suggests further regulation of tax advice will come, most likely through mandatory membership of a recognised professional body that would monitor and enforce standards. 

As regulation develops, clients should ensure they receive tax advice from properly regulated tax advisors.