Labour's £5bn Tax Recovery Plan
The Chancellor may give HMRC more power to monitor savers, investors, and freelancers for underpaid taxes. Rachel Reeves, with an expert panel, is exploring ways to improve HMRC’s efficiency.
One proposal is to let HMRC gather more data from banks and companies to catch undeclared income and tax savings interest. This is part of a strategy to address the "tax gap" and comes as the Chancellor prepares to announce a £19bn deficit.
Currently, taxpayers report their investment income to HMRC.
This plan includes developing a unified online tax return system, the “single customer account.” A source noted, “This would make life easier for taxpayers and also bring in more money for the Treasury.”
Building on existing global data-sharing agreements with platforms like Airbnb, eBay, and Vinted, the government aims to streamline data collection without drastically changing current powers. Since January 2024, UK-based operators have had to share sellers’ income data with HMRC.
Labour has committed £855m to HMRC to capture lost tax revenue and raise £5bn annually by the end of the parliament. They have criticized the previous government for not closing the £36bn tax gap, particularly in offshore and corporate tax fraud investigations.
Concerns persist that HMRC might be missing revenue from savings, investments, and freelancers. While banks report savings interest to HMRC annually, linking this data to individuals remains a challenge, potentially leading to underpaid taxes.
Government figures show taxpayers accumulated £338bn in savings in the first quarter of the year. Savers must pay tax on interest exceeding £1,000 annually, and with rising interest rates, more savers are surpassing this threshold. Over 2.5 million are expected to pay tax on their savings this year.
In 2021, the Office for Tax Simplification recommended HMRC expand its use of third-party data. Though the government did not pursue this then, Labour is now reconsidering the proposal.
Taxpayers must file for self-assessment if their savings and investment income exceed £10,000. Mandatory dividend reporting could simplify tax collection for those with annual dividends over £500.
Labour plans to rigorously pursue owed taxes, targeting avoidance and evasion. A government spokesperson emphasized efforts to close the tax gap and ongoing digitization to simplify tax management.
