The department’s upstream compliance activity is yielding results.
HMRC’s annual report for the year to 31 March 2025 makes interesting reading for tax practitioners, highlighting both how HMRC have been performing against their objectives, as well as identifying their emerging areas of focus for the future.
Tax yield: HMRC collected revenues in 2024/25 of £875.9bn, representing an increase of 3.9% on the previous year. In respect of HMRC’s activity in addressing non-compliance and fraud, which HMRC refer to as tax protection, there was a significant rise in the amount of tax protected to £48bn (an increase from £41.8bn), and well in excess of the target of £45.4bn.
Notably, a considerable proportion of this increase arises from ‘upstream’ yield, which is an estimate of the tax that has or will be paid as a result of activities to prevent non-compliance and errors before they occur. Upstream yield increased to £19.5bn from £13.7bn last year.
This increase in upstream compliance activity has been seen in varying forms of engagement with taxpayers outside of the formal enquiry framework, Thisincrease in upstream compliance activity has been seen in varying forms of engagement with taxpayers outside of the formal enquiry framework, including guides for compliance, ‘one-to-many’ letters, targeted questionnaires and informal enquiries. Whilst upstream compliance is clearly a strategy that HMRC consider is working, taxpayers and practitioners should consider whether acting outside of statutory frameworks and the loss of the rights and safeguards they bring is the right approach in working with HMRC.
Tax disputes: Data from different departments within HMRC indicates the key areas of focus in compliance activity.
The data for HMRC’s Large Business directorate shows a substantial decrease in the length of enquiries, with the average down from 21 months to 17. International issues, incorporating issues such as transfer pricing enquiries, are still the biggest area of tax under consideration (£15.1bn) and one of the largest increases has arisen from employment issues (up from £1.8bn in 2023/24 to £5.7bn).
For the Wealthy and Mid-size Business Compliance’s (WMBC) department, international issues are similarly the biggest area of focus with a large increase of tax under consideration of 43% to £3.2bn. The second largest area of review is VAT – both ‘error’ and ‘legal interpretation’ – together amounting to £2.3bn.
Fraud Investigation Service (FIS) had 10% fewer Code of Practice 8 and 9 investigations on hand (2,711, down from 3,014), but a 4% increase in the number of criminal proceedings adopted (446, up from 430).
HMRC’s success at litigation has increased to 93% (up from 88%) at the First-tier Tribunal, and the success rate is over 70% for cases appealed beyond the FTT.
2024/25 saw a marked increase in the use of Alternative Dispute Resolution (ADR), with 1,653 total applications received (up from 1,309), of which 663 were accepted. Of cases closed, 88.7% recorded ADR as having a positive impact (up from 83.7%).
With 48,500 live appeals in the litigation process, the success of ADR highlights the value of the process in narrowing or resolving the points in dispute. Any businesses or individuals involved in a long running dispute with HMRC could consider the use of ADR to resolve matters.
What to expect in 2025/26 and beyond: HMRC has an increased target of £50.4bn for 2025/26 to be generated from its various compliance activities. To help deliver on this target, as previously reported, there are ambitious plans for investment in HMRC – recruiting 5,500 new compliance officers and focusing on technology transformation, including the use of AI.
Customer service remains an area of focus for improvement. Performance fluctuated over the year, but typically one in five calls were not answered. The focus in response from HMRC is to improve digital services with the ambition to increase the proportion of customer interactions that are automated or digital from around 76% to over 90% by 2029 to 2030.
With the increased investment in HMRC, practitioners and taxpayers alike will hope that the twin aims of improving service and narrowing the tax gap can be achieved in a manner which helps taxpayers comply in as efficient way as possible.
Home >Articles > Highlights from HMRC’s 2024/25 annual report
Highlights from HMRC’s 2024/25 annual report
The department’s upstream compliance activity is yielding results.
HMRC’s annual report for the year to 31 March 2025 makes interesting reading for tax practitioners, highlighting both how HMRC have been performing against their objectives, as well as identifying their emerging areas of focus for the future.
Tax yield: HMRC collected revenues in 2024/25 of £875.9bn, representing an increase of 3.9% on the previous year. In respect of HMRC’s activity in addressing non-compliance and fraud, which HMRC refer to as tax protection, there was a significant rise in the amount of tax protected to £48bn (an increase from £41.8bn), and well in excess of the target of £45.4bn.
Notably, a considerable proportion of this increase arises from ‘upstream’ yield, which is an estimate of the tax that has or will be paid as a result of activities to prevent non-compliance and errors before they occur. Upstream yield increased to £19.5bn from £13.7bn last year.
This increase in upstream compliance activity has been seen in varying forms of engagement with taxpayers outside of the formal enquiry framework, Thisincrease in upstream compliance activity has been seen in varying forms of engagement with taxpayers outside of the formal enquiry framework, including guides for compliance, ‘one-to-many’ letters, targeted questionnaires and informal enquiries. Whilst upstream compliance is clearly a strategy that HMRC consider is working, taxpayers and practitioners should consider whether acting outside of statutory frameworks and the loss of the rights and safeguards they bring is the right approach in working with HMRC.
Tax disputes: Data from different departments within HMRC indicates the key areas of focus in compliance activity.
The data for HMRC’s Large Business directorate shows a substantial decrease in the length of enquiries, with the average down from 21 months to 17. International issues, incorporating issues such as transfer pricing enquiries, are still the biggest area of tax under consideration (£15.1bn) and one of the largest increases has arisen from employment issues (up from £1.8bn in 2023/24 to £5.7bn).
For the Wealthy and Mid-size Business Compliance’s (WMBC) department, international issues are similarly the biggest area of focus with a large increase of tax under consideration of 43% to £3.2bn. The second largest area of review is VAT – both ‘error’ and ‘legal interpretation’ – together amounting to £2.3bn.
Fraud Investigation Service (FIS) had 10% fewer Code of Practice 8 and 9 investigations on hand (2,711, down from 3,014), but a 4% increase in the number of criminal proceedings adopted (446, up from 430).
HMRC’s success at litigation has increased to 93% (up from 88%) at the First-tier Tribunal, and the success rate is over 70% for cases appealed beyond the FTT.
2024/25 saw a marked increase in the use of Alternative Dispute Resolution (ADR), with 1,653 total applications received (up from 1,309), of which 663 were accepted. Of cases closed, 88.7% recorded ADR as having a positive impact (up from 83.7%).
With 48,500 live appeals in the litigation process, the success of ADR highlights the value of the process in narrowing or resolving the points in dispute. Any businesses or individuals involved in a long running dispute with HMRC could consider the use of ADR to resolve matters.
What to expect in 2025/26 and beyond: HMRC has an increased target of £50.4bn for 2025/26 to be generated from its various compliance activities. To help deliver on this target, as previously reported, there are ambitious plans for investment in HMRC – recruiting 5,500 new compliance officers and focusing on technology transformation, including the use of AI.
Customer service remains an area of focus for improvement. Performance fluctuated over the year, but typically one in five calls were not answered. The focus in response from HMRC is to improve digital services with the ambition to increase the proportion of customer interactions that are automated or digital from around 76% to over 90% by 2029 to 2030.
With the increased investment in HMRC, practitioners and taxpayers alike will hope that the twin aims of improving service and narrowing the tax gap can be achieved in a manner which helps taxpayers comply in as efficient way as possible.
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