UK's Complex Tax System Drains £15bn from Businesses as HMRC Costs Soar.
The UK's tax system is costing businesses £15.4 billion annually in compliance expenses, a new report from the National Audit Office (NAO) reveals. According to the NAO, these costs, which are rarely factored into tax decisions, include at least £6.6 billion spent on accountants, £4.3 billion for internal administrative staff, and £4.5 billion for software and postage, with the total likely being underestimated.
This significant financial burden comes amid rising concerns over the efficiency of HM Revenue & Customs (HMRC) operations, which has seen its spending increase by over half a billion pounds since the pandemic. Despite these increases, there has been little improvement in outcomes, with digital tax investments proving "mixed" and customer service efficiency still lagging behind.
Anna Leach, Chief Economist at the Institute of Directors (IoD), emphasized the real-world consequences of this growing complexity. "48% of IoD survey respondents said that investment was lower due to tax complexity, and 23% said innovation was lower," Leach noted. She called for HMRC to set measurable targets to reduce the administrative burden on businesses, pointing out that the government had failed to accurately assess the cost it imposes on taxpayers.
This report comes as the private sector already faces increased pressure, with business leaders raising alarms over a £25 billion hike in employers' National Insurance. Meanwhile, Labour's planned overhaul of workers' rights is expected to cost businesses an additional £5 billion annually.
Darwin Friend, Head of Research at the TaxPayers’ Alliance (TPA), criticized the government's approach. “Britain’s tax system is already a maze of complexity and red tape, piling pressure on businesses. Yet instead of relief, Reeves is hitting them with a damaging jobs tax hike and the Employment Rights Bill—measures that will do more harm than good.”
In response, there are increasing calls for the government to emulate the U.S. model, appointing an efficiency tsar with private-sector experience. Proponents of this idea point to figures like Elon Musk, who has led an aggressive efficiency drive within the U.S. public sector.
The NAO's findings also highlight the broader trend of escalating tax system costs, which have surged by 15% from 2019-20 to 2023-34. Over this period, HMRC’s budget rose by £563 million to £4.3 billion, while tax collections grew by 16%. Additionally, stealth tax raids introduced under former Chancellor Rishi Sunak have led to a 4.5 million increase in the number of people paying income tax between 2020-21 and 2023-24.
Frank Haskew from the Institute of Chartered Accountants in England and Wales (ICAEW) warned that the growing complexity of the tax system was burdening businesses and HMRC alike. "The UK’s increasingly complicated tax system is saddling businesses and HMRC with extra burdens and costs, which are growing in real terms," he said.
The NAO has called on HMRC to better understand how tax system changes affect administrative costs and the financial strain on businesses. Gareth Davies, head of the NAO, stressed that a more modern and resilient tax system is crucial for reducing the burden on businesses and individuals.
In response, an HMRC spokesperson pointed out that it costs just half a penny to collect every pound of tax revenue, emphasizing the value for money of the compliance work. They also reiterated that ongoing investments in digital services are vital to closing the tax gap and reducing red tape.
The government is set to announce a package of tax administration simplifications this spring, focusing on easing the burden for small businesses. However, concerns over the growing cost and complexity of the tax system are likely to remain a contentious issue for the UK government.
