The National Audit Office (NAO) has published its departmental overview, 'HM Revenue & Customs 2024-25'. While there are signs of performance improvement, the Comptroller and Auditor General (C&AG) once again issued a qualified audit opinion on HMRC’s accounts due to material levels of error and fraud in Child Benefit, Corporation Tax research and development reliefs, and personal tax credits expenditure.
The report highlighted that HMRC collected £875.9 billion in tax revenue, an increase of 3.9% on the previous financial year. HMRC’s spending also decreased, from £7.2 billion to £6.6 billion.
For 'customers', the average call wait time decreased too. Taxpayers only have to wait 18:38 minutes, down from 23:14 minutes.
HMRC itself warned that of its 10 key risks, six had a 'red' rating:
- Technical health.
- Data protection.
- HMRC security.
- Exploiting information.
- Improving customer experience.
- Capacity and capability.
Fraud and error
The NAO report's most negative section concerned fraud. The C&AG again expressed concerns about fraud in the R&D relief schemes, as had been made each year since 2019-20, the first year HMRC produced an estimate of error and fraud in those reliefs.
In 2024-25, the C&AG concluded that there remains a material level of error and fraud, estimated by HMRC at 5.9% of related expenditure, or £481 million.
The C&AG also reported a material level of error and fraud in expenditure relating to:
- Over- and underpayments of personal tax credits, estimated at 4.2% and 0.8% respectively.
- Child Benefit payments, estimated at 2.0%.
Tax revenues
HMRC reported £875.9 billion in revenue, an increase of £32.5 billion (3.9%) compared with 2023-24.
- Income Tax and National Insurance Contributions (NICs) comprised 55% of total tax revenues in 2024-25.
- Total Income Tax for 2024-25 was £309.4 billion, an increase of £23.2 billion (8.1%) on 2023-24. This is partly attributable to tax thresholds staying the same while wages increased.
- Most Income Tax (84.6%) comes from Pay As You Earn (PAYE) income, followed by Self Assessment (15.0%), while a small proportion (0.4%) comes from Simple Assessment.
- Revenue from NICs decreased by £8.2 billion (4.6%) compared with 2023-24, resulting from cuts to NIC rates in January and April 2024.
- Value Added Tax (VAT) revenue for 2024‑25 was £178.5 billion, an increase of £13.0 billion (7.9%) on 2023-24. This is attributable to underlying growth and inflation, an understatement of accrued VAT revenue in the prior year, and VAT charges on private school fees.
HMRC’s spending
HMRC's spending includes its own staffing and system costs. It also includes the administration of some benefits and payments made through the tax system, which totalled £27.4 billion.
- HMRC's staffing costs £3.54 billion (down 0.5%).
- Other significant spending was on IT and telecoms systems, costing £1.16 billion.
- The main benefits were Child Benefit (£13.31 billion) and personal tax credits (£2.67 billion).
- Personal tax credit payments have decreased as eligible customers have now moved to Universal Credit, which is administered by the Department for Work & Pensions.
- Expenditure on Corporation Tax reliefs totalled £10.12 billion in 2024-25. The largest component was Research and Development (R&D) reliefs (£7.6 billion), with most of the rest being reliefs for the creative industries (£2.4 billion).
Other ongoing expenditure included:
- The European Union (EU) exit transition, from both a tax and customs perspective which fell to its lowest annual cost (£792m) since 2020-21.
- Modernising services and IT systems.
- Core operations, which include customer service, administration, compliance activity, including combating tax avoidance and evasion, and specific work targeted at tackling increasing levels of tax debt.
Useful guides on this topic
Research & Development Tax Reliefs
What is R&D Relief? How does it work? Why does the size of the company matter? What is sub-contracted R&D? How do I write an R&D Report?
High-Income Child Benefit Tax Charge
What is the High-Income Child Benefit Charge? Who pays it? Can you appeal against an assessment? Are there any useful cases from the tax tribunals?
Self Assessment Return 2024/25: What's new?
2025 Self Assessment toolkit: top tips for completing tax returns for the year ending 5 April 2025.
External links
National Audit Office, departmental overview; HM Revenue & Customs 2024-25