HMRC fails to process tax paid using tax deposit certificates

In a Freedom of Information request by RSM UK – highlighted previously in the Weekly Tax Brief – it was disclosed that £391m of tax deposits held by HMRC as part of the certificate of tax deposit (CTD) scheme could potentially be forfeited if they remain unused by 23 November 2023.

However, recent experience has highlighted that even if taxpayers attempt to cash in some of their CTDs, they are likely to face difficulties.

The guidance on HMRC’s website states “Once the Certificate of Tax Deposit Team have it, it takes 10 to 14 days to allocate the deposit to your liability”. In practice, taxpayers and their advisers will send certificates by recorded delivery to HMRC’s CTD department, along with clear instructions outlining which tax liabilities the payments should be allocated to, and how the interest accrued on these deposits should be paid.

However, in our experience, despite posting the certificates weeks in advance of the self-assessment deadline and having confirmation from the postal service that they have been delivered, HMRC is still yet to process or even acknowledge receipt of some of these certificates.

Whilst assurances have been given from HMRC’s self-assessment team that no late payment demands would be issued after the 31 January deadline if the tax payments remain unallocated by then, such demands have been sent nonetheless. HMRC has provided numerous timeframes for how long the tax payments should take to be allocated after the certificates are received, all of which have since elapsed. We have also been told that the self-assessment team are unable to put a referral through to the department who deals with the CTDs, since they have no contact with them, and their only suggestion is that we write to them.

Having tried and failed to reach this department on the helpline publicised on the gov.uk website, and an average certificate value over £100,000, these are considerable sums for HMRC to be mishandling. There will also be concerns over potential difficulties taxpayers will face in getting HMRC to cancel the (potentially considerable) late payment interest accruing from their delays for those trying to appropriately use their CTDs. The poor communication does not ease fears that the forfeiture of unused certificates could amount to a stealth tax, since the taxpayer will forfeit unused certificates when HMRC’s ‘reasonable efforts’ to contact the holders fail.

This is another example of HMRC struggling to achieve its performance targets, as demonstrated by its recent quarterly update. We urge HMRC’s CTD department to improve its communication and processing time for relevant certificate holders, especially in the run-up to the 23 November deadline.