Written by: Kate Aitchison

Kate Aitchison

Director, Private Client Tax

Taxpayers facing the cost of HMRC repayment delays

Although HMRC’s statistics appear to indicate an improving performance, what isn’t reflected is the ongoing delays in dealing with post received. HMRC does not widely use email, and despite the online chat and telephone functions, most correspondence received by HMRC still comes by post.

HMRC had struggled with the move to home working during COVID, and delays have been consistently long since then. The recent postal strikes will have also compounded the matter and caused additional delays for client claims. What isn’t clear from the statistics is that the HMRC system that deals with post is cumbersome. Post received is scanned in and then put into a queue to be dealt with on a first come, first received basis.

Particularly when refunds are due back to clients, this delay in processing correspondence can have a significant financial impact on clients. In a recent case we have seen, a client has reported and paid tax under the real time capital gains tax (CGT) reporting system within 60 days of disposing of a property. They have since made a claim to defer the gain using CGT relief and are awaiting a refund of tax. The claim was submitted in January 2023 and when pressed, HMRC has indicated that it is still dealing with repayment claims made in March 2022. Under its post management system, it is unlikely to look at the claim made in January 2023 before 12 September 2023.

Where significant refunds are due, this can adversely impact clients’ cash flow and this inefficiency will increasingly become a burden on all taxpayers, as interest is paid by HMRC on repayments. The rate of interest on repayments made by HMRC increased from 2.5% to 3% from 21 February 2023.

Even when returns are amended to include claims for enterprise investment scheme reliefs, the return is being captured automatically on the client’s record, but the tax repayment is not being processed in a timely manner. In this case, a 2020/21 tax refund would normally offset a 2021/22 tax liability, but instead this offset is being delayed and so the taxpayer is being pursued for underpaid tax that isn’t due – even though HMRC has all the information to corroborate this.

To add to the delays, HMRC has now reintroduced a system for checking self-assessment repayments where taxpayers need to provide documents to prove their identity. It is a sensible precaution to ensure that repayments are being made to the correct individuals, but a balance needs to be struck. Adding another layer of administration to a struggling system, dealt with via the post, will feel like salt in the wound for those taxpayers affected. It is clear that there is scope to significantly improve the system for dealing with requests for refunds and claims and these should be streamlined and modernised.

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