Where is HMRC’s accountability when checking others’ credibility?

HMRC introduced credibility checks in 2020 as an additional tool to prevent fraudulent repayment claims in tax returns being repaid under the self-assessment principle of ‘process now, check later’. The HMRC credibility letters seek to address three main areas of concern by:

• verifying claimants as genuine;
• identifying potential inflated/false expense claims submitted on an annual basis; and
• targeting claims made using agents specialising in the submission of large volumes of often unsupportable claims; mainly by those dealing with the contractor/sub-contractor industry.

Unfortunately, in our experience the letters have failed to reach the intended demographic from the outset, which suggests a failing in the automated selection criteria being applied. Additionally, without a human filter, we are seeing letters received for:

• taxpayers with no discernible risk profile, for example no regular changes of address/agent;
• small-value repayment claims with a tax risk of only a few hundred pounds;
• repayments containing no expense claim element arising for innocuous reasons, for example overpayments of self-assessment payments on account;
• taxpayers who are not annual repayment claimants; and claims where the agent does not specialise in dealing with high volume contractor repayment cases.

There is evidence that, even where credibility check letters have been complied with and HMRC has confirmed the verification process was passed, repayments are still being withheld while HMRC undertakes further checks, with no elaboration on either the risk involved or timescale for resolution. In one case we are aware of, a repayment of £77,000 has been withheld after verification in November 2021, with a promised response date of 31 December 2021 passing, and a new response date of 24 March 2022 subsequently provided. This particular case is now the subject of a formal complaint.

The original HMRC credibility check letters advised that if they were not complied with, individuals would be removed from the self-assessment system. The latest tranche of letters from HMRC confirm this action has now started with unique taxpayer reference (UTR) numbers being removed. Moreover, the telephone helpline number provided in the latest letters accesses a recorded message confirming the letter must be responded to in writing with no means of obtaining human support. This is a worrying escalation, with potential repercussions for individuals who are not the intended target of the letters.

If HMRC credibility checks are to continue, we believe there must be sufficient checks and balances put in place to safeguard taxpayers against an overzealous HMRC, with standards of accountability introduced. Otherwise, it appears to be a case of heads – HMRC wins, tails – the taxpayer loses.