This Friday is tax return final submission day so let me share a fact about tax returns that few people seem to know.
Every single person who applies to have a tax refund on their tax return has it paid to them. That's because it is HMC policy to pay refunds first and ask questions later.
Can you imagine any other organisation doing that? No, nor can I.
In that case just think how much HMRC could save if they just employed enough people to do some checking first.
Now do you get what I mean about the new C word - 'collection'?
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That may be the case for personal tax, but it is very much not the case for business taxes. CIS is notoriously bad, PAYE not much better, and you can pretty much guarantee a VAT visit if you put in a repayment return.
I had one VAT Inspector a few months ago comment during the visit that he would be out to see us again soon: although it was clear to him that the business would be quite correctly getting repayments for the foreseeable future, the computer system would flag it for another visit after a couple more repayment returns.
HMRC’s fingers are very sticky. Even with CT instalment payments, whcih are purely your own estimate of what the tax will be and HMRC can have no reason at all to doubt you, it’s the devil’s own job to get a repayment. This means that some companies are very conservative about paying tax over: if you overpay you’ve lost the principal (for a year or two), if you underpay you lose some interest – it’s a no brainer. HMRC being readier to repay companies would actually make the companies readier to pay…
None of what you say accords with what I know from HMRC barring VAT, maybe
It’s all from direct experience over the last year or two. I could go further back, but their systems do change so that wouldn’t be so relevant.
With CIS, I had one Inspector demanding that a CIS shortfall be paid over before he would release a PAYE overpayment. He wouldn’t countenance setting one off against the other and paying the balance over to the company: he wanted a payment in before he would let the PAYE people make any repayment. It took several months before he could be persuaded.
Not only is this absurd – if he has that level of control, why not make the set-off? – but the difference in interest rates costs the taxpayer money. They are forced to lend money to HMRC at 0.5% in order to borrow at 3%, simply because an Inspector is being unreasonable. Never mind the cashflow costs.
Out of interest, I understand that your firm still has some personal tax clients, but do you do much day to day work with other taxes – VAT, CIS, payroll, corporation tax, and so on?
I have never had CIS interaction, to be honest
I am more familiar with the others, yes
Count yourself lucky 🙂
When it works it works very well; when it goes wrong it can be very hard to untangle – HMRC’s processes tend to be quite mechanical.
I had a business which by definition got all its VAT back. One inspection in second year. Very nice and polite guy. Never heard from them again. Highly fair and professional. (in case you have doubts, we were straight to the dot. I have no issue pushing corporation tax and income tax, as it can always be argued, but VAT “omission” for me should be straight to jail.
Thanks
Andrew
For income tax, HMRC used to perform stops on large repayments. I had a significant repayment for a client held up for a couple of months pending “standard” security checks a few years back – this was the explanation from HMRC.
There is also a well-known issue with obtaining CIS repayments for companies. It is raised as an issue in Working Together meetings regularly.
So by default I am right
As HMRC staff tell me
Yes, it’s their basic risk assessment: small amounts are not such a worry, and small overpayments are usually derived from PAYE and so can be checked when they do the reconciliations. The worst case then is that the taxpayer gets a small repayment which is clawed back through next year’s PAYE code.
The alternative would be to delay small repayments until the reconciliations are all done, but that would be a little hard on the honest taxpayers; or to do a one-off reconciliation when the repayment request comes in, which is not in line with the lean processes and is (arguably) inefficient.
Richard, I don’t think you read my post. I actually think you’re wrong. You said:
“Every single person who applies to have a tax refund on their tax return has it paid to them. That’s because it is HMC policy to pay refunds first and ask questions later.”
I didn’t realise when I posted yesterday, but Taxation (who is published by my employer I should say) have a piece this week detailing when HMRC can withhold repayments this week. You should probably read it…
Can
And do
And the percentage of each
Those are the key issues Ben
If you’d like to send the price I’d be happy to read it
Well, given that I’ve experienced one instance, the percentage of “do” is not 0%, is it? I’m just saying that saying “every single person who applies to have a tax refund on their tax return has it paid to them” isn’t correct.
Also, the Cotter case is a high-profile example of HMRC not crediting repayments from a scheme. So they do what they can in other instances too.
Here’s the link for the article. http://www.taxation.co.uk/taxation/Articles/2014/01/29/319721/we-want-our-mone
I have accepted the point that it is not 0%
It was worth flying the kite to find that out
I now will ask the question as to what the true % is
The link does not work by the way – not sure why
It’s been slightly truncated. Try:
http://www.taxation.co.uk/taxation/Articles/2014/01/29/319721/we-want-our-money
I cut off the last letter of the link. It is http://www.taxation.co.uk/taxation/Articles/2014/01/29/319721/we-want-our-money
I don’t think I personally should send you the money to read it. It would be very tax inefficient from my perspective when I could probably send you a gratis copy. I will deliberate that moral dilemma before I take further action.
Are there any figures in terms if how many returns generate a refund? And how many audits of such returns turn up errors? Would be useful in terms of a cost/benefit type analysis
More generally isn’t this the essence of self assessment? Isn’t it equally troubling that someone can underpay tax based on their return? Again I wonder whether there a figures available in terms of returns audited and additional tax due to prove the case for more Hmrc staff?
I am looking for it
NAO certainly looked at this in 2010; one of their surprising/disturbing findings was that HMRC only tracked underpayments identified in the course of enquiries; if the taxpayer was due a refund they didn’t record the outcome anywhere (which sigfnicantly skewed/utterly devalued the NAO’s conclusions on relative merits of using an agent, but I digress…) I’m not sure if they’ve reported again since then though on this specific aspect.
I agree – and that is what Taxation is also saying, which hardly alters findings as some have suggested
Their refund system has to be better than their collection system, then.
HMRC tell wife every year that she owes them tax. The quantities owed are piffling – she has, in six years of returns, accumulated a debt to the taxman of eighteen pence. They won’t ignore it; they won’t write it off; they also won’t provide any facility to pay it (cash not accepted, nor cheques, nor bank transfers).
To misquote Jesus of Nazareth, this is straining at gnats while swallowing camels!
HMRC does not automatically pay out repayment claims. It applies what it calls security checks which are different from compliance checks.
And I think there is now legislation that can be used to prevent a repayment when avoidance is believed to be behind the repayment.
Richard, on the issue of employing a few extra people to do some checking I wouldn’t hold your breath. You have, quite rightly in my view, denounced the level of staff cuts over the last parliament as HMRC struggles to deliver its services, including some of the worst call handling stats on any organisation on planet earth and the complete removal of face to face Enquiry Centres.
There are further huge job cuts planned in HMRC over the next 6 years as I understand it. I don’t know who your contacts are in PCS but you might want to talk to them about HMRC’s Vision 2020 and what this and their Digital agenda means for future staffing. I understand they are hoping to axe up to another 20,000 jobs, which would leave HMRC roughly 1/3 the size it was in 2005. Quite how HMRC could enforce compliance and tackle evasion and avoidance with that level of staffing is beyond me.
This is, I assure you, on my radar
>Every single person who applies to have a tax refund on their tax return has it paid to them. That’s because it is HMC policy to pay refunds first and ask questions later.
In the absolutely simplest terms this assertion is not factually accurate.
Repayments over a certain size will be selected for a security check.
Repayments on self-assessments where an avoidance scheme has been disclosed under DoTAS will generally be checked before a repayment is released. This is only not triggered where the person responsible for the scheme on HMRC’s side has flagged it as not requiring referral.
It’s essential to appreciate that when a return is submitted those figures feed the assessment of tax due. Explicitly the tax due is the sum self-assessed. If the tax paid exceeds the tax due that amount is repayable. Short of an amendment to the return or HMRC opting to open an enquiry it is both legally correct and entirely appropriate for HMRC to repay the sum overpaid.
A mechanism such as S. 59B of TMA 1970 can be used to withhold a repayment. This is only appropriate where there is good cause to believe that the repayment should not be made. (In strictness this is not the way S. 59B is worded, but that’s how it has been interpreted to function.)
Empirical evidence that reductions in staff numbers results in less capability to do the actual work isn’t particularly hard to come by. However, as stated the claim is both unnecessarily sensationalist and it invites easy refutation. If it were to be raised by the PAC in this fashion for example; the response would presumably be to baldly point out that it is not true and highlight a few examples of where it is not the case.
Thank you
I will revise the hypothesis
It is only true in the vast majority of cases