Security checks delay tax refunds

Taxpayers are having to wait months to receive refunds as HM Revenue and Customs battles a backlog of claims caused by a new system of security checks

PKF Accountants & business advisers said a large number of individuals and businesses are waiting for rebates of hundreds of thousands of pounds as repayments are held for extra fraud checks. Delays of two months are common and in some cases this has stretched to three months.

Tax refund claims that are selected for manual security checks to ensure that they are not fraudulent are transferred to a new specialist unit in Bristol to investigate further without telling the taxpayer.

Confusingly, where a refund is due, messages given in HMRC’s online self-assessment pages often indicate that a repayment has been issued without making any reference to the checking system.

This special checking unit only accepts written communications so, once a case is referred, it is very hard to speed up the process or find out why a refund has not been made.

“I don’t see the need for this somewhat clandestine operation, with no facility for telephoning HMRC,” said John Cassidy, tax investigations partner at PKF. “Obviously HMRC does have to protect the public purse, but it ought to be able to carry out sufficient checks on most businesses very quickly. I’d like to see some statistics on how many refund claims eventually prove to be fraudulent – I expect the number will be miniscule with the loss of revenue too small to justify such delays for honest taxpayers.”

HMRC is expected to issue a statement as part of its program called HMRC’s Working Together with tax agents which outlines ways to speed up refunds by automating some of the manual checks.

A spokeswoman at the Revenue said the system was introduced in 2007 and that the report would be published within the next couple of weeks.

Cassidy also criticised the discrepancies between the refund system and the tax payments system where the rule is that the taxpayer pays first and HMRC processes the return automatically with checks made later. “HMRC ought to adopt a similar process of ‘repay now - check later’ for taxpayers with a good tax compliance record,” he says. “This would mean that the vast majority of refunds could be made quickly to help businesses and individuals in these tough times.

“I feel sorry for taxpayers claiming refunds: some are effectively being treated as if they have made false claims, perhaps as a knock on effect of the problems with MP’s expenses.”

He also pointed out that the while the revenue pays no interest on income tax refunds it owes, but still charges 2.5 per cent on overdue tax.

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