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HMRC struggles with backlog of £3bn in overpaid tax

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21st Jul 2010
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HMRC faces a "significant challenge" to work through some £3bn in overpaid taxes, according to a new report from the National Audit Office.

The department is also owed around £1.4bn in underpaid taxes. The report found that HMRC “has not made significant progress” in reducing the backlog of cases of potentially overpaid or underpaid tax from 2007-8 and earlier, with some 18.2 million cases of overpaid and underpaid tax awaiting action as of March this year.

Some £27.3bn was paid out by HMRC in tax credits in 2009-10. Its latest estimate (based on 2008-09 finalised awards) is that error and fraud resulted in incorrect payments to claimants of between £1.95bn and £2.27bn. In 2009-10, the department launched a new strategy for reducing error and fraud. There is evidence that its new approach has yielded positive results, preventing an estimated £569m of error and fraud in the year.

Despite this, HMRC's performance in recovering tax credits overpayments did not improve. Tax credits debt increased to £4.5bn this year, partly because of claimants with financial difficulties who were unable to pay, and partly because the department prioritised collecting higher value tax debts, rather than the comparatively lower value tax credits debts.

"The department has not made enough progress in reducing the backlog of 18.2 million income tax cases where there is potentially overpaid or underpaid tax. It also needs to improve its collection rate for tax credits debt, which is substantially lower than that for tax debts," said Amyas Morse, head of the National Audit Office.

"The administration of tax in 2009-2010 by HM Revenue and Customs has been influenced by three broader issues: the recession, which has increased the value of tax debt to be recovered; the pressure on the department to streamline its processes; and the effectiveness of its information systems. Those systems need to be developed so they improve the department's ability to monitor and assess the targeting and performance of its debt collection campaigns and to design future interventions in the areas of greatest risk," he added.

 

Replies (6)

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By cymraeg_draig
21st Jul 2010 10:59

Bonuses ?

If they put as much effort into sorting things out as they do into thinking up excuses, then they might get somewhere.

I trust there will be NO bonuses for anyone at HMRC until they actually start doing their job properly.

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Stephen Quay
By squay
22nd Jul 2010 15:08

Make sure your carry back loss relief claim doesn't get lost!

I submitted a client's 2008-09 SAR online at the end of March this year (yes - a late return). It contained two loss relief claims as the client is both a sole trader and partner. The first was set off against other income of the same year and this refund was received by bank transfer within the usual few days, all dealt with automatically in the same tax return  - an extremely consistently efficient system which never fails to amaze me.

Not so efficient was the carry back loss relief claim to the previous year 2007-08. All the details were written in the white space of the return as there is no automatic generation of the refund; there are no boxes to trigger and it was confirmed to me by HMRC that the refund has to be manually processed. As the SAR was submitted online I backed this up with a letter of explanation and repeating the calculations.

After no reponse I phoned HMRC and was told my March letter wouldn't even be looked at until 18 June, a delay of approximately 10 weeks. By the end of June after again no response and checking my clients tax account at HMRC online, I phoned the new national single number agent enquiry line. They said they would put the call though to the appropriate tax office as a priority.

Again no response so after two weeks I sent a chase up letter with a copy of my original letter. However, as a result of the call to the agent enquiry line I have just received a letter and tax calculation agreeing my computations. The letter finished by saying the client's account was now in credit.

It would have been helpful if they had just affected a bank transfer. But no, I had to go online again and complete the refund request form. The payment has now been received. A total of three and a half months from cradle to grave which would not have happened without monitoring and nursing it along. And the same thing will happen again and again until ALL loss claims can be automated including carry backs to the previous year. You may be asking why I care so much - my fees were in that refund!

Stephen Quay

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By Swedish Chef
27th Jul 2010 11:38

Automatic Refund - YES!

Sorry Stephen, but there IS a mechanism for getting an "automatic refund".

You calculate the amount of the refund generated by the loss carry back claim, and put the figure in box 14 on page 2 of the Tax Calculation page.  This puts a credit onto the statement, though you may need to phone and request its release.

Still put the info in the white space by all means, but at least you don't have to wait until someone looks at it to get the money back.

I do this all the time and it never fails.

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Stephen Quay
By squay
27th Jul 2010 12:25

Tax Refund From Carry Back Claim

Thanks to Swedish Chef for that important nugget of information, no doubt from his latest receipe book! I will certainly try this in future.

What still puzzles me is that when I phoned HMRC about this very matter the call centre staff, who didn't know the answer, went and asked a technician and came back to me saying there is no way to generate an automatic refund for carry backs and that you have to write in to trigger it.

Sounds like Swedish Chef should be giving cookery lessons to HMRC staff as well!

Stephen Quay

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By Swedish Chef
27th Jul 2010 13:02

Surprising......

.....that the "technicians" don't know this, particularly since page TCSN21 in the notes to the tax calculation summary say to complete this box if "you are claiming loss relief calculated by reference to your income.......for an earlier year".

Unless by "triggering" they mean physically releasing the funds, as opposed to calculating the sum due.

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Stephen Quay
By squay
27th Jul 2010 13:41

Triggering is Processing

All the information was in the white space in the SAR submitted online but for HMRC to look at it and process or trigger it required a letter. The eventual credit was placed in the client's account which I had to go online and complete the request a refund section. Hopefully all this can be circumnavigated by completing box 14 on page 2 of the SAR tax calculation pages as Swedish Chef has suggested.

Stephen Quay

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