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sleeping dog | accountingweb | Pay now, check later regime leaves taxpayers vulnerable to claims agent
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Process now, check later regime is open to abuse

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HMRC’s policy of processing repayments and checking them later leaves taxpayers vulnerable to crooked claims agents. But will the Revenue let sleeping dogs lie?

19th Oct 2023
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HMRC generally processes repayment claims first and checks the validity of those claims later. This means possibly opening enquiries resulting in repayment, plus interest and sometimes penalties, months, often years, down the line. This is because of the “process now, check later” regime applied to self assessment tax returns as stated in HMRC manual EM0060.

Responsibility for checking the validity of claims is placed with the individual taxpayer, expediting the settlement of tax which, of course, is great for cashflow.

There are many instances where necessity demands it should be done in this order. For example, the self-employed income support scheme (SEISS) awarded much-needed cash to the many self-employed workers struggling to survive when business was forced to dry up at the height of the Covid-19 pandemic. Although invalid claims are now coming to light and HMRC is duly mopping up the repayment spoils, this article does not seek to suggest that legitimate SEISS claimants could or should have waited for HMRC to check their claim before receiving the money.

Open to abuse

However, the regime has unfortunately left the door wide open to shady practice, with crooks and cowboys masquerading as “claims agents” hiding around every corner ready to pounce on the unsuspecting, vulnerable taxpayer. 

A recent BBC news story, covered on BBC One’s Rip-Off Britain, dealt with a claims agent by the name of Apostle Accounting. This Suffolk-based firm allegedly submitted bogus self assessment repayment claims for employment expenses on behalf of hundreds of taxpayers. These unsuspecting individuals are now being forced to repay significant amounts to HMRC, totalling an estimated £1.8m.

The real sting in the tail is that, as is often the case with these claims agents, the taxpayers themselves are liable to pay HMRC the repayment amount in full, including the fee that was deducted by Apostle, plus interest. For Lee Osborne, one of the unfortunate Apostle clients, that equates to a total repayment of £21,000 compared to the £14,000 he originally received.

Apostle Accounting accepts no responsibility for wrongdoing, stating that it was made “unequivocally clear” to clients that any inconsistencies in the information provided to HMRC on their behalf might lead to repayment being due. 

Tweaks to the system

Measures were introduced in January 2023 to give greater control to taxpayers using repayment agents and better protect them from “unscrupulous tactics used by some operators”. Emphasis on the “some” – let’s not forget that most agents are honest, trustworthy individuals. But could a few tweaks to the filing process deter the dodgy ones from approaching potential victims in the first place?

Although a complete overhaul of the self assessment system and scrapping of the “process now, claim later” regime would be even more pie in the sky than Rishi Sunak’s scrapping of the non-existent meat tax and car-pooling policies, some subtle changes could be made.

HMRC’s internal manual self assessment contains a list of repayment inhibitor triggers at SAM113011. If any of these is present, the repayment leaves the automatic system and processing is delayed due to further checks. So the technology is there, but evidence suggests that many repayments are slipping through the net.  

In the self assessment form, supplementary pages SA102 Employment include four boxes (17, 18, 19, 20) for deductible work-related expenses. For Osborne to have been entitled to £19,000 (before deduction of Apostle’s 24% cut) of repaid tax, the numbers in those four boxes must have been sizeable. A simple (hopefully, though I am in no way qualified to comment on IT design) IT control built into the self assessment system could flag amounts in those boxes – and others – above a certain threshold, or percentage of the taxpayer’s income, and subject claims above that threshold to compliance checks before paying out the tax rebate.

This would I’m sure require some time and resource upfront, but once up and running could save hours of HMRC time spent chasing down illegitimate claims, not to mention stress and in some cases financial ruin for the taxpayers.

Rogue traders lurking everywhere

Self assessment is far from the only area of tax where rogue traders take advantage of the “process now, check later” regime. Earlier this year HMRC warned care homes to beware of cowboy agents offering to make illegitimate research and development (R&D) claims on their behalf. The tribunals are peppered with cases of taxpayers being hoodwinked into making invalid stamp duty land tax (SDLT) reclaims where they have been convinced that their residential purchase qualified as mixed-use. In 2022 an electrician in his first year of trading narrowly escaped being stung for a seed enterprise investment scheme claim submitted on his behalf. He had never even heard of such a scheme and the tax refund was paid into a bank account unconnected to the taxpayer without his knowledge.

Not always so generous

In the construction industry, notoriously susceptible to fraud where sub-contractors disappear without settling their tax liabilities, the tax authority has taken a firmer approach. Contractors are obliged under the construction industry scheme (CIS) to pay subcontractors net of a deduction (30%, 20% or 0%) depending on the sub-contractor’s status within the scheme.

Reports suggest that HMRC is toying with the idea of extending a similar concept to the VAT treatment of e-commerce and overseas sellers.

Interest revenue

So why is there such an inconsistency between these measures and the “process now, check later” regime? 

There is the perhaps cynical consideration of the revenue generated by allowing liabilities to build up. From the moment a claim is paid over to the taxpayer the clock starts ticking on interest, currently set at 7.75%. Meanwhile, the agent’s cut will generally be subject to tax as income for the agent or agent company.

It could well be that between the resources required to implement a new methodology and the inevitable loss of interest income, it is in HMRC’s best interest to let sleeping dogs lie.

If it sounds too good to be true, it probably is

Responding to a request for comment on this article, an HMRC spokesperson told AccountingWEB:

“Our advice is consistently clear - people should always be cautious about promises of easy money, and if it sounds too good to be true, it probably is. Taxpayers remain responsible for any claims made on their behalf and HMRC can review claims from previous years to identify any errors, allowing us to collect the right amount of tax required by law.

“Anyone concerned about their tax affairs should contact us directly without delay - we’ll do everything we can to support taxpayers who engage with us to get their tax affairs in order, including offering payment plans.”

Replies (23)

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By AdamJones82
19th Oct 2023 14:44

Meanwhile I, a professional, have three repayments pending for clients and waiting over 3 months

Thanks (5)
Replying to AdamJones82:
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By Open all hours
19th Oct 2023 17:38

Similar story here, the return is correct, the bank details are correct, the online repayment facility is broken (sabotage for their advantage?) and they growl if you ring and ask what’s going on.
These are not civil servants.

Thanks (1)
Replying to Open all hours:
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By AdamJones82
19th Oct 2023 17:44

Yes there’s definitely been an increase in holding on to repayments for 2922/23 for “internal security checks”. Load of rubbish. No interest added on for the delay either

Thanks (1)
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By johnjenkins
20th Oct 2023 10:15

Here we go again. More legislation that will hurt the most for sake of TRYING (never succeeding) to stop a few rogues. More rubbish like AML no doubt. Just look at the problems we have with repayments for limited companies.

Thanks (1)
Morph
By kevinringer
20th Oct 2023 10:16

I don't understand why HMRC has knowingly overpaid huge sums to these rogue repayment agents, whilst at the same time getting HMRC to repay tiny overpayments to my clients is all but impossible despite repeatedly chasing HMRC.

Thanks (4)
Replying to kevinringer:
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By johnjenkins
20th Oct 2023 10:44

Scammers and fraudsters have the floor.

Thanks (1)
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By Karen whitehead
20th Oct 2023 13:00

I have 4 clients that have been defrauded by a rogue agent. She set them up with her own address as theirs so they received nothing from hmrc, she sent the tax returns in 4 days after the end of the tax year when she had received no information from the client (they sent it in the following January), she claimed a large amount of CIS tax which the clients were not entitled to (one did not even work under the CIS scheme), HMRC paid all of the money to her which presumably she has spent. She even tried to implicate a retired accountant that she had once worked for by making up a rogue email address to put the clients off the scent when they started to ask questions. Now HMRC is chasing my clients for the money that this agent has stolen. We have lots of evidence and we have all made statements to the police including the retired accountant that was named. The police will not prosecute. they asked HMRC to take the case to court - HMRC are not interested and they are coming after my clients for the moeny that they have not had. They will all agree that their lives have been ruined - they have no idea how they are going to afford to pay this and HMRC are not at all interested.

Thanks (5)
Replying to Karen whitehead:
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By johnjenkins
20th Oct 2023 13:42

HMRC and banks have all the information but choose not to go after these fraudsters. One has to wonder why.

Thanks (1)
Replying to Karen whitehead:
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By unclejoe
20th Oct 2023 23:02

This begs a couple of questions. 1) Why won't the police prosecute ? It would seem to be a straightforward case. If criminals like this get away with their crimes knowing that nothing is likely to de done, there is no deterrent at all. They should be hammered - hard. If you have 4 cases you can be sure that other accountant practises have other cases - the scale could be significant. 2) Who is it that has been defrauded, the client or HMRC? I am no lawyer, but it seems to me that anyone operating a small business needs to know the rules around this. Are there different rules when HMRC are involved?

Thanks (1)
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By Mr J Andrews
20th Oct 2023 13:48

In the old days , of course , tax districts under the care of a District Inspector , kept proper Establishment Files ; one of which contained a list of the local cowboys.
I suppose modern technology within HMRC has regressed to a point that a central register of these rogues is beyond capability.

Thanks (3)
Replying to Mr J Andrews:
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By johnjenkins
20th Oct 2023 14:48

Surely these "rogue" agents are either registered with a body or Customs for AML?
Oh that's right AML is not for scammers and fraudsters.

Thanks (1)
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By indomitable
20th Oct 2023 14:57

The term' tax advisor' or 'accountant' is not a legally protected term like 'solicitor'. In my view it needs to be and all people using these titles should be regulated by a professional body that is NOT HMRC.

I think this would solve 90% of the problem

Thanks (4)
RLI
By lionofludesch
22nd Oct 2023 13:46

Well, I for one am both shocked and amazed that "process now, check later" has been found to be open to abuse.

Who on earth would've thought it?

Thanks (1)
Replying to lionofludesch:
Morph
By kevinringer
23rd Oct 2023 08:46

"Process now, check later" is how VAT and SA are supposed to operate, but I've not had a VAT or SA inspection for more than a dozen years. I wonder if HMRC has unofficially abandoned the "check later" stage?

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By childrenintouch
23rd Oct 2023 10:21

This is the text of the email I sent to Rip Off Britain when i saw that program.
"I feel I must comment on the issue of PAYE over-repayments being recovered by HMRC.
I was employed by the Inland Revenue followed by HMRC for nearly 40 years from 1970 to 2010, 20 years in the senior clerical grade, followed by 20 years as an Inspector of Taxes. For most of that time included in my duties was repayment security. I am sure that when the procedures during that time were correctly followed none of these repayments would have been made in the first place.

Since computerisation cases for review are selected by computer and worklists are generated every day. It was usually obvious why a case was selected, as the computer was programmed to look for specific circumstances and amounts. It is unusual for anyone on PAYE to have a large repayment for expenses, certainly not in the £1000s. The main reason for this is an employee would expect to be reimbursed for expenses by their employer. I would expect any repayment for an employee over a certain limit – at least over £1000, to be picked up for checking repayment security.

When I joined the Revenue we had tax districts, where each local office dealt with businesses and employees of a geographical area. Now there are no local offices and so no local knowledge or accountability. This is a huge mistake.

When Self Assessment was introduced we were told that our jobs would change. We would no longer get post, but would get all our work by working worklists and opening enquiries. In all my years in the Revenue there were never enough staff to do the job properly, and they got rid of a lot of trained officers by offering early retirement etc. This was a serious miscalculation, because we still got post and phone calls, and the filing of returns online was not popular in the early days of Self Assessment. Most worklists were not worked fully or at all, with the possible exception of repayment security.

I fear that these repayments were made because the proper security checks were not being made by trained staff at the right level. It is clear that for enquiry purposes the repayments have been identified, and that alone should prevent the repayment claim company from continuing to trade, but HMRC is able to take more direct action to stop tax advisors from making fraudulent claims. If they belong to a professional association they are also accountable to them. It is true that the taxpayer is responsible for making correct returns, but HMRC has failed them in these cases and should at least reduce the amount of the over-repayment that they are claiming to the amount they actually received."

Thanks (2)
Replying to childrenintouch:
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By johnjenkins
23rd Oct 2023 14:08

This is what most of us "golden oldies" have been saying for years.
If HMRC want to get rid of people (they did it with the collection process) then they have to come up with something that works, namely let us take over all admin. That's what Agent strategy was about and now binned.

Thanks (1)
By maz444
23rd Oct 2023 18:26

I too am shocked and appalled at this, so much so that I have become involved with the Facebook group. I learned today that Apostle Accounting have now gone in to liquidation, having ripped off so many people, what a kick in the teeth!

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Replying to maz444:
RLI
By lionofludesch
23rd Oct 2023 19:28

Hopefully plenty of folk will lodge valid objections.

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Ray McCann
By Ray McCann
24th Oct 2023 07:25

It’s quite interesting, the last search operation I was involved in before I left HMRC was in relation to a repay now check later fraud. That was over 20 years ago.

I am beginning to think this self assessment is not what it was cracked up to be!

Thanks (1)
Replying to RayM55:
Morph
By kevinringer
24th Oct 2023 09:01

I recall that when SA started, HMRC said that a certain number of returns (1%-2%)would be selected at random for in-depth enquiries with the hope they prove the Tax Return is correct and that SA is therefore working. On that basis, I should have a handful of enquiries every year. I did for the first dozen years of SA, but they dwindled to nothing and I've not heard anything from HMRC for a dozen years or more. So I assume HMRC have long since abandoned their random enquiries. I guess this happened because of budgetary pressures; it's easy to get rid of something that intentionally shouldn't find anything wrong. So whilst SA might have been what it was cracked up to be when it was launched, it isn't today.

Thanks (1)
Replying to kevinringer:
RLI
By lionofludesch
24th Oct 2023 09:12

kevinringer wrote:

I recall that when SA started, HMRC said that a certain number of returns (1%-2%)would be selected at random for in-depth enquiries with the hope they prove the Tax Return is correct and that SA is therefore working. On that basis, I should have a handful of enquiries every year. I did for the first dozen years of SA, but they dwindled to nothing and I've not heard anything from HMRC for a dozen years or more. So I assume HMRC have long since abandoned their random enquiries. I guess this happened because of budgetary pressures; it's easy to get rid of something that intentionally shouldn't find anything wrong. So whilst SA might have been what it was cracked up to be when it was launched, it isn't today.

But they had people working at HMIT in those days. Local people.

Thanks (2)
Replying to kevinringer:
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By johnjenkins
24th Oct 2023 09:34

I think SA is working very well. The concept of all income and expenses in one year on one return is common sense. It's all the rubbish HMRC come up with surrounding SA is the problem. CGT within 60 days then duplicated on SA return (maybe the following year) to claim rollover or whatever??????????????????
This is what HMRC do, they have sensible ideas then go and ruin it. Even MTD is sensible but let it be natural not mandated. The worst thing HMRC did was to abandon agent strategy. With us on board HMRC would have turned into a force to be reckoned with.

Thanks (1)
Replying to kevinringer:
Ray McCann
By Ray McCann
25th Oct 2023 09:19

When I was head of compliance strategy in IR, in 2003, random enquiries were bringing in more than targeted enquiries.

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