Number of self-assessment tax refunds stuck in HMRC system more than doubles in four years

22 Feb 2022

R&D Tax Credits

The gap between the number of tax repayments generated by self-assessment taxpayers, and the number of repayments that were issued by HM Revenue & Customs (HMRC), has increased by 133% over the four years since 2017-18.

According to new data obtained by top 20 accountancy firm Saffery, the difference between the number of tax repayments generated by self-assessment taxpayers in 2020-21 through overpayment of tax, and the number of repayments that were actually cleared by HMRC and issued to taxpayers that year, increased to just over half a million.

A total of 2,833,400 self-assessment taxpayers generated 3,206,082 separate tax repayments in 2020-21 through overpayment of tax.

Meanwhile, the total number of repayments that were successfully cleared by HMRC and issued to taxpayers that year (2,704,031), represented only around 84% of repayments owed. This equated to a gap of 502,051, or 16%, between repayments claimed and repayments issued.

In comparison, in 2017-18, 2,673,701 repayments were successfully cleared by HMRC, equivalent to 93% of the total that were owed.

Taken together, the data, acquired from HMRC via a freedom of information request, revealed the annual gap between tax repayments generated and tax refunds issued increased by 133% over the four-year period between 2017-18 and the last financial year, 2020-21.

Zena Hanks, partner in the Private Wealth Team at Saffery, commented:

“More and more taxpayers are experiencing huge delays – often up to a year or more – to their repayment claims being processed and the refunds making their way into bank accounts. This is indicated by the fact the number of repayments issued by HMRC as a proportion of repayments owed each year has been on a pronounced downward curve. This screams backlog, or even log jam, and causes real distress to taxpayers, many of whom will be understandably concerned about cashflow after a difficult couple of years in Covid-19 trading conditions.

“With no other options available after months of waiting, and in the dark on what is behind the delay, taxpayers have been forced as a final recourse to raise a formal complaint with HMRC – only to be told, in one instance we’re aware of, that a complaint about delays to a repayment can only be filed when the repayment has been received, sending the taxpayer further down the repayment rabbit hole.”

Tax repayments are generated when an individual’s tax bill is lower than was expected when the individual submitted their previous tax return. This can occur if their income has reduced compared to the previous financial year. They can also be generated if an individual’s self-assessment tax return is later amended or corrected.

In these instances, if the processed tax return shows that a repayment is due, the taxpayer can then claim a refund, with HMRC advising that people should allow four weeks for the refund to paid. However, in November 2021, HMRC provided the following statement:

“HMRC are currently undertaking an increased level of checks to stop criminals abusing our Income Tax Self-Assessment repayment systems. This means that unfortunately some of our legitimate repayment customers have been experiencing delays in receiving tax refunds.”

Further information about how to claim a tax refund can be found on the HMRC website.

Zena Hanks, continued:

“Repayments occur when an individual’s tax bill is smaller than was previously expected and where tax was paid in advance – a situation which usually means they received less income than anticipated for the year, or where a claim for tax relief has been made on the tax return. Sadly, a reduction in income will be a familiar story for many during the pandemic, as businesses struggled to trade, employees were furloughed, and certain assets saw a decline in both income and value. Tax money that people have overpaid is needed now more than ever to help individuals get back on their feet. It’s very difficult to ask people to put their lives on hold while they wait for a HMRC to issue money that was theirs in the first place.

“If the ultimate goal is to ensure everyone pays the fair amount of tax, enforcing a system which leads to protracted delays in issuing repayments, without any clear reasoning or communication to the taxpayer, will only serve to exacerbate and prolong its inequalities, while taxpayers lose faith in the process and abandon hope of ever receiving the money they are owed. That rigorous security checks take place within HMRC systems will come as a welcome relief to users, but it cannot be at the expense of hard working taxpayers who are owed money and deserve a prompt response from HMRC.

“While the number of tax repayments clearly stuck in HMRC’s system may be a new phenomenon, the need for repayments to be issued is not. It is an ongoing consequence of our current system of paying tax in advance for the coming year’s liabilities, a fact which will not be lost on HMRC as it continues the transition to new systems like Making Tax Digital for Income Tax, the natural conclusion of which is more real-time reporting and payment of tax – though whether overpayment will soon be a thing of the past is difficult to envisage.”

Contact Us

Zena Hanks
Partner, Bristol

Key experience

Zena specialises in acting for private clients in all aspects of their tax and financial affairs.