We all know that HMRC has been instructed to collect as much overdue tax as possible but it might surprise you to know that it also has a significant amount of overpaid tax claims to work through.
There are currently around 18 million cases of underpaid and overpaid tax to be sorted out, some of which affect umbrella company contractors, and these are believed to result in taxpayers having contributed £3bn more than necessary.
Although the exact figures cannot be determined until the cases are resolved, the National Audit Office has said that HMRC face a very significant challenge to reduce the backlog that affects freelancers and limited company contractors.
Amyas Morse, the NAO chief, says that the Revenue has not made enough progress in sorting out these outstanding cases, some of which date back to before 2007.
In 2009-10, HMRC paid out £27.3bn in tax credits. It estimates that a combination of error and fraud resulted in £1.95bn to £2.27bn being erroneously paid to claimants. The Revenue has now launched a new strategy for reducing fraud and error and there is evidence that this has prevented around £569m being wrongly paid out.
Although less money was mistakenly paid out, HMRC has still not improved its recovery performance. This year, tax credits debt grew to £4.5bn. This was partly due to claimants being unable to pay due to financial difficulties and partly because the Revenue prioritised the collection of higher value tax debts.
It’s not only the NAO that has expressed criticism of HMRC. Tax specialists have cited problems with the CIS tax as causing major problems for some of their clients. A partner at Lambert Chapman said that one of his clients is owed more than £60,000 and although the client is being offered lots of additional work, he needs that cash to fund it.
A spokesman from the Revenue said that a new computer system will go some way towards ensuring that tax deductions are more accurate. The majority of tax refunds are processed within a couple of weeks but occasionally some are delayed slightly for additional security checks.
He added that HMRC does not consider it unreasonable to expect the public to pay their tax on time and in full in order to fund the UK’s vital public services. If HMRC considers prompt settlement to be reasonable, don’t the public have the same right to receive a prompt refund if they have made an overpayment?
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