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Where Taxpayers and Advisers Meet
HMRC – Holding on to YOUR Money – Again?
19/03/2014, by Lee Sharpe, Tax Articles - Income Tax
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HMRC – Holding on to YOUR Money – Again?

Withholding PAYE refunds: does HMRC now think the principle of unjust enrichment should apply beyond VAT?

While still fuming over the seemingly perennial issue of intolerable delays to CIS refunds, I was passed a letter originating from those wonderful people at HMRC’s NIC & EO office, which reads broadly as follows:

“I can see that there is an overpayment of PAYE tax in a previous tax year. Before I can agree to a refund, please explain to me why a repayment has arisen.

There are numerous reasons, such as those below, which I will not accept.

  • Duplicate payments with no evidence
  • Payments made in error without any explanation...
  • ...any other explanation without supporting evidence...”

As I write, hackles almost locked in the upright position, I struggle to keep expletives out of reach of my twitching fingers.

Simply put, since when did HMRC’s role extend to finding out why a tax overpayment has arisen, and on what basis do they think they are entitled to withhold repayment,  in the absence of such an explanation?

I can find nothing in the tax legislation which supports this approach, which seems to be endorsed (but not explained or justified) in the PAYE Manuals at PAYE47061.  Of course, HMRC is entitled to information, records and documents by reason of FA 2008 Sch 36 – either with or without an enquiry. But although related, these issues are not one and the same.

If an overpayment appears to have arisen but there is doubt as to its validity, then it is right that information powers be used – as appropriate. But if and when satisfied that an overpayment has in fact arisen, then there is absolutely no excuse for holding on to the money for one second longer than it takes to process a repayment. Yet again, it seems, HMRC needs to be reminded that it is not their money. If only HMRC were obliged to operate under the same time frames it imposes on taxpayers! Note that PAYE47025 instructs officers effectively to write off overpayments of £10 or less, rather than to repay the money. Self Assessment taxpayers might be forgiven for thinking that smacks of double standards.

HMRC’s approach to CIS / PAYE repayments is quite different to Self Assessment: in the latter case, the only alternative to making a full and immediate repayment is to open an enquiry – and even then, only so much tax as is perceived to be in question should be withheld, and the balance repaid. So says HMRC’s Enquiry Manuals at EM1609 – although in my experience HMRC does sometimes struggle with the ‘immediate repayment’ bit.

In the end, PAYE is different to the SA taxes since, for the most part, the person overpaying the tax is simply an unpaid collector for the the unfortunate(s) who have paid too much. But then it could be argued that HMRC should be apologising to more people for withholding repayments. 

Regards all,

TW Ed

About The Author

Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.
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