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Where Taxpayers and Advisers Meet
Your Tax Refunds: Why is HMRC Ignoring the Legislation and Even Its Own Guidance?
01/04/2021, by Lee Sharpe, Tax Articles - Tax Investigations & Enquiries
Rating: 1/5 from 1 people

Supposedly “protecting the Exchequer” has given rise to a multitude of sins against the general taxpaying public. Here’s another, warns TaxationWeb’s Lee Sharpe.


We are being told that HMRC is working tirelessly to assist, during the pandemic. I have no doubt that there are staff at HMRC – just as with everywhere else – who are working very hard. But it is difficult to dispel the perception that the hype is just part of a wider government strategy to ensure the public is being appropriately buttered up for the next phase of Making Tax Digital.

Consider this nugget:

“COVID-19 has highlighted the need for a more flexible, resilient and responsive tax system. The Self-Employment Income Support Scheme could have been delivered more quickly, without the need for 8 weeks’ intensive work extracting, cleansing and reconfiguring the relevant data.”

Personally, I think the pandemic has highlighted the need for a government capable of finding its own rabbiting posterior with its own hands. One might think that there is a case for a “lessons learned” Inquiry into the pandemic before the people involved have retired. But perhaps not, if the government is already able to drill down and gauge, with such confidence, the link between pandemic readiness and our Self Assessment regime. I digress.

I might point out that, welcome as the government’s pandemic measures may have been for many businesses, their owners and their employees, 8 weeks of hard data analysis does not measure up that impressively against the roughly 12 months and counting, during which a huge number of accountants, agents, employers, etc., have had to deal with the practically never-ending flow of edicts emanating from the government on CJRS, the SEISS, VAT, loans and grants, etc. It’s one thing to issue new rules, and entirely another to understand them. Then to advise, accommodate… and then scrap them entirely, after yet another change of direction.

Please be assured that I am under no illusion as to the heroic status of accountants or tax advisers as a general category (nor would I belittle the efforts of individuals who have gone above and beyond). I am not trying to say that accountants or tax agents, etc., were actually key workers or even close (no matter what their employers might have said in the January run-up to the Self Assessment filing deadline, before it got pushed to February with less than a week to go – well done, HMRC). Millions of people have had to work harder and longer thanks to the pandemic, with scant thought of a ministerial shout-out.

Anyhew, to the matter nominally at hand: it seems that HMRC has been less than forthcoming in actually helping taxpayers to get back the money to which they are entitled, when it comes to claiming tax repayments through Self Assessment.

The CIOT, the ICAEW and the ATT are all carrying articles on HMRC’s habitual dragging-of-the-heels when it comes to issuing SA repayment claims, where it has concerns that a taxpayer’s claim may be invalid and potentially fraudulent. This has come to the attention of the professional bodies because their members have raised the matter with them. Which I infer to mean that genuine taxpayers are suffering as a result of HMRC’s approach.  It matters, because there are rules in place to protect genuine taxpayers’ interests. And I conclude they are not being followed, but circumvented.

HMRC’s Approach When it Believes a Tax Repayment Claim MAY be Fraudulent

HMRC sends 2 letters, the first – “SURF1” – warns that HMRC believes that a taxpayer’s UTR may have been used to submit a potentially fraudulent repayment claim, and asks if the claim is genuine. If the taxpayer does not respond within 30 days, the repayment claim is cancelled and the SA record is shut down. It is possible that HMRC takes further action to support the affected taxpayer, who might well be a victim of identity theft, but HMRC has not told us.

If the taxpayer does respond to say that they did indeed submit a repayment claim, then HMRC issues a “SURF2”, which:

  • Asks for documentary evidence of identity – copy utility bills, passport, driver’s licence, etc.
  • Asks for Completion of the R38 Questionnaire, which in turn asks for quite a bit of detail about who actually submitted the return and, if the taxpayer were helped by an agent, how much they were paid, and
  • If the poor taxpayer has the misfortune to be involved in the construction industry, asks for a LOT of information and documentary evidence – including copy bank statements – under the Construction Industry Scheme (CIS). We do not know exactly what HMRC does if the sub-contractor is unable to provide all of the information requested but, given how HMRC treats construction industry workers generally, I think we can make an educated guess.

Your intrepid writer has some thoughts:

  1. While asking for information that in some respects goes some way beyond what HMRC might reasonably be allowed to ask for during an enquiry under TMA 1970 s 9A, HMRC says in the SURF2 that, while the letter sets out – I kid you not – to “verify your repayment claim”, it is NOT an enquiry under TMA 1970 s 9A – not even an aspect enquiry. HMRC is apparently relying on its ancillary powers under CRCA 2005 s 9. Seems to me that “ancillary” is doing a lot of heavy lifting.

Why might HMRC want to fall back on vague “ancillary powers”, rather than the legislation that actually tells HMRC what to do if there are concerns that a repayment claim might need to be challenged? Why, because the legislation requires HMRC to do things it doesn’t want to do, of course!

Consider its guidance at CISR75050, dealing specifically with claims under the Construction Industry Scheme, and which says (for example):

“Credit for deduction in SA return - Section 9A enquiry

TMA70/s31 refers to cases where the Compliance officer amends the self-assessment during or following a Section 9A enquiry. A refusal of a claim for a deduction in an SA return can only be made following the opening of a Section 9A enquiry. The Compliance officer will give effect to the refusal by amending the taxpayers return under TMA70/s28A. The taxpayer then has the right of appeal under TMA70/s31. The appeal is against the Compliance officer’s amendment to the self-assessment, which withdraws the credit for deduction.” (Emphasis added).

 Or, for enquiries more generally:

EM1609 - Opening the Enquiry: Miscellaneous: SA - Interaction with Repayments


The normal procedure for dealing with SA returns is to process now - check later. This is equally true whether the self assessment shows tax payable or a repayment due. The payment should be processed or the repayment made. However, HMRC has the right to verify the validity and accuracy of the claim and the amount of the repayment.

In certain cases or areas of particular risk we may verify the claim before any repayment is made. It would not then be appropriate to operate the normal process now - check later procedure.

Examples of the circumstances where this may be appropriate include the following.

  • You may have reason to doubt the bona fides of the claim or the claimant.
  • The repayment risk assessment has identified some problem areas.
  • There may be reasonable doubt that some or all of the repayment is due.
  • The size of the repayment is disproportionate to the claimant’s apparent means.
  • There may be some doubt that the claimant could repay some or all of the repayment if it is later found not to be due. You should avoid repaying a sum that you feel fairly sure is not due and then having to seek it back from a customer.

Where the taxpayer has used an avoidance scheme, withholding the repayment can prevent any suggestion that we have tacitly approved the scheme or encouraged the use of it by giving effect to the repayment.

If you intend to withhold all or part of a repayment, you must open an enquiry into the return. If you decide to open an enquiry to prevent a repayment being made, you should first carry out a full risk assessment of the whole return.

Your enquiry should address all the areas of risk identified by your review. There should be no undue delay between undertaking the risk assessment and opening the enquiry.

You should open the enquiry in the normal way, by writing to the taxpayer (and the agent if appropriate) and requesting the information you need EM1550+. Each case is different and your letter should be written to address the particular circumstances. It should contain wording the same, or similar, to this.

‘Your self assessment shows the amount of [£…..] repayable. Under the authority of Section 59B(4A) Taxes Management Act 1970 I do not intend to repay any of that amount/I intend making a provisional repayment of [£…..], until I have completed my enquiries’.

You should not withhold repayment of more tax than is appropriate in the light of the perceived tax at risk. And if you withhold some or all of the repayment at the beginning of your enquiry, you should make a (further) provisional repayment during the course of the enquiry if it becomes appropriate as your enquiries on particular issues are resolved.” (Emphases added)

  1. If HMRC has genuine concern that a fraudulent claim may have been made – presumably because a genuine taxpayer’s identity has been stolen – then why is it seemingly concerned solely with whether or not a repayment should be made? Where is the action for HMRC to pursue whomever it is who has actually made the fraudulent claim, and/or to support the unfortunate taxpayer whose identity may have been stolen – and who is presumably going to get a rather nasty shock roughly a year down the line when he or she comes to file next year’s tax return, against a tax record that no longer exists? Is HMRC actually concerned about preventing tax improprieties, or just about holding on to taxpayers’ money?
  2. Assuming that HMRC is not just working on the basis that all such claims are 100% fictitious, where are the partial / intermediate repayments that should occur if HMRC follows its own guidance? (I imagine there are rather a lot of long-suffering sub-contractors in the Construction Industry Scheme in particular, who would be staggered to know that HMRC is supposed to repay any amount of tax that is not in dispute. Without being asked.)
  3. For a government department that continually reminds taxpayers and agents about IT security, etc., etc., is it not somewhat strange to see them ask for copious amounts of personal data to be transmitted through the post? It’s almost as if HMRC does not really care about a given taxpayer’s personal data risk, so long as it doesn’t get caught having lost 25 million taxpayers’ records on a couple of CDs. At the moment, a ‘legitimate’ taxpayer is effectively being told “we are concerned [but not that much, really] that you may have had your identity stolen. Please forward [pretty much all the information an identity thief might possibly want to know about you], to our PO Box address”.
  4. Furthermore, while it may be argued that such scenarios might not on their own warrant a national network of, say, local tax offices that a genuine taxpayer caught up in the middle of this might simply visit to sort out any misunderstandings, what happened to those specialist tax officers we were promised when those local tax offices vanished, who were supposed to swoop in to assist those who needed individual help? This reticence is not simply a COVID issue: these standard letters are also accompanied by a rider saying “for 30 days read longer, because of the pandemic”. These SURF standard letters would appear to pre-date the pandemic.
  5. While it is perhaps understandable that HMRC might want to know if the taxpayer had received any assistance from an agent in completing / submitting the return, it is unclear why HMRC wants to know the fee basis, and how much / what percentage fee the taxpayer was charged. Is this simply another instance of HMRC wanting to be able to open an enquiry, without actually having to open an enquiry?


In case it isn't obvious, I absolutely agree that HMRC is undoubtedly right to take steps to prevent loss to the Exchequer. Just not at the expense of innocent taxpayers. HMRC also has a duty to assist taxpayers - and, I would add, those in particular to whom it owes money. What I find so distasteful is the idea that HMRC has such broad powers to enforce the payment of tax, but then seems to deliberately ignore the commensurate legal and procedural safeguards against abuse of those powers – the quo for HMRC’s quid – at whim. Likewise the suggestion that what HMRC really needs to help you is even more taxpayer data, when the facts on the ground suggest that HMRC is not really that inclined to help taxpayers with the data it has already.

Given that today is April Fool’s Day, let’s consider HMRC’s Charter (not the Taxpayer’s Charter any more, remember):

HMRC is supposed to work with taxpayers to help them get their tax right, not give up the second It looks like the taxpayer might be owed some money – it’s actually the taxpayer’s money unless and until it’s proven to be tax that is due, no?

When it comes to following its own standards, it’s perhaps easier, here, to identify which of them HMRC actually appears to be following, than not. It sure doesn’t look like HMRC is “treating taxpayers fairly”, “making things easy [for the taxpayer, at least]”, “being responsive” or “being aware of the taxpayer’s personal situation”. Rather, it looks like HMRC is stopping a claim and figuring that no news is good news.

And as for “keeping your data secure”…!

I fear I know why HMRC has adopted this approach: it has set up some automated fraud prevention protocols which may have had some oversight in the past, but the pandemic has brought with it a much larger volume of unusual cases, so they are not being properly checked (assuming they ever were). HMRC simply does not want to expend the time and resources required to follow its own guidance, or – perish the thought – the legislation. And if a legitimate claim gets swept up by the fraud detection protocols every now and again… well... If that is the case, then I think it fair to say we might reasonably have expected rather more. At least as much as HMRC seems to expect of everyone else. Given how tax reporting lags behind actual incomes, losses, etc., I’d venture there is more to come.

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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