Skip to main content

Tax Refunds Regulation (Review)

Volume 537: debated on Wednesday 7 December 2011

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to require the Chancellor of the Exchequer to commission a review of the timelines with which tax refunds owed to taxpayers by Her Majesty’s Revenue and Customs are made; as part of that review to consider the merits of making such refunds payable on the day they are calculated and applying interest and penalties to such refunds 30 days after they are payable; and for connected purposes.

I realise that I may be tempting fate, as I will be submitting my own tax return to HMRC within the next few weeks.

HMRC does pay interest, but the late payment rate is six times the unpaid refunds rate. Currently, with record lows in interest rates, the late payment rate is 3%, but the unpaid refunds rate is just 0.5%. When we look at penalties, the inequality is starker. Yes, there are a wide range of penalties applying to virtually every tax. For instance, if a taxpayer has not received a self-assessment notification, has not realised that they may need one and so does not ask for one, they may have to pay a penalty of up to 30% of additional tax due, even if they did not know the process they had to follow. A taxpayer, whether personal or business, who makes an inaccurate return through carelessness, not deliberate error, may also have to pay a penalty of up to 30% of the extra tax due. I am not aware of HMRC being penalised if it makes a mistake or its systems and processes contribute to late or unpaid refunds, yet that happens for the taxpayer.

The system is designed to push unpaid refunds into a suspense account. Errors can easily be made. For example, section 4 of the online form asks who will receive some or all of the overpayment. If a taxpayer does not provide bank details, rather than the Revenue simply issuing a cheque, the moneys are not issued and are held in a suspense account. The Revenue states that no repayment will be made automatically until the taxpayer contacts it. It could be argued that the taxpayer could and should provide accurate details and that the Revenue is right to withhold payment, but that would not prevent the Revenue from issuing a cheque. It simply chooses to withhold the money.

The key issue before us is the discrepancy between the penalties and interest rates levied by HMRC and the interest rates and lack of penalties levied on it. This is particularly relevant when the taxpayer has followed the rules but it has taken months for refunds to be paid. The Chartered Institute of Taxation has advised me that the catch-all reason for late payments is the security checks used to validate the identity of taxpayers, which appear to cause delays of up to several months. HMRC is right to combat fraud by undertaking such checks, but they are left to the very end of the refund process and are deliberately designed to delay the refund. Taxpayers and tax advisers often think that that is more to do with cash management by the Treasury than combating fraud.

Organisations assisting low-income groups have told me that delays in receiving expected refunds can cause disproportionate financial hardship for low-income taxpayers. Having coped with the delays in the onset of the process, when routine correspondence can take up to 12 weeks, the problem is then compounded in some cases by further delays of up to eight weeks for security checks to be made. For example, a pensioner I know of waited four months for a refund of just £70. That might not sound like a lot of money, but it is for a pensioner living on the basic state pension. The pensioner said, “We have always been prompt in settling our dues and expect the same in return.” The pensioner was living in the west midlands. The tax that was erroneously collected was paid to the Cardiff office, an apology for the mistake was received from the Portsmouth office and the cheque eventually arrived from the Glasgow office. No doubt the Revenue has reasons for handling different parts of the process in different parts of the UK, but a multi-part process handled in multiple offices cannot be conducive to efficiency.

How can we focus the Revenue on improving its customer service? In my experience of dealing with the public sector, if we grab them by the budgets, minds will follow. If the Revenue had to pay real rates of interest and penalties, it might be motivated to streamline its processes and issue refunds promptly. It fulfils an important role. The taxes it collects fund our essential services, and I have no issue with that. Being rigorous in collecting overdue tax is fair, but it seems oblivious to the scale and impact of tardy refunds.

My hon. Friend the Exchequer Secretary to the Treasury confirmed in a written answer to my hon. Friend the Member for Sevenoaks (Michael Fallon) that the Revenue does not hold information on the average length of time taken to process a repayment. It is simply not important enough to it. In my business experience, what gets measured gets done.

The Treasury Committee agrees. In its report in July, it commented on HMRC service standards, and one of its recommendations was that the HMRC work closely with professional bodies, charities and businesses to develop a series of performance indicators that credibly reflect customers’ end-to-end experience of dealing with the Revenue. Those indicators should be regularly published. If the interest paid on late payments and the penalties on those were published, I suspect that we would see a shift in the relationship between the HMRC and the taxpayer.

The issue of fairness is paramount in this Bill. Taxpayers should be entitled to the same level of interest and penalties on late refunds as the Revenue expects to levy on late payments. In this place, we often say that we govern only with the consent of the people. We have allowed the relationship between the Revenue and the taxpayer to deteriorate to that of master and slave. It is time to rebalance that relationship.

Question put and agreed to.


That Mike Freer, Mr Matthew Offord, Andrew Percy, Justin Tomlinson, Priti Patel, Andrew Bingham, Jesse Norman, Jane Ellison and Simon Hart present the Bill.

Mike Freer accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 30 March 2012, and to be printed (Bill 259).