UK Firms Waiting Longer For Tax Refunds

by Robert Lee, Tax-News.com, London

27 January 2010

Some UK-based businesses are waiting twice as long for repayments of corporation tax from HM Revenue and Customs (HMRC) compared to last year, leaving many facing cashflow problems.

Chartered accountants UHY Hacker Young says that many of its clients are now waiting more than a month for corporation tax repayments, with some waiting two months or more. Less than a year ago the average turnaround on repayments was just seven to fourteen days.

Rob Durrant-Walker, Tax Manager at UHY Hacker Young, comments: “The last thing businesses need is delays waiting for corporation tax refunds – refunds to which they are fully entitled. The financial distress caused by such delays will only add to the woes of companies already facing a struggle for survival. Unlike the self assessment system for individuals where repayments are largely automated, subject to security checks, all corporation tax repayments have to be processed manually by HMRC staff.”

According to the firm, one of its small business clients has only just received a repayment for GBP35,000 (USD56,630) - five weeks after the claim was filed electronically. "Normally that repayment would be handled in about a week,” says Walker. "We now often have to chase HMRC for repayments before clients receive their money.”

UHY Hacker Young says that the increased delays in refunds may be partly due to HMRC recently changing the way in which it deals with corporation tax, centralizing it into a small number of large regional offices. A significant rise in businesses posting losses during the recession, leading to a sharp rise in refund claims, is another factor.

HMRC is also being criticized for sending millions of individual taxpayers the wrong tax code, which could lead to many people overpaying income tax.

HMRC is issuing around 25 million tax coding notices this year, roughly double the number issued last year. But according to the Chartered Institute of Taxation (CIOT), "it is clear that a significant proportion of these are wrong."

Those affected have been sent a wrong tax code by HMRC as a result of an error in a new PAYE (pay-as-you-earn) system. Many people with one job are receiving two (or more) tax coding notices with different codes shown. If not corrected by HMRC in the next few weeks, the CIOT warns that the wrong information will be sent to huge numbers of employers and pension companies which will lead them to deduct the wrong amount of tax from many of their employees and pensioners.

“Most people on PAYE are used to assuming that what the taxman sends them is correct. Many file away coding notices without even bothering to check them," said Andrew Hubbard, CIOT President. “But this year, many of them are being given wrong information, and unless they spot it and tell HMRC, their employer will receive the wrong information too, and they could get a nasty shock when they open their April pay packet and see it is as much as a hundred pounds lighter than they are expecting."

"The government should launch an urgent publicity campaign to highlight what has happened and tell people what they can do about it," continued Hubbard. "They also need to add a specific warning about it to the majority of P2 notices – the letters containing tax code information – which have still to go out."

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