HMRC’s “process now, check later” regime poses various risks to taxpayers and is susceptible to exploitation by unscrupulous claims agents. This approach, which involves processing repayment claims before thorough validation, can result in significant financial consequences for UK taxpayers.

What is HMRC’s “Process Now, Check Later” RegimE?

HMRC typically processes repayment claims before conducting a thorough check on the validity of the claims. This approach, stated in HMRC’s manual EM0060, often leads to inquiries and potential repayment, accompanied by interest and penalties, occurring months or even years later. While this expedited process benefits cash flow, it places the responsibility of verifying claims on individual taxpayers.

Why is this a Necessity:

There are situations where processing claims before validation is necessary, such as the Self-Employed Income Support Scheme (SEISS), which provided essential financial assistance during the height of the COVID-19 pandemic. While some invalid claims have surfaced, it’s essential to acknowledge that legitimate SEISS claimants couldn’t have waited for HMRC’s validation before receiving much-needed support.

The regime is vulnerable to Abuse:

Unfortunately, the “process now, check later” regime opens the door to fraudulent practices, with deceitful individuals posing as “claims agents” targeting unsuspecting taxpayers. A recent example featured Apostle Accounting, a firm that submitted fraudulent self-assessment repayment claims for employment expenses on behalf of hundreds of taxpayers. These taxpayers are now required to repay substantial sums to HMRC, including fees deducted by Apostle, along with interest.

HMRC’s Proposed Solutions:

Efforts have been made to enhance taxpayer protection when using repayment agents, addressing unscrupulous tactics employed by some of them. While a complete overhaul of the self-assessment system might be impractical, subtle changes could deter rogue agents. HMRC’s internal manual includes a list of repayment inhibitor triggers, indicating when additional checks are required, but evidence suggests that many repayments slip through without scrutiny.

One potential solution is to implement IT controls within the self-assessment system. This could flag high amounts in specific boxes, such as those for deductible work-related expenses, and subject claims exceeding certain thresholds to compliance checks before releasing the tax rebate. While this may necessitate initial time and resources, it could ultimately save HMRC from pursuing fraudulent claims, reducing stress and financial burdens on taxpayers.

Expanding the Issue:

The “process now, check later” approach isn’t unique to self-assessment; rogue agents exploit this system in various tax areas. For instance, HMRC warned care homes about agents making illegitimate Research and Development (R&D) claims and noted cases of taxpayers misled into making invalid stamp duty land tax (SDLT) reclaims. The inconsistency in addressing these issues raises questions about HMRC’s motives.

Financial Considerations:

One potential reason for maintaining this approach could be the revenue generated through interest on unpaid tax liabilities. As soon as a claim is paid to the taxpayer, interest starts accumulating at a rate of 7.75%. Additionally, the agent’s commission is often subject to taxation as income, benefiting the agent or their company.

HMRC’s “process now, check later” regime, while expedient, poses significant risks to taxpayers and is open to abuse. While recent measures aim to protect taxpayers from unscrupulous agents, subtle changes in the validation process may offer better safeguards. It remains a topic of debate whether these changes would be in HMRC’s best interest or if the revenue generated through interest justifies the current approach. Taxpayers are advised to remain cautious, and HMRC encourages them to contact the agency directly for support and assistance with their tax affairs.

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