top of page
  • Writer's pictureKaren Lowen

HMRC Issuing Incorrect Tax Refunds Due to Software Glitch

We are currently raising awareness that HMRC are issuing random tax refunds due to a software glitch.

Several times now, clients have been refunded a sum of money that they weren’t expecting. Upon investigation this was funds that HMRC should have held to pay the next tax liability due. Instead, they have refunded it directly to the client, which will leave them in an underpayment situation come 31st January 2023.

The refunds appear connected to the payments on account that businesses must make towards their following year’s tax if profits are above £1,000 or in certain other cases.

What are ‘payments on account’?

Payments on account are, simply put, payments of tax in advance for the following tax year. The payments on account equal the amount of tax paid for the previous tax year (ending 5th April each year) and are split into two amounts. The first instalment is added to that year’s January tax bill and the second is payable the following by 31st July of the same year. When calculating any tax that is due by 31st January, these payments on account are then deducted and the following year payments on account added on.

This is a difficult concept for many people outside of the accountancy profession to grasp, particularly in the first year of trading. On their website, HMRC give the following example of how payments on account work:

Example: Your bill for the 2020 to 2021 tax year is £3,000. You made 2 payments of £900 each (£1,800 in total) on account towards this bill in 2020.

The total tax to pay by midnight on 31 January 2022 is £2,700. This includes:

· your ‘balancing payment’ of £1,200 for the 2020 to 2021 tax year (£3,000 minus £1,800)

· the first payment on account of £1,500 (half your 2020 to 2021 tax bill) towards your 2021 to 2022 tax bill

You then make a second payment on account of £1,500 on 31 July 2022.

If your tax bill for the 2021 to 2022 tax year is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2023.

HMRC refunds are causing confusion

However, HMRC are refunding all, or part, of the payments on account so that when January arrives many taxpayers may find that they have underpaid which can lead to penalties and interest.

At Turl & Co we are already finding that affected clients are confused, believing that HMRC would not refund money that they are not due, as the tax system is trusted overall. The advice is not to spend any refunds that you have received but are not expecting and, instead, to save the money as it may need to be repaid on 31st January.

What action can I take?

Firstly, don’t spend a refund that you receive from HMRC unexpectedly. Secondly, check the advice your accountant gave you regarding you tax position. If no refund was mentioned, or a refund of a different amount was stated, then let your accountant know that this money has been refunded and you don’t know why.

At Turl & Co our advice is to firstly let us know that this has happened to you and set the money aside as it will need to be paid back before 31st January 2023 in most cases.

What if I end up having underpaid my tax liability?

If you do find that you are contacted by HMRC who state that you have underpaid your account, then check this against any advice from your accountant. If it is due to a refund being incorrectly issued by HMRC then you should be able to make a claim for any interest or penalties charged.

You can use Form SA370 to make an appeal against a penalty and this can be printed from the HMRC website and posted to them once completed. Remember that there is a time limit for making appeals, which is usually 30 days from the date the penalty notice was issued. The issue date will be stated on the penalty notice itself.


bottom of page