What's Happening?
A recent study by UHY Hacker Young has revealed that self-assessment taxpayers in the UK overpaid approximately £8.9 billion ($12.18 billion) in income tax last year. The overpayments are largely attributed to the Payment on Account system, which requires
taxpayers to make advance payments based on the previous year's tax bill. If a taxpayer's income decreases, these payments can exceed the actual tax due, leading to significant overpayments. The study found that around 2.6 million people paid too much tax through self-assessment. Many taxpayers are unaware of these overpayments, as HMRC does not automatically correct them. Taxpayers must identify the issue themselves and apply for a refund. Additionally, basic errors in tax returns, such as incorrect salary figures or unclaimed business expenses, contribute to the overpayments. UHY Hacker Young advises taxpayers to carefully review their returns and seek professional advice if needed. The firm also warns that HMRC backlogs can delay refunds, with some taxpayers waiting up to two years to receive their money.
Why It's Important?
The revelation of such significant overpayments highlights systemic issues within the UK's tax collection process, particularly affecting self-assessment taxpayers. This situation underscores the importance of accurate tax reporting and the need for taxpayers to be vigilant about their tax affairs. The delay in refunds due to HMRC backlogs adds financial strain on individuals who may rely on these funds. The overpayments essentially act as interest-free loans to the government, which can be particularly burdensome for small business owners and self-employed individuals who often operate with tight cash flows. This issue also raises questions about the efficiency and fairness of the tax system, potentially prompting calls for reform to ensure more accurate and timely tax assessments and refunds.
What's Next?
Taxpayers affected by overpayments are encouraged to review their tax returns and apply for refunds if necessary. UHY Hacker Young suggests that individuals seek professional advice to navigate the complexities of the self-assessment process. The firm also calls for HMRC to improve its systems to automatically identify and correct overpayments, reducing the burden on taxpayers. As awareness of this issue grows, there may be increased pressure on HMRC to address the backlog and expedite the refund process. Additionally, this situation could lead to broader discussions about reforming the Payment on Account system to prevent future overpayments.
