In the run up to January’s online self assessment tax return deadline, the Low Incomes Tax Reform Group (LITRG) is warning of the risk that HMRC will issue any repayments due to last used debit or credit card, rather than the bank payment instructions entered on the forms
In April 2015, HMRC systems were brought into line with banking industry standards so that, where possible, repayments are made back to the last credit or debit card used to make payment on the self assessment account.
While HMRC does indicate this is the process in the tax return and notes, LITRG says many taxpayers risk being caught out and suffering hardship as a result.
It gives the example of someone who since last paying their tax bill, has lost their job and run up a large credit card debt. As a result of losing their job, they are due a tax refund for the latest tax year. HMRC now will only process the refund back to the credit card used to pay the previous year’s tax. As a result, the repayment just offsets credit card debt.
Equally, in situations where a husband paid both previous tax bills on his debit card, but has since split from his wife, if the wife is now due a tax refund, this will now be paid to the husband and she may not get the cash
LITRG says discussions with HMRC suggest there is no way of stopping HMRC’s system automatically attempting to repay a card in such circumstances, and says it is very important that taxpayers are aware of this and that they understand that their tax repayment may not be made where they are expecting it to be.
Card repayments are made provide certain criteria are met. These are that the most recent payment on the tax account was made by that card, and after the implementation of the new process on 6 April 2015, and is no more than the amount of the last payment received.
In addition, the debit or credit card payment has to have been made within the previous nine months. So if an individual pays their 2015/16 tax bill on 31 January 2017 with a debit or credit card and then submits their 2016/17 tax return in September 2017, if the refund is issued in October 2017 it will go to the debit or credit card, but if the refund is issued in November 2017, it will not.
HMRC’s guidance also says that a count will be kept of repayment amounts made following a card payment so that multiple repayments to card can only be made up to the limit of the payment received. For example, a customer makes a card payment of £500. Subsequent repayments of £200 and £200 would be repaid to that card. If a further repayment was due of £100 or less, it would also be repaid to the card but if it exceeded £100, it would be issued using BACS.