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As part of the guidance VATRS03600 ‘Principles of repayment supplement for VAT, introduced on 24th August 2016, HMRC has now started sending letters to validate refund claims for income tax. These letters are used in the process of verifying claims that taxpayers have made.
The HMRC routinely examines tax returns and approves tax refunds, or in the case where there is a correction to be made, a separate assessment of tax is sent to the taxpayer. “TRUCE” is HMRC’s automated risk assessment system that identifies potentially high-risk self-assessment tax returns and flags them for investigation or compliance checks. Such spot examinations verify the authenticity and accuracy of income disclosed and discover compliance issues. If risk signs indicate the taxpayer has not paid the correct amount of tax or a refund claim is not allowable, HMRC will contact to verify the amounts claimed for tax relief. The taxpayer must respond and identify the expenses on which they are claiming tax relief. HMRC will remove the taxpayer from Self-Assessment and only refund claimable tax if they react in time.
SURF1: There is a common term for verification letters: “SURF” letters. For example, the HMRC will send the taxpayer a ‘SURF1’ letter, which is a one-page letter, to alert them to a risk of fraud about a repayment claim filed using the taxpayer’s unique tax reference (UTR). In this situation, HMRC guidance is to contact them within 30 days of receiving the “SURF1” letter. If the HMRC does not hear from the person within this time frame, they will close their Self-Assessment and UTR accounts and finally cancel the repayment claim. This means the record is no longer used for making repayment claims, exploiting the COVID Scheme, or engaging in any other fraudulent activity by the HMRC or the DWP.
SURF2: When a taxpayer responds to the ‘SURF1’ letter and contacts HMRC, HMRC will then issue the ‘SURF2’ letter, asking the taxpayer to provide evidence of their identity and a list of documents along with a “Repayment Questionnaire” and a form R38 that is issued to claim the refund. This is done to ensure that the taxpayer is eligible for the refund (Form R38). If HMRC has previously confirmed the taxpayer’s identity, they may, in some circumstances, act promptly to issue a “SURF2” letter to cut down on the amount of time it takes to receive repayments. This is not a formal enquiry in that it is described in section 9a of the Taxes Management Act of 1970, as stated in the first paragraph of the ‘SURF2 letter that HMRC sent out. However, the Commissioners of Revenue and Customs Act of 2005 requires that these examinations be conducted under section 9 of that act.
If you have received a letter from HMRC about a suspected fraudulent claim, or a questionnaire about tax relief you have claimed on your employment expenses, contact our team for a review. Remember, if it is a persistent claim yearly, HMRC may start a full investigation under the Code of Practice.