HMRC faces criticism for delayed tax refunds and service changes

HM Revenue and Customs (HMRC) is facing mounting criticism after reports surfaced of significant delays in processing tax refunds, with some individuals and businesses having to wait more than four months to receive overpaid tax or National Insurance repayments.

Accountants have voiced concerns that these delays, which used to take only a few weeks, are having a direct impact on cash flow for small businesses, many of which are already navigating difficult economic conditions.

In particular, delays in refunds related to Pay As You Earn (PAYE) and the Construction Industry Scheme (CIS) have come under scrutiny.

A Growing Backlog

Nikki Ainscough, managing director of York-based Equilibrium Accountants, explained that some of her clients, particularly in the construction sector, are being told they must wait until August 2025 for refunds on overpaid PAYE contributions.

She shared a screenshot from HMRC’s website showing a refund request made in March 2025, with a reply expected only by 22 August 2025. Previously, Ainscough said such refunds typically took no more than four to six weeks.

“If the backlog is that big, it suggests a high volume of claims and a potentially substantial sum of money owing to small businesses and individuals at a time when cashflows are critical,” Ainscough said.

The delays also come as HMRC faces increasing pressure from MPs, who have raised concerns over the growing complexity of the tax system and long call-waiting times, now averaging more than 23 minutes.

Impact on Businesses and Employees

Small businesses have been hit particularly hard. Ainscough noted that for one client, an overdue refund of over £1,000 from a self-assessment claim filed in April 2025 was not expected until 15 June 2025.

HMRC’s response indicated that it was processing claims received on 17 March 2025 and warned of potential additional delays.

Adding to the disruption, HMRC has acknowledged that industrial action among staff handling PAYE and CIS refunds may also be contributing to the delays.

Despite these challenges, an HMRC spokesperson assured that additional staff were being allocated to handle the backlog, and that improvements to customer service were being implemented.

Changes to Free Filing Service Draws Ire

Further frustration has been stoked by HMRC’s decision to shut down a long-standing free online service used by small businesses to file their company tax returns.

The service, which has been available since 2015, allows businesses to submit annual accounts and calculate their corporation tax without the need for third-party software.

Starting in April 2026, businesses will be required to use commercial software to file their accounts, a decision that some industry observers believe will increase costs for small businesses.

Ainscough commented that many small businesses had already been pushed onto third-party software and now faced additional charges for what was previously a free service.

She said, “Some of the software companies are taking full advantage of this shift and cashing in.”

The move follows HMRC’s justification that the service no longer meets modern digital standards and is no longer in line with recent updates to UK company law.

A spokesperson stated that the service was introduced to help small, unrepresented companies transition to online filing when software options were limited.

Now, with a broader range of commercial software options available, HMRC has announced that it will phase out the free service.

A Call for Reform

Despite the criticism, HMRC continues to maintain that it is addressing service challenges. An HMRC spokesperson emphasized that customer satisfaction remains high, with 80% of customers reporting satisfaction with HMRC’s services.

The spokesperson also pointed to funding received by HMRC to improve service standards for the 2025-2026 period.

However, for many accountants and their clients, the delay in processing refunds and the closure of the free filing service represent further setbacks in an already complex and often frustrating system.

With small businesses facing increasing economic pressures, these changes are likely to continue to spark debate among both tax professionals and businesses alike.