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Highlight

  • HMRC is taking over four months to process tax refunds, with some payments delayed until August 2025.

  • Small businesses are set to lose access to a free online filing service by March 2026, requiring them to pay for third-party software.

  • Accountants and MPs have raised concerns about growing backlogs, poor service quality, and increasing financial pressure on small firms.

HM Revenue and Customs (HMRC) is under increasing scrutiny after reports emerged of significant delays in processing tax refunds, with some taking more than four months to complete. The backlog has drawn criticism from accountants, business owners, and MPs, especially as small businesses face rising financial pressures.

Traditionally, such refunds – including those related to overpaid tax and national insurance – would take a few weeks to process. However, recent experiences reported by accountants suggest that refunds are now being delayed until as late as August 2025. Nikki Ainscough, managing director of Equilibrium Accountants in York, shared that one of her clients who overpaid on their PAYE bill had been told they would have to wait five months for the funds to be released, despite the request being submitted in March.

She described the situation as unprecedented in her 12 years of running the firm, adding that the current delays hint at a significant volume of outstanding claims, potentially tying up critical funds for small businesses already grappling with tight cash flows.

The delays appear most acute in refund requests linked to PAYE and the Construction Industry Scheme (CIS), both widely used by employers and contractors in the construction sector. Ainscough also noted that self-assessment refund delays seem shorter, but still involve warnings of additional 12-week waiting periods after initial processing.

Contributing to the problem, it is understood that some HMRC staff assigned to these refund areas have taken part in industrial action, further impacting turnaround times.

Responding to criticism, an HMRC spokesperson stated that efforts were being made to tackle response times by assigning more staff to refund claims. “We’ve made significant improvements to our customer service overall,” the spokesperson said, noting an 80% satisfaction rate and assurances that service standards would be met in 2025–26.

The tax authority is also facing backlash for its decision to shut down a free online tax filing service used by small businesses. The service, set to close in March 2026, allows users to file company tax returns and calculate their corporation tax without using third-party software. HMRC cited the platform’s inability to meet modern digital standards and changes in company law as the reason for its discontinuation.

This move will require businesses to pay for commercial software, with many options starting at around £15 per month. While some providers offer competitive packages, others are seen as profiting from businesses now being compelled to use their tools. Ainscough remarked that software firms are “cashing in,” though some still offer good value.