HMRC compensation: distress or worry claims, unreasonable delays, complaint appeals and more

Taxman payouts are soaring as a result of shoddy service. Katy Ward explores your rights if you believe the taxman has treated you poorly.

HMRC has been forced to almost double compensation payments as a result of poor service levels and delays, new research has found.

According to data obtained by accountancy firm UHY Hacker Young, the taxman forked out £718,000 in compensation for delays during 2022/23.

Shockingly, this represents a 94% increase from the previous year.

And it seems as though HMRC’s performance is getting little better, with reports this week of the authority offering £50 compensation payouts to 577,000 people hit by delays to Child Benefit payments.

In this article, we explain what's gone wrong and look at your options if you think you could have a claim.

Compensation could be worth anywhere between £25 and £500 if you are successful, so it's definitely worth doing if you think you have a case.

Opinion: dealing with HMRC has never been worse

Why are we complaining?

Delays were at the centre of many compensation claims, with the number of people receiving payouts related to waiting times almost doubling to 4,742.

Reasons for payouts include time waiting on the phone and customers paying excess tax because of slow service from HMRC.

This is perhaps unsurprising, with figures from the National Audit Office revealing that HMRC customers collectively spent almost 800 years on hold during 2022/23.

On top of this, the complaints process itself often makes matters worse.

Graham Boar, partner at UHY Hacker Young East, said: “Successfully getting meaningful compensation from HMRC for a delay is a very admin-intensive process.

"Many customers simply give up trying to secure the compensation they deserve.”

The best and quickest ways to contact HMRC

What the rules say

According to HMRC’s internal Complaints and Remedy Guidance: “If the impact of our actions has affected a customer, causing them worry or distress, in some cases we may be able to make a payment to acknowledge this and apologise.”

On top of this, the taxman may also reimburse you for any costs you incur as a result of its poor service.

Examples of these expenses include telephone calls, postage and additional professional services fees.

For instance, you may be entitled to compensation if you hire an accountant to help you resolve a tax issue caused by an error from HMRC.

Note that you will need to provide receipts and invoices as proof of your additional expenses.

You’ll need to demonstrate that these expenses are a direct result of HMRC’s failings.

The fine print

When it comes to compensation, the wording of HMRC’s guidance is a little murky.

For example, it states that the body may pay out in the event of "unreasonable" delays without specifying what constitutes an "unreasonable" delay.

Furthermore, the guidance explicitly points out that HMRC won’t compensate you for your "own time" spent resolving an issue with your taxes.

The authority also makes clear that "worry and distress" payments are only made to individuals and not companies, although it may make an exception if a company is effectively a "one-man band".

Crucially, HMRC stresses that compensation payments are not an admission of legal responsibility.

How much can I claim?

According to HMRC’s guidance, compensation payments are typically between £25 and £500, with the majority being at the lower end of the spectrum.

However, the authority does not place an official range on the amount it will pay out and notes that “a payment of £10 may be appropriate in some cases, whereas a payment of £1,000 may be right where there has been a very serious impact as a result of a very bad mistake”.

Interestingly, the guidance does make reference to payments in excess of £5,000 in "exceptional" circumstances.

Any compensation you receive from HMRC will be tax-free.

How to complain

If your issue is relatively minor, the first step may be to call HMRC and try to resolve the problem over the phone.

However, this may not be possible if your grievance has reached a stage at which you feel you may be entitled to compensation.

In this instance, the best approach is to formally put your complaint in writing, outlining any expenses you have incurred and clearly stating that you wish to be compensated.

Your complaint should also include information such as:

• Your National Insurance Number
• Your Unique Taxpayer Reference
• Any reference numbers included on your letters from HMRC
• Your contact details

If you’re seeking compensation for "worry or distress", you should also describe the impact that HMRC’s actions have had on you.

HMRC’s own guidance explains that an apparently minor incident can have a serious impact on a customer. For example, an incorrect penalty notice may arrive on the day of a funeral, or a missed credit payment could leave a family temporarily without money.

Once you have made your complaint, you can check when you should receive a decision using HMRC’s online tool.

Appealing a decision

If you disagree with the taxman’s decision, you can ask HMRC to review your complaint again, which is known as a "second-tier complaint".

During this stage, a different HMRC employee will investigate the matter and inform you of the decision. 

Should you still disagree with this second decision, you can take the matter to The Adjudicator’s Office, which investigates complaints about HMRC.

Also note that you may be entitled to further compensation if you feel that HMRC has mishandled your complaint.

How to get a tax refund

What are my chances of success?

Although the UHY Hacker Young figures reveal that compensation payouts are soaring, they do not include the percentage of claims that are successful.

While seeking compensation from HMRC may be a difficult process, we would always urge you to fight back if you feel you’ve been mistreated or lost out financially as a result of poor service.