HMRC has been attempting to stem the number of cheques it issues for several years to reduce costs and streamline operations. Currently, hundreds of thousands of taxpayers are missing out on HMRC refunds worth an average of £800. This situation has raised concerns about the efficiency of the tax refund process.
Last year, HMRC issued a total of 1.7 million cheques to those owed rebates, but 178,180 of these cheques were never cashed. The combined value of these uncashed rebates amounts to £144 million, highlighting a significant issue for both the tax authority and taxpayers.
In response to these challenges, HMRC has been working to reduce the number of cheques it issues. The tax authority started moving to a new system in 2024, aiming to contact customers through alternative methods unless they specifically request a cheque. Most taxpayers will receive a P800 letter around June, following the end of the tax year in April, which will instruct them to request their payment via bank transfer.
Robert Salter, a tax expert, noted, “It is certainly a bit problematic that HMRC continues to use cheques to settle tax refunds in so many cases.” He added, “Until people do consistently open their HMRC correspondence, there is always going to be a problem and delays with the tax refund process.”
Approximately 20 percent of taxpayers remain on the old cheque system, with a transition to a new system aimed for completion by April 2027. The vast majority of PAYE repayments are now issued via bank transfer, which has become the default option.
Tax overpayments can arise from various circumstances, including switching employers mid-year and being assigned an incorrect tax code. HMRC will always communicate via letter regarding any tax owed and may follow up with a text reminder if no action is taken.
Those who have an uncashed cheque from HMRC can no longer cash it after six months, but a replacement can be issued upon request. However, it may become harder for HMRC to verify the rebate after nine years.
Shaun Moore, another tax expert, commented, “The data highlights how some parts of the tax system are still struggling to keep pace with a digital economy.” He emphasized that accelerating the shift to digital processes would reduce friction and ensure overpaid tax reaches people more reliably and promptly.
As HMRC continues to adapt its processes, observers are watching closely to see how these changes will impact taxpayers and the overall efficiency of tax refunds in the future.
