Currently claims for income tax relief on employment expenses can be made using one of the following options:
- a self assessment tax return;
- online service available to taxpayers (but not agents);
- print, complete and post the P87 form available on gov.uk;
- by phone (subject to limits) if a claim has been made for a previous tax year; or
- substitute claim form or letter. Substitute claim forms are widely used by high volume repayment agents.
From 7 May, HMRC is mandating the use of the standard P87 form for claiming income tax relief on employment expenses on gov.uk and will reject claims that are made on substitute claim forms. The other options will remain available.
Changes to the P87 process and form
Some changes have been made to the P87 form. For example, it now has the functionality for multi-year claims and up to five employments. The new form is available on gov.uk from 21 March 2022 and will be mandatory from 7 May 2022.
HMRC will be using Hyperscience – a sophisticated form of optical character recognition/robotics – to process the forms without human intervention. It will mean that the applications must be fully compliant to be processed automatically (eg, have no attachments).
Any forms with attachments will not go through the automated process but will be put to one side for manual processing. While the automated forms can be processed quickly, the manual ones will take much longer.
Digitally excluded taxpayers will still be able to request a hard copy of the new P87 form.
Impact of the new process
High volume repayment agents will be most impacted as they often use their own substitute forms. This change has the potential to significantly disrupt their business model, particularly those that use deeds of assignment rather than simply nominating the repayment to the agent.
Simple nominations can be done on the P87. Deeds of assignment need to be on an attachment which means that these cases will need to be processed manually, which will cause a delay.
Where a nomination is made, the taxpayer remains legally entitled to the repayment and can withdraw their nomination at any time. If a taxpayer legally assigns a repayment, the third party is legally entitled to the repayment. An assignment can only be revoked if both parties agree in writing.
ICAEW welcomes the increased transparency that this should bring. Many taxpayers don’t understand that they are signing a deed of assignment when it is included on a substitute claim form. It also gives HMRC the opportunity to check deeds of assignment carefully to ensure that they are compliant. ICAEW is aware of concerns that HMRC has been accepting paperwork that may not meet the criteria for a valid assignment.
The use of Hyperscience robotics for other forms
HMRC is about to start using Hyperscience for some R40 forms (interest on PPI) and it is expected that it will extend the use of Hyperscience to other forms. The difference is that HMRC has the power to mandate the use of the P87 but at this stage it hasn’t created a similar power for other forms. Therefore, HMRC may have to continue to accept substitute forms (other than the P87) although substitute forms will take longer to be processed.
Further information on regulation relating to P87
The necessary regulations were laid in parliament on Monday 7 March 2022
The regulation relating to the P87 comes into force on 6 May 2022; on that date a Commissioners’ Direction will be published which will prescribe the format of the P87.
ICAEW Know-How from the Tax Faculty
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
More from the Tax Faculty
Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly enewsletter
Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.
Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.