ACCA Advanced Taxation (ATX) Practice Exam

What should be done if an unexpected payment is received from HMRC without a valid reason?

1. Keep the payment and notify the HMRC later

2. Return it without investigation

3. Investigate the tax affairs and repay if there is no valid reason

4. Use it for claimable expenses

The correct answer is: Investigate the tax affairs and repay if there is no valid reason

When an unexpected payment is received from HMRC, the appropriate course of action is to investigate the tax affairs first and only repay the amount if there is no valid reason for it. This approach aligns with the principle of ensuring accuracy in tax matters and maintaining compliance with tax regulations. Receiving an unexpected payment could indicate a variety of scenarios, such as an overpayment being refunded, a mistake made by HMRC, or a payment that should not have been issued at all. By thoroughly investigating your tax affairs, you can determine the nature of the payment. This is critical because keeping the payment without verification could lead to future complications, including potential penalties or legal issues if it turns out the payment was not rightfully yours. Additionally, returning the payment without investigation could result in a loss of opportunities to rectify any genuine overpayment situations that may have occurred, where you were entitled to the funds. On the other hand, using the payment for claimable expenses is not advisable, as it complicates financial records and may constitute misappropriation of funds if the payment is ultimately found to be erroneous. Thus, the correct action is to first investigate and ascertain the legitimacy of the payment before deciding on any repayment, ensuring compliance with tax laws and proper financial management.