Tax Credits Ltd debacle should never happen again, say LITRG

Tax Credits Ltd operated an online process for making tax refund claims for taxpayers, including a ‘fast track’ option which collected an electronic rather than a ‘wet’ signature. LITRG received a significant number of distressing queries from people who thought they were applying for a working from home refund with Tax Credits Ltd, only to find there was a ‘deed of assignment’ in place carrying their signature, meaning that unconnected refunds were also sent to the tax refund company.

Victoria Todd, Head of LITRG, said:

“For more than a year, LITRG has raised concerns with HMRC regarding Tax Credits Ltd (TCL), following a series of complaints to us from taxpayers. We have also raised issues relating to other refund companies and their practices. One of the issues raised was that TCL used an opaque online process to collect a taxpayer’s signature and then apply it to a legal document which purported to ‘assign’ tax refunds in their favour. LITRG has maintained all along that a document with an electronic signature attached, which a taxpayer has not seen, understood or approved, should not be accepted by HMRC as a valid assignment.¹

“People affected by this practice have been telling us about the significant impact this has had on their mental health and well-being. We are therefore pleased that HMRC will now take steps to put right this wrong. This will help restore individual taxpayers’ financial positions, and perhaps also their faith in HMRC, given that until now there has been no official response from HMRC. We very much hope that lessons have been learned, in terms of how HMRC respond, should a similar situation ever arise again.”

HMRC estimate up to 60,000 taxpayers signed up through the TCL online process. HMRC are taking the following actions:

For TCL applications that are pending within HMRC's systems:

• HMRC will not follow the assignment where it was produced via the TCL fast track process - they will pay the refund directly to the taxpayer.
• HMRC will follow the assignment where the taxpayer has signed a paper claim and assignment. HMRC say these assignments are valid. They will pay the refund to TCL.

For applications where HMRC have already paid out refunds to TCL in accordance with an invalid (fast track) assignment:

• HMRC will reissue the refund in full to the taxpayer and will try to recall the money wrongfully paid to TCL. This means the taxpayer may have received more than they were entitled to and TCL may therefore try to recover some of the money from the taxpayer directly under the terms of their contract with the taxpayer.² 

LITRG has published an article which explains in more detail the action HMRC will take.

LITRG points out that there are other issues that have been reported both with this tax refund company and other tax refund companies, which are longstanding, and which are known to HMRC.³ Some of the issues would appear to breach HMRC’s standards for agents, which HMRC have different powers to address, including ‘refusal to deal with’ powers.

Victoria Todd said:

“HMRC’s recent consultation on repayment agents is a welcome opportunity to put consumer protection issues under the spotlight to improve the system going forward, but we remain concerned that such changes will take some time to implement and more taxpayers will be affected by some of these wider issues in the meantime.

“Putting aside the specific assignment issue, there are a number of other issues such as people saying they have mistaken refund companies for HMRC, refund companies being unresponsive when taxpayers try to contact them and concerns about protection of their data where the repayment agent requests significant personal information in order to process a payment of a refund to them.  

“Tax refund companies can provide a legitimate service to taxpayers and, in many instances, taxpayers are grateful that they are there to support them. Without them, some taxpayers might not get any refund at all. But they are not entitled to abuse the position that this gives them.

“We urge HMRC to keep this issue as a priority and review all repayment agents’ practices, not just in relation to assignments, but other areas of consumer protection. Where agents fall short, HMRC should use all existing powers open to them to take immediate action to protect taxpayers.”

Notes for editors

1. HMRC’s guidance for PAYE taxpayers as to what constitutes a valid deed of assignment can be found here.
2. HMRC are only dealing with certain cases involving TCL. The LITRG article explains what people who feel they have been affected by similar issues although with different agents, should do.
3. LITRG are aware of issues that include high fees, unclear terms, people confusing tax refund companies with HMRC, being unresponsive to taxpayers who are trying to contact them, and potential data protection concerns where significant personal information is requested in order for the repayment agent to process payment to the taxpayer.
4. HMRC’s full statement is available to view here. HMRC will directly refund all affected clients of Tax Credits Ltd and will write to them explaining their refund. All refunds will be made automatically, and Tax Credits Ltd clients do not need to take any action to receive their money. The process for making refunds to affected taxpayers whose claims have been paused since May will begin immediately, with all refunds due to be made by mid-November. For claims already paid by HMRC to Tax Credits Ltd (those made between December 2021 and May), taxpayers who have received payment, minus fees, from Tax Credits Ltd can also expect to receive their direct refunds from HMRC by mid-November.