Tax refund companies

Introduction

Tax refund companies, or tax refund organisations, are businesses that specialise in offering services to help you submit a tax repayment claim. They may do this via a paper process (using forms R40, P87 and Marriage Allowance for instance) or via the self assessment tax return system. They charge a fee for these services (more on this under the heading What you need to know below).

Advertising

Tax refund organisations often operate online and pay for advertising space so that they appear at the top of search engine results or on your social media.

Sometimes they partner with employers and unions who refer workers to their services (for a commission). Websites for tax refund organisations often use headlines to catch your attention – for example, suggesting that you might be due a large amount of money from HM Revenue & Customs (HMRC) and that they can make claiming a refund easy for you.

Reasons to use (or not to use) a refund company

Some organisations also indicate that they are ‘HMRC approved agents’, but HMRC do not approve agents as such (more on this under the heading What you need to know below). Using such a company does not mean that things will be processed faster, as HMRC deal with refund processing on a first-come first-served basis.

Tax refund organisations may not be unscrupulous or do anything wrong. You might wish to use a tax refund company and pay a fee to them to help you claim a refund, particularly if you do not understand or have time to do the paperwork yourself. That is fine, provided you have made an informed choice to do so and understand what you are getting for your money.

But often, refunds are straightforward to claim yourself from HMRC and for little or no cost. We would recommend that you at least try to understand your taxes for yourself even if you do decide to get an agent’s help. You may even be able to make your claim quickly and easily online.

What you need to know

Some tax refund companies are meeting a genuine need in the market and operate according to appropriate standards, but the area is unregulated and there is a huge variety of providers.

Being unregulated means that there are no standards (other than the basic HMRC standards for agents, or professional standards for companies run by members of professional bodies) set by the authorities that refund companies have to follow. So, while there are good tax refund companies, there are also very poor ones.

You should be aware of the following points when using a refund company.

Cost

The costs charged by refund organisations vary, but often the charge is the higher of:

• a minimum charge (for example, we have seen a minimum fee of £90), and
• a percentage of the tax repayment obtained (we have seen percentage fees of up to 50 per cent for relatively straightforward claims).

These two things together mean that the charge may reduce or eliminate the benefit of making a claim for a tax repayment, depending on the amount of tax involved. VAT may also be added on.

Sometimes they will also add on charges for transferring money into a bank account, for example, which they are not always transparent about.

The pricing structure encourages poor practice – for example, submitting inflated or fraudulent claims. We have also heard of tax refund companies asking HMRC to remove expenses that are usually included in a PAYE tax code, to generate further work for themselves.

Potentially false claims about their status

Tax refund organisations are not HMRC-approved agents. They may be registered with HMRC for anti-money laundering purposes and be registered with HMRC as an agent for the purposes of receiving refunds on your behalf. But this does not mean that the organisation is in any way affiliated with or approved by HMRC.

Some may use a name, branding or logos that could confuse you into thinking that you were dealing with HMRC.

Data protection

You may be asked to sign a form 64-8 – authorising your agent (or wording to that effect in an application pack), or give some other form of authority, such as a signed nomination or letter of authority. The form 64-8 gives HMRC the authority to correspond with the tax refund organisation about your tax affairs. It can be revoked without the consent of the agent, however you may not realise this or do this in time to stop the agent receiving information about your tax affairs. 

A nomination or letter of authority means that your refund will be paid to the tax refund organisation in the first instance, so they can take their fee. More on these below under the heading Nominations, assignments or letters of authority.

Electronic or digital signatures

Tax refund companies typically use electronic or digital signatures, which HMRC say they accept. A tax refund company may have an online process that means you ‘sign’ a general screen and tick a box, which the tax refund company says gives them permission to apply your signature to various documents.

As we explain below under the heading Nominations, assignments or letters of authority, in some instances therefore, your signature may be applied to an application pack, 64-8, nomination or letter of authority that you have not seen and without you physically signing anything. Be particularly careful of filling in a questionnaire, using a calculator, expressing an interest or entering an email address. There will often be a screen at the end of the process asking you to sign and tick a box to agree to the terms and conditions. This may be used to populate an entire tax refund claim. 

Data sharing

Some of the tax refund companies we have been contacted about appear, from information on Companies House, to have connections to payment protection insurance (PPI) claims management companies. Either because the same people run both companies or because the PPI claims management company is working in partnership with a tax refund company.

If you do not remember making a claim or authorising anyone to do it for you, then it is possible that your details and signature have been shared with a tax refund company as part of a previous or different claim service. For example, some cases we have heard of appear to suggest that a PPI claim made a few years back with one company seems to result in a tax refund later being sent to another company – the inference being that the signature given on the PPI claims management company paperwork has now been used to generate an R40 claim by a tax refund company for tax purposes.

Due to concerns over the nature and scale of R40 claims for PPI tax refunds being submitted by certain tax refund companies, HMRC now require evidence before they progress a claim for a PPI tax refund. This is to ensure they are only processing claims that are correct and properly authorised by the taxpayer. Read more about this below under R40 – new evidence requirement.

Receiving your refund

Tax refund organisations normally request authority to receive the repayment on your behalf. They will then deduct their fee and pass the balance to you. This creates risks, for example that you might not receive your repayment at all.

We are hearing that some tax refund companies are asking taxpayers for extensive personal data, including bank details, in order that they can undertake ‘identity checks’ before issuing the refunds.

Sharing such data puts you at risk of personal fraud or even identity theft. If you are uncomfortable providing all of the details, then you could ask the tax refund company if they can send a cheque to your home address. This should mean that you do not have to provide your bank details. You may still need to verify your identity to get your refund – although strictly, the rules say they should request documents to verify your identity before they provide any services to you. Read more about this under the heading Anti-money laundering requirements below.

You also need to be careful that you look out for anything as part of the final steps to getting your refund that might inadvertently lock you into their service for another year (for example, a box that needs to be unticked to opt out).

Anti-money laundering requirements

Businesses who provide certain services are required to have anti-money laundering systems and controls in place to meet the UK anti-money laundering legal requirements. This includes checking the identity of their customers at the relevant moment.

If you think the business has failed to meet their obligations under the anti-money laundering rules (which could include checking the identity of their customers at the wrong time), penalties and criminal sanctions can be imposed on them. You can check if a tax refund company is registered with HMRC for money laundering supervision via the service on GOV.UK. If the tax refund company you have used has not met their obligations, then you should inform HMRC. To find out more about this and how to contact HMRC, please see the guidance produced by the CIOT and ATT. HMRC have previously removed a tax refund company from the market because of serious anti-money laundering breaches.

Other issues

We are also hearing of the following issues:

• Tax refund companies ignoring taxpayer attempts to contact them.
• Tax refund companies ignoring or avoiding their contact during the cooling off period, if people realise they have made a mistake in signing up to their services.
• Tax refund companies threatening taxpayers with legal action over unpaid fees, where the individual made an enquiry but say they did not proceed to sign up to their services.
• False or inflated claims (see below).

Nominations, assignments and letters of authority

As stated above, often a tax refund company will want to receive the tax refund first. This is to ensure that they receive their fee. They then pass the balance of the tax refund (the tax refund from HMRC minus their fee) to you.

The majority of tax agents do not handle client money. Instead, they present a bill to their client and seek payment from them, much as other providers of services do.

There are various ways for a taxpayer to nominate someone else to receive a repayment on their behalf – for example, by filling in the repayment instructions section of a claim form or tax return, by completing a form R38 or by writing a letter.

But these simple or ‘bare’ nominations of companies to get the individual’s refund can be overlooked by HMRC. The taxpayer can also alter or withdraw a nomination before HMRC make the repayment.

With a nomination, the taxpayer remains legally entitled to the tax refund. Because you remain legally entitled to the refund, HMRC are not legally obliged to follow the nomination – they comply with it at their discretion. Indeed, you can ask for HMRC to remove a nomination without obtaining the agreement of the agent (See the heading Cancelling nominations below).

In order to ensure they received their fee, some refund companies previously used legally binding deeds or letters of assignment, instead of nominations. Assignments can only be revoked (cancelled), if both you (as the taxpayer who made the assignment) and the person to whom you assigned the refund (the refund company) agree to it being revoked. You can read a little more about deeds and letters of assignment in HMRC’s guidance.

Some refund companies misused deeds or letters of assignment, so the government has changed the law. For example in the case of Tax Credits Ltd, individuals thought they were applying for a specific working from home refund via the company, only to find that as a result of the online sign up processes used, they had unwittingly entered into an assignment for an entire tax year (or tax years). This meant other unconnected tax refunds were also paid directly to the company, allowing them to take a significant slice of these extra refunds as their fee.

It is no longer possible to use a deed or letter of assignment in connection with an income tax refund. Assignments may still be used in some non-income tax cases. Tax refund companies can still try to ensure that they receive the repayment from HMRC, by making use of nominations or letters of authority.

Nominations normally only apply to the specific refund and not to any other refunds for a tax year. A letter of authority may therefore be included in a claim for a particular refund to prompt HMRC to reconcile any other refunds that there might be for open tax years. It may say something like the text below and there may be one for multiple years.

I …………………………………………...................., hereby authorise (tax refund company) to deal with all matters in relation to my repayment claim for the 202X/2X tax year. I ………………………………………….............., also nominate (tax refund company) to directly receive the repayment of any tax due to me in respect of the 202X/2X tax year.

Even if you are happy to sign a nomination for a specific refund like uniform expenses or marriage allowance, check if the agent uses letters of authority. If your signature ends up on them, the company can collect those other tax refunds from HMRC and will then take a percentage of those other refunds as well.

  It is vital you are clear about what the services are, what fees will get collected and what refunds and years any services will cover, before you agree to use such companies and before you sign or otherwise tick anything. 

Cancelling nominations

If you wish to cancel a nomination because you feel you did not give proper authority for example, but you are not in time to stop HMRC making the repayment to the nominee, you can find some guidance on what steps you can take below under the heading If you think you have been caught out.

  Note – if you cancel a nomination so that you receive the full refund directly, it is possible that the tax refund company may try and recover their fee from you directly based on the contract you signed with them. This is a possibility if they think that they provided you with their service in good faith and that the terms and conditions as to their service were clear and fair (and therefore enforceable). If they were to take legal action, a court would have to be persuaded of this. If you are contacted with a request for fees, we recommend that you urgently take some advice from the Consumer Helpline as to whether they can legally pursue you for the money they say is owed as this is a legal issue, not a tax issue. HMRC cannot get involved in this issue. 

Agent reference numbers

Repayment agents are required to register with HMRC through an agent services account. In order to receive a refund on your behalf, they will need to enter their agent reference number on whichever form they are submitting on your behalf. Any forms submitted by an agent without an agent reference number will also be treated as containing an invalid nomination and the refund will be paid to you directly. It is important to understand that just because an agent has an agent reference number, this does not mean that HMRC have ‘approved’ them. 

False or inflated claims

We have heard of some problems with certain tax refund companies claiming inflated, made-up or incorrect employment expenses – particularly travel and subsistence expenses.

In general, the rules for claiming expenses against your employment income are very strict. You can read more about these rules on our page Employment expenses. If you are eligible for a tax refund, it will be a relatively small amount in the tens or hundreds – but not thousands – of pounds.

  Warning: Tax relief cannot usually be claimed on travel from home to the normal place of work. This is known as ordinary commuting. If you see tax refund companies saying that they can claim large tax refunds in respect of travel to work, or in respect of subsistence, you should be very wary.

Moreover, HMRC have a ‘process now/check later system’. This means if there are any irregularities with claims, these may not come to light for several years.

HMRC will come after you for an incorrect tax refund, not the tax refund company, who HMRC consider are simply acting as your agent. If a fee has been deducted by the tax refund organisation before they paid you the refund, the debt you have to HMRC may well be more than the amount of tax refund you received in the first place.

If you think you are entitled to travel and subsistence relief, you should ask the agent to explain to you:

• the claim form entries
• the basis under which the claim is made, with links to HMRC guidance.
• any areas where the tax treatment is uncertain.

The agent should be able to easily explain any of the above to you.

Even if your travel and subsistence expenses are allowable, please note that it is also not possible to claim additional tax relief if your employer pays for or reimburses your employment expenses. This is because you have not personally incurred any expense.

  Warning: Media reports have highlighted instances of HMRC asking taxpayers to pay back tax refunds that tax refund companies have claimed on their behalf, because they are invalid.

If you are thinking of paying a tax refund company to help you make a claim for work expenses, we strongly recommend you read HMRC’s warning about incorrect or inflated expenses, in their claiming expenses – don’t get caught out campaign on GOV.UK.

Refunds via self assessment

Normally, a tax refund claim only needs to be made through completing a more formal self assessment tax return, where the amount of employment expenses exceeds £2,500 or where specialist reliefs are being claimed (more on this below).

However, we have heard that some tax refund companies may be putting people into the self assessment system unnecessarily for lower value expenses. Presumably, this is because the self assessment system is automated, so it can sometimes be quicker or easier to get a refund that way, as opposed to claiming through the P87 form system.

You should think extremely carefully about allowing yourself to be put into the complex self assessment system just to claim expenses if you have no other reason to be in it. Once you are in the self assessment system, there are very strict penalties for non-compliance with the tax return requirements and deadlines, and it is certainly not something to be taken on lightly or entered into unnecessarily with a short term or casual attitude.

Also, if HMRC check your tax return and find it is incorrect, it is you rather than the agent who will have to account for the underpaid tax, perhaps some years later - as well as interest and inaccuracy penalties potentially. In such cases, if a fee has been deducted by the tax refund organisation before they pay you the refund, the debt to HMRC may well be more than the amount you received in the first place.

  Where someone puts in a self assessment tax return that HMRC believe contains an inaccuracy that has resulted in a loss of tax, HMRC will normally ‘enquire’ into it. HMRC usually have a period of 12 months after the day on which a tax return is submitted to notify their intention to enquire into the tax return. Where a tax return is submitted late, this ‘enquiry window’ extends a bit. In addition to this normal enquiry period, HMRC are also able to make a discovery assessment in certain circumstances and demand a refund over a much longer period. How far back HMRC can go depends on the behaviour that caused an inaccuracy. There is a basic period of four years, increased to six years if there was carelessness or to 20 years if the loss of tax was deliberately brought about.

Claims for specialist reliefs

LITRG have recently heard of taxpayers being attracted by tax refund agents offering to make legitimate expense relief claims, such as for uniforms, then being asked to register for self assessment and to hand over their government gateway log in details to the tax refund company. The company then uses these details to prepare and submit tax returns containing inappropriate claims for things like enterprise investment scheme (EIS) relief.

The taxpayers did not seem to be fully aware of what the tax refund company was doing, and also did not seem to realise the tax refund company would then channel the (often large) refund to themselves via the tax return, with only a small proportion ultimately being passed on to the taxpayers. The taxpayers have now been contacted by HMRC saying refunds were claimed when no EIS relief was actually due and (as taxpayers are typically responsible for the actions of their agents), HMRC therefore require the full amount of tax to be repaid to them.

You should never give anyone your government gateway username and password. Tax advisers registered with HMRC can file online tax returns on behalf of their clients using their own ‘agent’ credentials and do not need to ask for individual taxpayers’ login details.

In addition, taxpayers should be aware of certain warning signs when signing up with tax refund companies offering help with specialist claims. These include:

• The tax refund company has been recommended because it gets big refunds (compared to what you might usually expect for the type of refund/circumstances).
• Those who own/run the tax refund company are not members of a professional body.
• The tax refund company does not follow basic professional practices.
• Communication with the firm is only by phone or text message and/or social media.
• The company wants you to set up a self assessment record with HMRC.
• The company wants to use your own personal government gateway credentials to prepare and file a tax return (as if it has come from you).
• You are not given a copy of your tax return or tax calculation to approve before submission.
• You do not recognise the entries or claims shown on your tax return – for example, you are claiming tax relief for an investment (or ‘subscription’) in shares when no such investment has been made.

We are also aware that some tax refund agents operate in the Research and Development tax relief area, meaning many of the considerations set out on this page apply to taxpayers that own their own businesses.

  FINAL THOUGHT: If you decide to use a tax refund company to make a tax refund claim and they do this via submitting a self assessment tax return on your behalf, you should ask to see the tax return that they are submitting before they submit it. This is so you can check the entries in the main body of the form and in the nomination section are in line with what you were expecting. Although you may not be an expert in tax, you should be able to spot false or inflated figures, if a company who has told you they will help you claim employment expenses has actually used your self assessment return to put in a claim for a specialist investment relief or if the nominee details look odd or wrong.

R40 – new evidence requirement

For a long time, we have been concerned about the behind-the-scenes relationships that seem to exist between some payment protection insurance (PPI) claims management companies and certain tax refund companies.  

To manage the risks, HMRC now require R40 forms to be submitted with evidence of the original PPI compensation pay-out. 

By asking for evidence of the PPI payment before they pay any money out, HMRC are

• making sure that they only process genuine tax refund claims and/or
• putting you on notice that a claim has been submitted by a tax refund company – which should be very helpful if you were unaware of this.

We expect that people making genuine claims will be able to easily provide the supplementary evidence that is being requested. Legitimate agents who have a good and proper relationship with their clients should be able to interact with them to get the evidence and should also therefore easily be able to provide it.

You can find more information about how to claim a tax refund in respect of your PPI pay-out on our page PPI tax refunds.

Referral fees

Some tax refund companies pay referral fees to get you to encourage your friends or colleagues to use their services. You should be aware that referral fees are taxable income and will need to be declared to HMRC unless they are exempt under the trading allowance.

If you need to report the referral fees to HMRC, they will probably be viewed as ‘miscellaneous’ income. HMRC may be able to collect any tax you owe on it through adjusting your PAYE tax code rather than through a tax return.

Things to look for with tax refund companies

• Ensure you are clear about what you are signing up to – be particularly wary of being targeted on social media when your guard may be down.
• Check for overinflated promises – for example, the maximum refund for the standard working from home allowance is worth £62.40 (since 2020/21) for most people. It is only possible to go back a maximum of 4 years. If the company promises to be able to get you back £1,000s, then alarm bells should ring.
• Be on the lookout for extra documents or letters of authority (as explained above) in application packs.
• Check for signs they are reputable – for example, they have easily accessible terms and conditions, a contact address and telephone number, and a Companies House number on their website.
• You should check how they will correspond with you – this should be via traditional channels to ensure there is an audit trail (not just via WhatsApp for example).
• A tax agent with high ethical and professional standards should be taking steps to assure themselves that tax refund claims are valid. You should expect to be asked questions so that they can understand your position.
• Check for online reviews – for example, in consumer forums, on Trustpilot or Google My Business.
• Check if the proprietor is a member of a professional body. If so, they should work to high ethical and professional standards and if they do not work to these standards, you can make a complaint to the professional body.

Even if a tax agent does not belong to a professional body, HMRC’s general Standards for Agents also require agents to work to prevent errors in their clients’ tax calculations or claims and avoid including figures in returns or claims which are unsubstantiated or speculative.

Warning: You would expect a good agent to use the HMRC facilities provided for agents/their own tax return software and not use your government gateway credentials to submit your tax return via HMRC’s online services (as if you had done it). You should never give your government gateway account details and password to any third party.

If you think you have been caught out

First steps

• If a tax claim has been made on your behalf which you do not recognise, ask HMRC for a copy what was submitted by the agent and check if the documentation or signature is familiar.
• If necessary, you can make a subject access request to the tax refund company concerned to understand more about the process by which the application with your signature on it, came into existence. You can find out more about subject access requests on the website of the Information Commissioner’s Office.
• Tell the tax refund company of your grievance, and ask for all of your money back. They might refuse and only offer you the amount after their fees have been deducted. If you are worried about accepting this or providing the identity documents requested, ask the tax refund company to confirm that your funds are being held in some kind of client account, pending any action that you might wish to take.

Consumer issues

If you feel that you have been caught out by a tax refund company with regards to costs or other poor commercial practices or feel that their terms and conditions are unfair, then you should seek some legal or consumer advice, such as from the Consumer Helpline.

A number of enforcement bodies are likely to be interested to hear of your experiences with tax refund companies, including:

• the National Trading Standards. You can find a local Trading Standards office on GOV.UK.
• the Information Commissioner's Office (ICO) if you feel your data and/or signature has been shared unlawfully – guidance on the complaints process and likely outcomes can be found on the ICO website.
• the Advertising Standards Agency (HMRC have been working with the Advertising Standards Authority to report and take down misleading adverts by repayment agents.)

Tax issues

HMRC have created a form on which you can report a tax refund company. This is not to obtain specific assistance, but rather to assist HMRC in building their evidence base and understanding of what these companies are doing. This hopefully will in turn enable them to take action against these companies. Please note that HMRC will not contact you about the information you provide about the tax refund company. They will use the information to carry out a risk assessment of the tax refund company. You may want to keep a note of the date and time you submitted the form.

In terms of whether you can expect any other action from HMRC, HMRC’s overriding general rule is that individuals are responsible for their own tax affairs. However, if you feel very strongly that HMRC’s actions (or inactions) have contributed to your problems then you can make a formal complaint to HMRC. Sometimes this can result in a compensation payment.

You should set out, in full, your experience and explain why you consider that HMRC have some responsibility for what has happened. There is no right or wrong way of setting things out – just saying things naturally, and letting the facts speak for themselves can be very powerful. This should allow HMRC to gather as full a picture as possible as to the situation and enable them to make any necessary decisions. When writing a complaint, it is always helpful to state clearly what you want HMRC to do in response.

If you are not satisfied with the reply, you can escalate the complaint to the next stage (called Tier 2). If you are still unhappy with the response, you can ask the independent Adjudicator to review your case. 

In addition to complaining, or if you are unhappy with HMRC’s response to your complaint, you may wish to consider seeking legal advice (either individually or as a group) as to what civil remedies may be available. You can find a consumer solicitor via the Law Society website. 

Finally, ask HMRC to remove any ‘64-8’ (this form notes the tax refund company as your agent) from your record and check if HMRC are the tax refund company’s anti-money laundering supervisor. See more about this above under the heading Anti money laundering requirements. 

Scams and fraud

If you consider you have been scammed or defrauded, contact Action Fraud. Tax rebate scams are an issue on their radar as you can see from this news article: NHS members targeted by tax rebate scam.

Members of a professional body

If the proprietor (owner or manager) of the tax refund company is a member of a professional body, such as the AAT, ATT, CIOT or ICAEW, you should report them to the professional body concerned. Most professional bodies concerned with tax have a search facility where you can look up specific people to check if they are members.

If you are unsure of the proprietor’s name or other details, as most tax refund companies will be Limited (Ltd) companies, you can check the freely available information about Ltd companies on the Companies House website (you can search by name or Ltd Company number – by law Ltd companies have to include their Ltd company number on their stationery and website).

Other avenues 

We are aware that several personal finance journalists are very interested in tax refund companies. Contacting one of them may be an option if you wanted to highlight your case, although we appreciate not everyone is keen to have publicity in these cases.

You may want to write to your MP to make them aware of your case. The enforcement bodies listed above may be interested in deeds or letters of assignment issues as well as wider problems with tax refund companies. 

More information and help

If you want to claim a tax refund from HMRC, and think you can do this by yourself, look at our guidance on Tax refunds.

If you think you are due a tax repayment, but you are not able to make the claim by yourself, we suggest that you seek assistance from HMRC or from a professional tax adviser. If you cannot afford to use a professional adviser, then one of the tax charities should be able to help you.

If you want to use a tax refund company, you can find some hints and tips on how to avoid any problems above under the heading above Things to look for with tax refund companies.

You can contact HMRC using the details available on GOV.UK.

If you are considering using a tax refund agent to help you with your construction industry scheme tax return and repayment, please read our guidance on Construction industry scheme (CIS) tax refunds first.

If you are a migrant worker who has now left the UK and are considering using a tax refund agent because they can pay your refund to you in your home currency, please be aware that there are usually hefty extra charges for this and/or they may offer you a poor exchange rate. For more information on how you can obtain your refund if you have left the UK, see our guidance on UK tax refunds for people leaving the UK or living overseas.