LITRG concern at growing complaints about tax refund companies

People may have signed a ‘deed of assignment’ which is where a tax repayment is legally assigned, by deed or letter, to the tax refund company. Deeds of assignment are used legitimately by tax refund companies in situations where they want to make sure they get the refund that they have helped arrange, in order that they can deduct their fee.

But rather than just ask clients to sign a deed of assignment in respect of a specific claim, some tax refund companies are getting people to sign much wider deeds of assignment covering multiple past tax years. This means the company can collect any other tax refunds due to the taxpayer (usually going back the maximum of four years). The company will then take a percentage of those other refunds as well.

LITRG are warning people to check terms and conditions carefully before they sign-up with a tax refund company to ensure they fully understand what fees will be collected and what refunds any deed of assignment will cover.

For those that have already signed-up to a tax refund company, LITRG is advising people to check with HMRC whether a deed of assignment has been lodged on their record.

If a deed of assignment has been lodged, there is guidance available on LITRG’s website to help people understand whether the deed is valid and what to do.¹ LITRG says that where a refund has been sent to a tax refund company in accordance with a deed of assignment, but there are questions over whether it is a valid deed, a formal complaint should be made to HMRC, because it may be possible to argue that it should not have been accepted by HMRC in these circumstances.²

Head of LITRG Victoria Todd said:

“In the cases reported to us recently, people either did not realise they had signed a deed of assignment at all or thought they were signing it in respect of a specific tax refund only and not for past years. This is a very concerning situation involving potentially vulnerable taxpayers. We urge taxpayers to ensure they are clear about what fees will get collected and what refunds and years any deed of assignment will cover, before they agree to use such companies.

“The word ‘deed’ makes people think of a formal legal document but often the inclusion of a few words on an application pack people are asked to sign will make a valid deed.

“For example, when people sign the application pack, they may think they are just giving permission for the tax refund company to act on their behalf. But there may also be some small print saying something such as ‘I unconditionally assign my repayment of tax (for tax years ending 2017/18, 2018/19, 2019/20 and 2020/21) to…. (tax refund company)’.

“Sometimes people may agree to lengthy terms and conditions, within which wording may be buried such as: ‘as part of the process of recovering overpaid tax on your refund, a full reconciliation of your tax position will be carried out. This may result in other overpayments of tax being identified and recovered, on which our fee will apply’. This means that the refund company can collect all refunds due to the person even if they have not really helped to organise the refund and are nothing to do with the original service they provided. People need to be aware of this practice.

“In many cases where there is a valid deed of assignment, it will remain in place indefinitely for a particular tax year unless the taxpayer asks the tax refund company to revoke it and they agree; this is different to simply removing the tax refund company as their ‘agent’ which is fairly simple for a taxpayer to do themselves. Some companies may charge a fee to remove the deed (in addition to collecting the fee on any refunds diverted to them), which gives tax refund companies considerable power.

“This is an extremely pressing consumer protection matter that we urge HMRC to intervene in, by for example, only accepting deeds of assignment once they have been verified with the taxpayer or by implementing more rigorous checks to ensure that the deeds are valid. While it is entirely legitimate for people to exercise choice and use a tax refund company if they so wish, it is also incumbent on HMRC to ensure people are aware of how they can claim tax refunds directly from HMRC and to make the process as easy as possible, so that they can claim the refunds without having to lose a percentage of the refund due.”

Notes for editors

1. A tax refund company is a business that offers to help people claim tax refunds. This is usually done for a fee, with the company keeping a percentage of the refund – which can be as high as 40 per cent or 50 per cent of the refund.

2. Deeds of assignment are not unique to HMRC and are a legal instrument – whether a deed is valid or not is complex. HMRC have some guidance in their manual on what makes a deed valid: https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam110130

3. LITRG’s website guidance is available here: https://www.litrg.org.uk/tax-guides/tax-basics/how-do-i-claim-tax-back/should-i-use-tax-refund-company#toc-deeds-of-assignment

4. LITRG provide this example of someone who was caught out, in their website guidance –

Sydney, who was asked to work at home from mid-March 2020 due to the coronavirus, asks a tax refund company to help her with a working at home refund for 2019/20 and 2020/21. She signs a letter of assignment in April 2021 and in June 2021 HMRC issue a refund of £128 in respect of working at home to the tax refund company. The company take their agreed fee of 40% then pay the rest to Sydney.

However, Sydney inadvertently signed an assignment covering all refunds arising in respect of the 2019/20 and 2020/21 tax years (not just those arising in respect of working at home expenses). This means that when HMRC come to do their P800 reconciliation for the 2020/21 tax year, probably at some point in the summer of 2021, they will also pay her £900 P800 refund to the tax refund company, who may only forward it after deducting their fee.

5. Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.  

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact Hamant Verma, External Relations Officer, 0207 340 2702 [email protected]