Why is my tax refund being sent to a third party I’ve never heard of?

PPI claims

Many people were mis-sold PPI – payment protection insurance. You may have used a claims management company in the past to claim back the cost of mis-sold PPI.

PPI pay-outs are made up of:

• compensation (which is the refund of the PPI premiums you paid and the interest you paid on those premiums) and
• the statutory interest on the compensation.

The statutory interest on the compensation is paid at 8% - in recognition of the fact that you were deprived of your money for some time.

PPI tax refund claims

The second element mentioned above, the statutory interest, is taxable in the tax year that you receive it. Most of the time, basic rate tax at 20% is deducted at source on the interest before it is paid to you. This is then passed to HMRC on your behalf.

But many people are not actually liable to pay some or all of the tax deducted from the interest - for example, because when combined with other savings income for the year, the amount was within the Personal Savings Allowance, or if the total taxable income for the year was within the tax free personal allowance. If this is the case, then it is possible to claim this tax back.

PPI tax refund companies

The deadline for most complaints about PPI mis-selling has now passed, meaning PPI claims management companies have less work than before. They do, however, have a lot of rich data in terms of customers who have already successfully claimed a PPI pay-out, how much tax has been paid by them and therefore who might be due a tax refund.

Some of the tax refund companies we have been contacted about appear, from information on Companies House, to have connections to PPI claims management companies. Either because the same people run both companies or because the PPI claims management company has partnered with a tax refund company.

As such, you may have been sent a message or email from your PPI claims management company promoting the tax refund company services and asking you to click on a link to more information and/or tick a box to agree to sign-up so they can claim a tax refund on your behalf. You may have also been asked to provide your signature onscreen using some kind of software. All of this is then used to populate a tax refund claim form by the tax refund company.

The tax refund claim form in question, the R40, contains a ‘nomination’ section that can be completed which tells HMRC to send the agent your refund in the first instance, so that they can take their fee before paying what is left over to you. 

What is the problem?

There is nothing wrong with a company partnering with another company to offer additional services – including tax refund services. Some people prefer to pay someone to act on their behalf, so it is entirely legitimate for taxpayers to use third party tax refund companies for a wide variety of reasons. You may also find companies partnering with other companies to highlight additional services useful and helpful – if for instance, you were unaware you could claim a PPI tax refund. However, it is important that you are able to make an informed choice and understand what you are agreeing to and the costs involved.

We have seen some cases recently where the taxpayer says that they did not know they were due a PPI tax refund and only found out because they were contacted by HMRC to say their refund had been processed. The refund was then paid directly to a third party tax refund company who the taxpayers say they hadn’t heard of and hadn’t authorised to use their data/signature. In order to access the refund, the taxpayers have been asked to provide evidence of their identity to the refund company, in order to receive the refund minus fees (which can be 48%+VAT).

In these cases, although the taxpayers appear to have received payouts for mis-sold PPI in the last few years it is not clear how a PPI claim ‘a few years back’ with one entity seems to have resulted in a tax refund later being sent to the other entity. One possibility is that the signature given on the original PPI claim has been used to make the tax refund claim or that there was something in the terms and conditions of the original PPI claim purporting to give permission for a company to make a claim for a tax refund at some later point. This raises questions about whether the taxpayer can be said to have fully understood, seen and approved the claim and agreed to the R40 form and nomination being submitted.

Similar concerns arise where an opaque online process is used to collect the taxpayer’s digital signature which is then applied to an R40 form they never see and which is then sent to HMRC.

Should HMRC be accepting claims from these agents?

HMRC’s own guidance suggests that they shouldn’t be accepting electronic or digital signatures on form R40s, although we understand that they have been doing so in practice. In order for an agent to work for you in relation to an R40, ideally they should be physically sending a form R40 to you in the post, for you to sign in ink and return to them, for onward submission to HMRC. If they do use an electronic or digital signature, we think that specific claim forms should only be accepted by HMRC, where it is clear that the taxpayer has seen, understood and approved the completed claim form prior to submission to HMRC. 

More generally, we think that HMRC should thoroughly investigate the processes used by agents where concerns are raised. We think HMRC should only accept claims from tax refund companies that have clear and transparent processes for gaining customers and obtaining their information, signatures and/or authorisation. Where HMRC find an agent’s process falls short of this, we think HMRC should stop accepting claims from those agents, in line with HMRC’s own Standards for Agents.

We have shared our concerns with HMRC. If you have any information that you would like to share with us on an anonymous basis about your situation, please contact us. Whilst we can’t get involved in individual cases, it can help us raise issues with HMRC and get a better understanding of what is happening.

Please note that HMRC do have a discretion not to make payments to a nominee (the tax refund company) and instead pay the money to you directly. In addition, you can withdraw a nomination without the permission of the tax refund company. However you can only do this before the payment is made from HMRC to the tax refund company. If you think that a tax refund company may have made a claim for a tax refund on your behalf without your knowledge or full understanding as to what was involved, you should contact HMRC to see if you can stop them making the repayment to the nominee.

⚠️ 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. 

What can I do?

If you think you have been affected, firstly, you should check back over any old paperwork or agreements to see whether you gave your authority for your data/signature to be used in the ways described. Even if you seem to have ticked or signed something that purports to give authority, you might want to check whether this is, in fact, valid with the Information Commissioners Office (ICO) and whether, for instance, ‘data’ includes an image of your signature. Depending on the outcome of that conversation, you might wish to make a complaint. Guidance on the complaints process and likely outcomes can be found on the ICO website.

We set out the different bodies that you may wish to complain to (in addition to the ICO) if you feel you are unhappy with the way a tax refund company has acted, on our website. In our guidance, we also highlight the ability to contact your MP so that they can raise the matter with HMRC, and check if the proprietor is a member of a tax or accountancy 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 relevant professional body.

You may additionally wish to do the following:

• Ask HMRC for a copy of the tax refund claim form and check if the document or signature is familiar (in case they did send it to you to sign, but you just forgot).
• If you do not recognise the document or signature, check your messages or emails for any marketing material with sign up forms/signature software mentioned above. Note, sometimes tax refund companies use different brand names to their actual registered name. You could also make a Subject Access Request to the tax refund company concerned to try and understand more about the sign up process and the way in which the tax refund claim form with your signature on it came into existence.
• 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.
• Ask HMRC to remove any ‘64-8’ (this form notes the tax refund company as your agent) from your record. Note you can get an agent removed from your record without their agreement. Not all tax refund agents place a 64-8 on their client’s records.
• Check if HMRC are the tax refund company’s anti-money laundering supervisor. They are required to have anti-money laundering systems and controls in place to meet the UK anti-money laundering legal requirements. If businesses fail to meet their obligations under these rules, penalties and criminal sanctions can be imposed on them and HMRC should be informed. To find out more about this and how to contact HMRC, please see the guidance (produced by the CIOT and ATT) here and here.
• Make a formal complaint to HMRC. You should set out in full your experience and explain why you consider that HMRC should not have paid your refund to a third party (if that is the case). 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 interventions. If you think there are similarities between your case and the Tax Credits Ltd case (where HMRC intervened in tax refund cases and refunded some taxpayers directly), you should highlight them. When writing a complaint, it is always helpful to state clearly what you want HMRC to do in response.
• If you have already made a complaint to HMRC and 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 to HMRC, 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. 

Making a claim yourself

If you have had a successful PPI pay-out, one way that you can avoid any problems with tax refund companies getting hold of your data and signature and making a claim for any tax refund you might be due, is to beat them to it and make a claim yourself.

You can make a claim for a tax repayment on your PPI interest using form R40. You can either do this online, or by downloading and printing off a paper form to send by post. You can access the form on GOV.UK, together with instructions about how to complete the form.

In completing the form R40, you should input the net interest in box 3.1 ‘Net interest paid by banks, buildings societies etc, purchased life annuities and PPI payments – after tax taken off’. You should then input the tax deducted in box 3.2 and the gross amount in box 3.3.

You may have had other fees deducted from the pay-out, so you should ensure that the amount you are attempting to reclaim is just the tax element. You also need to include on the form any other taxable income that you received in the tax year – including the state pension.

We provide an annotated example to help illustrate how to complete the form on our website.