HMRC signal culture shift towards better consumer protection

HMRC have today issued a response to their consultation on ‘Raising standards in tax advice: Protecting customers claiming tax repayments’.¹ This follows a consultation on how to tackle the unacceptable behaviour of some tax refund companies.

A number of steps have been announced to tackle the issues identified in the tax refund company market. This includes plans for legislation to prohibit legal assignments of income tax repayments² and the immediate introduction of new transparency requirements for tax agents generally, in the HMRC Standard for Agents³.

For a number of years, LITRG have been raising concerns about the practices of certain refund companies, stressing the need for HMRC to take action to protect taxpayers. The group say they broadly welcome the additional steps announced today, following a thorough exploration of the issues and analysis of consultation responses, which show HMRC recognise the important role they play in consumer protection.

Meredith McCammond, LITRG Technical Officer, commented:

“The changes announced today will hopefully address some of the problems in the tax refund market, such as the abuse of assignments by certain refund companies, lead to increased transparency for taxpayers and set clearer standards for refund companies, whilst still allowing taxpayers a choice of how they claim refunds.”

LITRG, in their response to the consultation, did not go as far as calling for assignments to be banned for fear it could disrupt the practices of responsible tax refund companies as well as those that mislead their customers. The group were concerned that these tax refund companies could cease to trade in the absence of an alternative reliable mechanism by which they could receive their fee.

Meredith McCammond continued:

“Tackling bad tax refund companies while enabling those which behave responsibly to continue to operate is a careful balancing act.

”We understand HMRC’s decision on prohibiting assignments as being the easiest and quickest way of restoring taxpayer confidence, which has been badly damaged by cases like Tax Credits Ltd⁴. However good tax refund companies have a legitimate role to play in the tax system, often helping taxpayers access refunds that, for various reasons, they would otherwise miss out on. Instead of assignments, these companies will now have to rely on bare nominations, which are not binding on HMRC and can be unilaterally withdrawn by the taxpayer⁵. Any impacts of this change on the market and on taxpayers, must be carefully monitored.

”We look forward to working with HMRC on the detail of the proposals. As we want the proposals to work as effectively as possible, we will be making a number of other suggestions to HMRC for related improvements – including to the way that the nomination process works and the way the Standard for Agents is publicised and policed. Having strong standards for agents is a good step, but they will only be effective if HMRC enforce them.

”Alongside this, we are continuing to urge HMRC to do more to raise awareness of refunds and ensure it is as simple as possible for taxpayers to access them. HMRC’s recent mandating of the inclusion of an employer PAYE reference number on the form P87⁶ - which some taxpayers will not have access to⁷ - shows that they still have quite a long way to go in making the claims process as accessible as possible.”

Notes for editors

1. Consultation and response can be found on GOV.UK
2. If a taxpayer legally assigns a repayment to a third party by an assignment, that third party becomes legally entitled to the repayment. The assignment can only be revoked if both the taxpayer who made the assignment and the third party agree to it being revoked.
3. HMRC’s Standards for Agents (updated on 11 January 2023) can be found on GOV.UK
4. Our press release setting out the problems with Tax Credits Ltd can be found on our website
5. The difference between an assignment and a bare nomination are set out in HMRC’s manual
6. Form P87 is the form you use to claim tax relief on your employment expenses and can be found on GOV.UK
7. Providing an employer PAYE reference on a P87 is a problem seeing as it is not a legal requirement on a payslip (and there are practical issues with the other routes HMRC suggest taxpayers follow to obtain it)