LITRG: Tax refunds - specialists issue guidance to taxpayers

Although taxpayers can claim refunds directly from HMRC if they think they are entitled to one, some taxpayers prefer to use a tax refund company to claim refunds on their behalf. Media reports have highlighted incidents of some companies who taxpayers say have been claiming refunds on their behalf that they have now been asked to pay back because HMRC say there are invalid.

Agents take a fee for their services – often a percentage of the refund that has been obtained – but if HMRC decide at a later date that the refund was not valid, they can ask the taxpayer to pay back the full amount with interest. Penalties may also be payable. In the most extreme cases, HMRC may be able to claim back overpayments going back 20 years¹.

LITRG is urging taxpayers who might be considering using a tax refund to be mindful of the following points:

• Take care when choosing an agent: Most agents adhere to strict ethical and professional codes of conduct, but not all do. You should check if the agent adheres to high professional and ethical standards. They may also be members of a professional body². Review the terms and conditions for using their services and check that they will communicate with you in a way that ensures an audit trail (social media and channels like WhatsApp are not sufficient!)
   
• Check your claims carefully: A good agent will find out more about you and your circumstances, will ask for evidence to support your claim (like receipts, share certificates and bank statements) and will ask you to review and approve a claim before it is submitted.
   
• You are responsible for the contents of your tax return: Even if you have used an agent to process your return. HMRC operate a ‘process now/check later’ system meaning that if they issue a refund and later decide that it is not valid, they can ask you pay back all the refund (plus interest and possibly penalties) even if you have paid an agent’s fee with part of the amount you received.
   
• Do not give out your Government Gateway details: A good tax agent will have their own tax return software or use HMRC’s facilities for agents.
   
• If it looks too good to be true, it probably is: Have you been approached out of the blue with the promise of a large tax refund? Generally, 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. Claims that are unlikely to be valid for many employees include claims for travel and subsistence and sophisticated tax reliefs such as the Enterprise Investment Scheme.

And lastly:

• You may be able to file the claim yourself: Some people decide to use a tax refund agent out of convenience but there is no requirement to do so. HMRC provide guidance on making claims for a tax refund on their website³.

Joanne Walker, LITRG Technical Officer, said:

“Tax can be complex, so it is understandable that many taxpayers choose to ask a tax agent or refund company to help them work out if they have paid the correct amount of tax and obtain the refunds  they may be entitled to. Some people just prefer to pay someone to act on their behalf, so it is entirely legitimate for taxpayers to use tax refund companies for a wide variety of reasons.

“However, not all agents are equal and there are serious consequences of getting caught up with an unscrupulous tax refund company that does not operate to the standards that many other agents abide by.

“If the promise of a tax refund sounds too good to be true, the chances are it probably is. Therefore, it is important that taxpayers think about the risks before using an agent to claim a tax refund on their behalf and take steps to understand more about how the company operates before asking them to act on their behalf”.

Joanne Walker continued:

“The government is taking action to protect taxpayers from unscrupulous repayment agents, but we think there is more HMRC can be doing to weed out problematic claims before refunds are paid out. This includes making it harder for poor agents to enter the marketplace, undertaking more rigorous reviews of the processes used by high volume agents to obtain refunds and educating taxpayers around the refund schemes that look too good to be true.

“These steps would help give taxpayers greater confidence that their claims are being correctly handled and protect the reputation of tax advisers acting to the highest professional standards”.

LITRG’s guidance can be found here: Have you used a company to claim a refund and HMRC are now asking you to pay it back?

Notes for editors

1. HMRC have a 12-month period after a tax return is submitted to notify their intention to enquire into the return. In addition to this normal enquiry period, HMRC can also make a ‘discovery assessment’ in certain circumstances and demand refunds over a longer period. How far back depends on the behaviour that caused the inaccuracy. There is a basic period of four years, increased to six in cases of carelessness, or 20 years if the loss of tax was deliberate.
   LITRG has more information available here.
2. For example, the Association of Accounting Technicians (AAT), Association of Chartered Certified Accountants (ACCA), Association of Taxation Technicians (ATT), Chartered Institute of Taxation (CIOT), Institute of Chartered Accountants in England and Wales (ICAEW), Institute of Chartered Accountants of Scotland (ICAS) and Society of Trust and Estate Practitioners (STEP).
   Even if an 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 tax returns which are unsubstantiated or speculative.
3. See How to claim a tax refund (GOV.UK).