Tax refunds – taxpayers need better protection

The new consultation aims ‘to consider ways to better protect taxpayers from Repayment Agents who make routine tax claims on people’s behalf but can take up to half, or even more, of the payment’.¹ Proposals include:

• ensuring repayment agents display material information to prospective clients in line with existing rules for financial services
• whether HMRC should restrict the use of assignments
• whether HMRC should require repayment agents to formally register with HMRC to allow credentials to be checked and swifter action where instances of poor practice are found

Kelly Sizer, Senior Technical Manager at LITRG, said:

“The practices of some repayment agents are unacceptable, and this is an area where HMRC need to act urgently to protect taxpayers.

"HMRC say that some taxpayers feel misled when using agents that specialise in claiming tax refunds from HMRC, for example complaining of high fees and lack of clarity. A steady stream of people are contacting us saying the same and we have been calling on HMRC to act. Our concerns in this area are longstanding and are growing.²

"In cases we have seen, taxpayers’ dismay is increased where they inadvertently assign other refunds, usually for the past four years, to the same refund company. The company may then take a substantial fee on refunds which they have not helped the taxpayer to claim. In some cases, taxpayers who have used a tax refund company to apply for a specific working from home refund worth £62.50, have paid much greater fees – perhaps running into hundreds of pounds – when other refunds that are diverted to the tax refund company are taken into account. This is a high cost indeed.”

In addition to the high cost to consumers of claiming tax refunds, LITRG has heard from people saying:

• they have confused tax refund companies with HMRC, thinking they are dealing with the tax authority direct
• tax refund companies have been unresponsive when they are trying to contact them
• they are concerned about protection of their data where the repayment agent requests significant personal information in order to process payment of a refund to them

Kelly Sizer said:

"We welcome HMRC putting deeds of assignment and other consumer protection issues under the spotlight to improve the system going forward. But we are concerned that while the consultation takes place and changes are implemented, more taxpayers will be affected in the meantime.³ We urge HMRC to consider what more they can do to protect people in the interim.

"For example, there is a serious question over whether some of the deeds of assignment that HMRC are currently accepting are valid in accordance with HMRC’s own guidance⁴ because the process under which signatures have been collected and attached to assignment documents is not always transparent. This means taxpayers may not have seen, understood or approved the deed. Greater scrutiny on HMRC’s part before accepting such deeds is urgently required.

"The best advice we can give taxpayers in the meantime is take care with what they are signing up for – particularly entering details via online advertisements, for example. Do not give anyone your Government Gateway username and password and check LITRG’s full list of warning signs.⁵ If you can, claim tax repayments yourself.⁶”

Notes for editors

1. HMRC press release 22 June 2022 10.23 am, see https://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressreleases/hmrc-launches-consultation-to-address-concerns-about-repayment-agents-3190413 And HMRC Consultation published 22 June 2022, ‘Raising standards in tax advice: protecting customers claiming tax repayments’, see https://www.gov.uk/government/consultations/raising-standards-in-tax-advice-protecting-customers-claiming-tax-repayments/raising-standards-in-tax-advice-protecting-customers-claiming-tax-repayments.
2. See our previous press releases on this topic:
   27 January 2022: https://www.litrg.org.uk/latest-news/news/220127-press-release-campaigners-call-urgent-action-diversion-tax-refunds
   22 November 2021: https://www.litrg.org.uk/latest-news/news/211123-press-release-litrg-urgent-warning-taxpayers-about-refund-companies
   and 25 June 2021: https://www.litrg.org.uk/latest-news/news/210625-press-release-litrg-concern-growing-complaints-about-tax-refund-companies.
3. The consultation is to last for 12 weeks, closing on 14 September 2022. The results of the consultation will then need to be evaluated before HMRC propose and deliver actions.
4. HMRC’s guidance for PAYE taxpayers as to what constitutes a valid deed of assignment can be found here: https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye91040. There is a separate and slightly different page for Self Assessment taxpayers here: https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam110130.
5. Per our press release of 22 November 2021: "Taxpayers should be aware of certain warning signs when signing up with tax refund companies such as:

• ​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”

LITRG’s website gives further guidance on using a tax refund company here: https://www.litrg.org.uk/tax-guides/tax-basics/how-do-i-claim-tax-back/should-i-use-tax-refund-company.

6. LITRG provides guidance on claiming a tax refund in different situations here: https://www.litrg.org.uk/tax-guides/tax-basics/how-do-i-claim-tax-back
   HMRC’s press release of 22 June 2022 (see note 1 above) highlights in particular the ability to claim a refund using their online service: https://www.gov.uk/claim-tax-refund.