Tax refunds – taxpayers need better protection

The Low Incomes Tax Reform Group (LITRG) has welcomed a consultation issued today by HMRC which aims to find ways to protect taxpayers from unacceptable behaviour by some Repayment Agents. However, LITRG is concerned that any action could take time to materialise, and taxpayers could lose out in the meantime. The group is urging HMRC to consider what more they can do to protect people in the short-term. 
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