The UK tax authority is to introduce legislation to crack down on “misleading and opaque” agreements imposed by companies that help individuals claim tax rebates.
HM Revenue & Customs said it had “frequently” seen cases where companies — known as repayment agents — have “pushed the boundaries of eligibility, exploited customers or made fraudulent claims”. The tax authority announced a series of measures to “better protect consumers”.
Around 500,000 people used companies to claim income tax repayments in the 2020-21 tax year. Common reasons for claiming the relief included working from home expenses and the working from home allowance, as well as the marriage allowance.
Among changes announced on Wednesday, HMRC said it would legislate to prevent so-called “assignments” from transferring the legal right to repayments from taxpayers to repayment agents, and require repayment agents to register with the tax authority for the first time, with more details to be set out “in early 2023”.
HMRC also said it would introduce a series of transparency requirements to ensure customers better understand what they are signing up to.
Victoria Atkins, financial secretary to the Treasury, said: “For too long taxpayers have been left in the dark as a result of misleading and opaque agreements with repayment agents.
“These new measures will ensure those who are entitled to claim a tax repayment or relief can do so freely and easily — whether they choose to do this themselves or by using an agent.”
HMRC said it had received up to 2,200 complaints about repayment agents between January and October last year. An investigation by consumer group Which? last year found that tax refund companies typically take commission of 25 per cent to 48 per cent.
Last September, HMRC said it would repay 60,000 people who used rebate firm Tax Credits Limited, after finding “insufficient evidence” that people who had claimed through the company were aware they were entering into a legally binding agreement to hand over ownership of their funds. The firm also used adverts that resembled HMRC’s and was reported to keep 48 per cent of payments.
The majority of complaints made to HMRC related to taxpayers not understanding or not being made aware of the terms and conditions used by the agent and the use of assignments, which legally transfer the benefit of the taxpayer’s repayments to the agent.
Victoria Todd, head of the Low Incomes Tax Reform Group, said: “The proposed changes will hopefully address problems around the use of assignments, increase transparency for taxpayers and set clearer standards for these companies’ behaviour.”
More effort should go into raising awareness of refunds and ensuring it is as simple as possible for taxpayers to access them, she added.
A 2020 study by the Office of Tax Simplification found that more than 5mn people made 7.42mn claims for tax relief on employee expenses in 2017-18.
HMRC hopes its reforms will also deter large numbers of ineligible claims being submitted by some opportunistic repayment agents, which delayed the processing of genuine claims.
Claims sent in bulk can have a significant effect on HMRC’s ability to meet its expected service levels — with thousands of claims arriving at once causing backlogs and delays.
Nimesh Shah, chief executive at accountancy firm Blick Rothenberg, said HMRC’s “falling standards and increasing phone waiting times” had prompted more people to turn to third parties to claim their repayment “because the individual or business cannot face the cumbersome process of dealing with HMRC”.
In response, HMRC said: “There is never any need to use a repayment agent. People can make repayment claims with us quickly and directly online without having to call us and they’ll keep all of the money they are due.”
HMRC added the legislation would be introduced in a finance bill “as soon as is practicable”.