Tax Rebate Companies in HMRC’s sights

I have a deep dislike of companies that charge you a premium for doing something you could easily – and much more cheaply – do for yourself. A few years ago, when millions of people were claiming PPI refunds, the web was full of companies offering to make the claim for you. These firms would take a slice of any PPI compensation you claimed. Sometimes this actually resulted in people owing these companies money – all for a claim they could easily have made themselves, for free. In the wake of PPI, a whole host of tax rebate companies have sprung up. They offer to secure you various tax refunds. In return – you guessed it – you end up paying them a fee for something you could easily have done for free.

What are tax repayment companies?

If you regularly surf the web or social media, you’ll almost certainly have seen adverts from many tax rebate companies. Some will grab your attention by claiming that the taxman might owe you a large amount of money. Occasionally, some will try and make it appear they have HMRC approval (they haven’t).

While many tax repayment agents are legitimate businesses, they make their money by taking a percentage of any tax refund they claim on your behalf. Sometimes their commission can be as high as 50% or more.

HMRC’s Consultation

HMRC’s consultation took place back in 2022.

What did HMRC’s consultation do?

HMRC’s consultation was designed to help bring an end to unscrupulous practices and help people get the refunds they are entitled to. In particular, it sought views on:

• Restricting the use of assignments. These are contracts that legally transfer the right to a tax repayment from the taxpayer to an agent. HMRC is aware of concerns about how some agents secure assignments from their customers.
• Better transparency, particularly by making sure taxpayers are given material information about a service before entering into any agreement.
• Requiring repayment agents to register with HMRC.

There is also strong evidence that many taxpayers do not understand the terms they are signing up to and feel misled, some even believing they are dealing with HMRC directly rather than a third party.

HMRC has been concerned that some companies give customers a bad deal. Following the consultation, it agreed on the following actions:

• To introduce laws to void assignments of income tax repayments – these will remain the property of the customer
• To require all repayment agents to register with HMRC
• To introduce new transparency requirements for agents in the HMRC Standard for Agents and explore introducing mandatory pre-contractual disclosure forms and strengthening checks on repayment agents
• To undertake further work to strengthen the evidence that a claim has been made with a customer’s consent before processing it and improve the method where customers authorise their agent

Should I ever use tax repayment companies? 

Some people are short of time, or simply don’t have the inclination to deal with red tape. In these cases, it’s easy to see why it’s tempting to use a tax repayment agent.

However, reclaiming tax needn’t be complex and it needn’t cost a penny. You can claim many different tax refunds for free using HMRC’s online tool.

How THP can help you

It’s very likely that many of the people who turn to tax refund companies don’t use good accountants. At THP, our tax return services are designed to make sure you pay the correct amount of tax in the first instance. That said, if you think you may have paid too much tax, simply give your account manager a call. It’s a much better option that giving away over half of your refund to a tax refund firm that doesn’t have your financial interests at heart!