An investigation by Which? found one in five (22%) people had been contacted by a tax refund company, heard of one by word of mouth or come across a tax refund company online. 

Which? counted a total of 208 firms with ‘tax reclaim’, ‘tax refund’, ‘tax claim’ and ‘tax rebate’ in their names on Companies House, and found ‘tax rebate’ gets 40,500 Google searches a month, despite tax rebates being free to claim via HMRC. 

It found some third-party firms using similar branding and language that you would usually expect from HMRC. 

One letter, sent by the firm Rebate Gateway, used HMRC’s recognisable teal colour, as well as similar fonts and phrases, which could lead the recipients to conclude they were contacted by the government department itself. 

Which? looked at 14 companies that either showed up in the results or were flagged by a consumer who had a negative experience. It found that four out of the 14 companies had no mention of the fees they charge on their main website page or in their FAQs section, but the term ‘no win, no fee’ was used in some cases.

Tax refund companies typically take cuts of 25% to 48%. Which? found that when additional service costs are added, customers are sometimes left with less money than the firm which processed their rebate. 

Which? found that services offering help with claiming Marriage Allowance are particularly common. This tax break lets one partner transfer 10% of their tax-free personal allowance to their spouse, providing their spouse earns less than the current personal allowance. 

It can reduce the couple’s tax bill by up to £252 a year, while a backdated claim can be made for up to £1,220. 

According to the Consumer Rights Act 2015, customers must be charged a ‘reasonable amount’ for a service. However, for a fully backdated Marriage Allowance claim worth £1,220, some tax refund companies charge nearly half in commission. 

For example, Tax Credits Ltd takes £585.60 on a service fee of 48%. Which? experts believe it is questionable whether this constitutes a reasonable amount.

Which? found that customers are usually asked to sign legally binding contracts called a ‘deed of assignment’ giving the tax refund company permission to make a rebate claim on their behalf. 

Alarmingly, depending on the terms, this could stay in place beyond the initial claim, allowing the company to take a share of tax rebates the customer is owed into the future, regardless of whether the collector does further work for them.

There is little recourse for customers unhappy with a tax refund firm. These companies are not regulated so aren’t subject to the same rules as claims-management companies (CMCs). They don’t need to be registered with the Financial Conduct Authority and consumers can’t take complaints to the Financial Ombudsman Service (FOS).  

Which? says consumers should always try to claim a tax rebate by going directly to HMRC in the first instance. The process for making a claim online is relatively straightforward and the applicant will get 100% of their money. 

Jenny Ross, Which? money editor, said: “Our research shows that huge numbers of people are coming into contact with firms seeking to entice them into handing over potentially hundreds of pounds of their tax rebate in unnecessary and hard to justify fees.

“For most people with a rebate to claim, HMRC is the best port of call. Go to its website directly to ensure you aren’t left footing any unnecessary bills.”