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‘Rip off’ tax reclaim firms to be reviewed

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Measures have been proposed by HM Revenue and Customs (HMRC) to stop rip-off agents taking advantage of people and pocketing their tax repayments.

HMRC has launched a consultation with proposals to protect taxpayers from rogue repayment agents who make routine tax claims on people’s behalf but take half, or even more, of the payment in charges.

Repayment agents charge individuals for handling the paperwork involved in making a claim for any rebates owed by HMRC on overpaid tax.

However, HMRC said it has seen strong evidence that many taxpayers do not understand the terms they are signing up to and can often feel misled, with some even believing they are dealing with HMRC directly rather than a third party.

A significant number of taxpayers have also complained that repayment agents’ charges are unclear or even hidden, with HMRC confirming that “questions have been raised about how some agents secure agreements from customers”.

Other concerns include the submission of high volume or speculative claims where no repayment is due, resulting in delays to genuine claims, as well as the use of  “assignments” which means the repayment goes to the repayment agent instead of the taxpayer.

HMRC reminds taxpayers that they can make a claim directly through HMRC’s free online service where they can keep 100% of the repayment themselves.

As part of the consultation which runs for the next 12 weeks, it is proposing the following measures:

  • Restricting the use of assignments, where contracts legally transfer the right to a repayment from a taxpayer to an agent
  • Ensuring  taxpayers see material information about a repayment agent’s service before entering into a contractual agreement
  • Requiring repayment agents to register with HMRC.

Jonathan Athow, HMRC’s director general for customer strategy and tax design, said: “We want to make sure taxpayers receive their full tax claims – putting 100% of the money they are due into their pockets – and not be taken in by the unscrupulous practices of some repayment agents.”

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, warned some income tax rebate firms charge a fortune for jobs you can do yourself in a matter of minutes without paying anything – like claiming for working from home relief or for the marriage allowance.

She said: “Tax rebate firms are confusing people into paying far too much in charges they don’t understand to companies they didn’t even realise they were using. In some cases, they can end up losing a major chunk of rebates that the firm had nothing to do with.”

She welcomed the HMRC review but added: “It’s disappointing that HMRC has decided it’s not worried about the level of fees being charged by these firms – which can be as high as 48% of the rebate.

“Given the level of most of these claims, this often ends up being a relatively small sum. However, it runs the risk of mounting to major costs when there are larger rebates involved.”

Athow added: “We want to better understand and address the issues to help raise standards in the tax advice market. We’re urging anyone affected to respond to the consultation and share their experiences.”