HM Revenue and Customs (HMRC) has announced changes to the way people can use a repayment agent to claim tax refunds to provide greater protection for taxpayers. HMRC said that businesses specialising in helping people and firms make claims for tax refunds often advertise on social media and tend to operate on a commission-based fee structure.
The revenue body said many repayment agents support customers to access tax relief or repayments they may otherwise have been unaware of. But it has also frequently seen cases where repayment agents have pushed the boundaries of eligibility, exploited customers, or made fraudulent claims.
HMRC received more than 2,200 complaints about repayment agents between January 2022 and October 2022, including those relating to the use of assignments, which legally transfer the benefit of the taxpayer's repayments to the agent; taxpayers not being made aware of or fully understanding terms and conditions; and people being unaware that they are dealing with a third party and not HMRC.
If someone believes they are owed a tax rebate, they can claim directly from HMRC via gov.uk and they will receive 100% of the money owed - find out more here.
HMRC said it will introduce legislation to change the way repayment agents are paid for their services and better protect customers from the unscrupulous tactics used by some operators.
This includes stopping the use of legally binding assignments as part of claiming an income tax repayment, which could only be cancelled if the agent and taxpayer both agreed to do so.
This can be challenging for customers who become dissatisfied with their agent, or who simply wish to take over managing their own claim, the revenue body said.
Under new arrangements, if a taxpayer chooses to use a repayment agent to reclaim overpaid tax and wants it sent to the agent, they will need to make a nomination, which they can cancel at any time.
The new process aims to make it easier for taxpayers to stay in control of their repayments. HMRC said there will also be a new registration process for repayment agents, to make the agent sector more transparent so customers better understand what they are signing up to. Further details on the approach to registration for repayment agents will be set out in due course.
Currently, repayment agents are not required to register with HMRC, so the department's ability to proactively check they are registered for anti-money laundering supervision and that they meet HMRC's standards for agents is limited.
The revenue body also said updated standards for agents include greater evidence of customer consent, to ensure that taxpayers better understand the agreement they are entering into and stricter transparency rules, including introducing a 14-day cooling off period for customers after entering into an arrangement with an agent.
The plans follow a consultation last summer and form part of steps to tackle problems in the repayment agent market, which is currently an unregulated sector - find out more about this here.
Angela MacDonald, HMRC's deputy chief executive and second permanent secretary, said: "Taxpayers deserve better - we want to make sure they are better protected before choosing to enter into an agreement with a repayment agent. HMRC's updated standards for agents will level the playing field and provide the benchmark we expect all repayment agents to meet."
Financial Secretary to the Treasury Victoria Atkins 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."
Victoria Todd, head of the Low Incomes Tax Reform Group, said: "Refund companies have a legitimate role in the tax system, but the practices of some of these companies in recent years have been unacceptable.
"The proposed changes will hopefully address problems around the use of assignments, increase transparency for taxpayers, and set clearer standards for these companies' behaviour.
"Alongside this, it is important that more effort goes into raising awareness of refunds and ensuring it is as simple as possible for taxpayers to access them.
"We look forward to working with HMRC on the detail of the proposals."
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