Who do they target?
There are probably three main groups:
- Workers who are unaware that they can claim directly from HMRC or who think that the tax refund company actually is HMRC.
- People who may have an inkling that they are due a refund but who lack confidence or knowledge of the tax system to initiate a claim themselves.
- People who could probably organise a claim themselves but who do not have the time or inclination.
There will always be taxpayers who prefer to use agents, and this is fine, provided the person has made an informed choice to do so.
What are the problems?
Some tax refund companies are meeting a genuine need in the market and operate according to appropriate standards, but the area is unregulated and there is a huge spectrum of providers.
Being unregulated means there are no standards set by the authorities that refund companies have to follow – other than the basic HMRC standards for agents, or professional standards for companies run by members of professional bodies. So while there are good tax refund companies out there, there are also very poor ones.
For many years now we have received a steady trickle of queries from the general public affected by unscrupulous tax refund companies, including around high fees, people feeling duped into thinking they were dealing with HMRC, and incorrect or inflated claims (the problem with that being if HMRC concludes that the companies have made such claims, they will ask the individual for their money back not the company, as they say that individuals are responsible for their own tax affairs).
More recently we have seen an increasing number of people where a ‘deed of assignment’ has been put in place.
What is a deed of assignment?
As stated above tax refund companies charge for their services, normally a percentage of the refund.
When using a tax refund company's services, the taxpayer will usually have to nominate the tax refund company to receive the refund in the first instance, so that the fee can be taken. However, the majority of tax agents do not handle client money and have to present bills to their clients and seek payment from them much as other providers of services do. But these simple or bare nominations of companies to get the individual’s refund can be altered or withdrawn by the taxpayer after the event.
Deeds of assignment are a more formal and binding way of taxpayers ‘assigning’ a refund, as they cannot be changed or revoked unilaterally. This means that it can only be withdrawn with the agreement of the tax refund company.
But it appears that taxpayers are not just being asked to sign assignments in respect of a particular refund but are being presented with assignments that are for entire tax years and even multiple tax years.
This means that people who have used a tax refund company in respect of a particular tax refund, for example to claim tax back on work expenses, but who have inadvertently signed a wider deed of assignment, are now discovering that unconnected tax refunds are also being sent to the tax refund company. The problem with this is that the tax refund company can then collect fees on other/unconnected refunds even though they have done little or no work towards it.
