While it’s common for tax advisers and agents to undertake work that results in a repayment, there has seen a significant growth in businesses that specialise in helping taxpayers and businesses make claims to HMRC that result in a tax repayment as their main service, without providing wider tax or accountancy services.
In fact, this seems to be almost a mini industry following on from Payment Protection Insurance (PPI) claim firms.
These businesses, which can be described as repayment agents, are often virtual, advertising on social media, and tend to operate a no-win no-fee commission-based structure with large volumes of relatively low-value claims.
The most common types of tax refunds referred to in recent advertising include:
- Married allowance claims
- Working from home allowance
- Unform allowance
- Mis sold PPI claims
While one can appreciate the perceived attraction of this ‘one -top’ service the perceived convenience comes at a price.
For this reason, in June the HMRC published a document ‘Raising standards in tax advice: protecting customers claiming tax repayments’.
Repayment agents can submit claims to HMRC without being formally authorised by their client in HMRC’s systems. This is known as a ‘filing only’ agent. In these cases, taxpayers can have no visibility that the claim has been made until, and if, they are informed they are due a repayment.
If an inflated or ineligible claim results in a refunded but then it is subsequently subject to an enquiry by HMRC, the liability for paying back the overpayment remains with the taxpayer who ends up in a worse-off position financially, as a result of having paid fees to the agent.
Purely by way of an example an indication of the fees and procedure obtained from a recent advertisement is as follows:
“We obtain a tax refund payment(s) from HMRC on your behalf and deduct our fee, before sending out a payment to you.
Our fee is 36% (plus VAT) of the total tax refund we obtain for you from HMRC.
A minimum fee of £25.00 for any successful claim approved by HMRC. If your tax refund amount does not cover this sum, we will retain the lesser amount and confirm that no additional charges or costs will apply. Your claim will then be closed.”
In passing it’s not uncommon for fees to exceed the 36% mentioned
In fact HMRC states that fees charged by repayment agents can vary significantly, even where the service provided is identical. They comment that some repayment agents charge fees as high as 48% of the value of the repayment for reliefs that a taxpayer could claim directly from HMRC in a matter of minutes, free of charge.
The ability to assign the repayment to the agent is at the very heart of the issue and is crucial to the attraction for the agent.
The HMRC believes that there are two main reasons why some repayment agents use assignments:
- It guarantees payment of their fees, as they receive the money directly from HMRC and are able to deduct their fee before sending the balance to the taxpayer. This reduces the risk to the agent that their client does not pay the fee for the service
- Broadly-worded assignments, typically covering the past four years rather than the specific claim made, may, depending on interpretation, enable the agent to benefit from any other repayment owed to the taxpayer within that four-year period even if they were not involved in the claim
The HMRC has received numerous complaints that explicitly referred to assignments. These complaints primarily relate to individuals not understanding that their repayment would be sent to the agent rather than directly to themselves, and where people do not recall signing an assignment.
Most accountancy professional bodies require their members to have clear terms of engagement with their clients, though many repayment agents do not appear to belong to professional bodies. HMRC’s Standard for Agents does not currently include provisions on terms of engagement. As noted above, HMRC intends to refresh the Standard for Agents to clarify their expectations around how agents should treat customers, and will consider terms of engagement as part of the process.
There are several obstacles to taxpayers who go to a repayment agent using a qualified adviser. For example, the adviser will need to prepare a comprehensive terms of engagement not to mention Privacy Notice, Terms and Conditions and a schedule of services. Clearly it’s not economic to prepare all these forms for a small tax repayment.
There is also the important issue of dealing with one tax issue in isolation
Professionals are correctly trained to consider all tax issues and this will lead to more time being spent even though the result will undoubtedly be worthwhile. In many cases courts have, when adjudicating in tax disputes criticised and found against advisers who have not considered the wider picture.
Of course if a recognised tax adviser has to take action to undo erroneous repayment claims the taxpayer is unlikely to be able to recover any fee paid to the repayment agent as mentioned above. It’s likely that the agreement specifies the fact that no advice is given and there is no requirement to repay a fee if repayment made.
The HMRC is considering a requirement for all repayment agents to formally register with HMRC before they accept any claims they submit. This would involve agents providing details to HMRC about their business such as the names of any directors, trading address, company registration number, and details of their Anti-Money Laundering Supervision registration. HMRC would check the validity of these credentials.
While HMRC contacts new repayment agents when they start sending in claims to check their processes are compliant, repayment agents do not need to be formally registered with HMRC as an agent to submit claims and receive repayments where they operate solely through sending in paper forms.
Providers of financial services are required to meet stringent fee and disclosure rules set out by the Financial Conduct Authority. HMRC is interested in stakeholder feedback on the proportionality and potential impact of introducing similar measures to the Financial Conduct Authority such as a mandatory pre-contractual disclosure form.
Of course the simplest solution would be for the taxpayers concerned to make their own claims. Indeed the HMRC wants to make it as simple as possible for taxpayers to claim reliefs and repayments and has introduced digital services that enable taxpayers to claim online directly.
The HMRC will publish a summary of responses within 12 weeks of the consultation ending, on 7 December 2022. Hopefully the response will encourage HMRC to take action to curb the worst excesses of repayment agents if only to ensure the sort of upfront disclosure that the FCA insist on for activities they regulate. Alternatively maybe tax advisers will be able to offer some form of a lower level service which could make the activities of repayment agents increasingly unattractive.