HMRC must help taxpayers to help themselves, say tax campaigners

The Low Incomes Tax Reform Group (LITRG) welcomes the Government’s commitment to review options to tackle the cost to taxpayers of advisers who are claiming tax refunds on their behalf. But LITRG cautions that government must also address the underlying factors which drive taxpayers to use such services, and that where HMRC have evidence of meritless claims by particular agents, they must use their existing powers more to protect taxpayers.

The Government’s commitment comes as part of their response, published today, to the ‘Raising standards in the tax advice market’ consultation.1 In that consultation, HMRC highlighted concerns about large fees (sometimes over 40 per cent of the refund amount) being charged to taxpayers for expense claims that could be made for free directly to HMRC, and a lack of further help from the agents involved if HMRC questioned the claim.

LITRG has seen a good number of people subject to these high fees, often without fully understanding the charges.2 In addition, we have seen cases where refunds have been claimed erroneously by the agent but had to be paid back by the taxpayer, and where companies have asked taxpayers to sign a deed of assignment covering future tax years – meaning future tax refund payments are paid to the agent who then deducts a high fee once again. 

Victoria Todd, Head of LITRG, said:

“Claiming tax relief on employment expenses, such as mileage relief or home working expenses, is not something that people would necessarily think of as requiring assistance from an adviser. But the complexity of the rules and lack of awareness around expenses means HMRC’s process for making a direct claim can be out of reach for some.

“This has led to a number of ‘high volume repayment agents’ (HVRAs) setting up and processing large volumes of expense claims. In our experience, these HVRAs are usually not members of a professional body and often pair friendly websites with aggressive advertising. HVRA fees being based on a percentage of the refund, although an understandable fee structure in the circumstances, can sometimes incentivise poor practice amongst more unscrupulous HVRAs, especially with no real, visible opposition from HMRC.”

As LITRG’s response to the consultation highlighted, not all HVRAs act in an unscrupulous way: some offer a transparent service for a fee. People should be able to exercise freedom of choice to use someone to deal with their tax relief claim on their behalf, and in some cases it means the individual gets some refund that they would not have otherwise received. But LITRG sees examples of some unscrupulous agents who target lower income taxpayers and who charge excessive fees, far in excess of what is commercially reasonable and which are often not transparent to the taxpayers.

Victoria Todd continued:

‘We welcome the Government’s commitment to review options to tackle the often-excessive costs charged by HVRAs. But this alone will not help tackle some of the wider problems in this area. The factors which drive taxpayers to use HVRAs must also be addressed. These include the complexity of the claims process, the reluctance some taxpayers have to engage directly with HMRC and even the simple fact that it does not occur to people that they might be able to claim for expenses. HMRC have made some progress in this area, but there is more that needs to be done.

“The fact that HMRC’s Standards for Agents are clearly not being met by some HVRAs does not appear so far to be of much consequence. Where HMRC have identified agents submitting claims with no merit, they must make more use of their existing powers (for example refusing to deal with the agent, dishonest agent penalties or even public interest disclosures where appropriate) to protect taxpayers. This, coupled with HMRC’s proposals to raise awareness of the standards for agents and internally review the associated enforcement powers, would go some way to addressing the issues.”

^{Notes for editors}
1. https://www.gov.uk/government/consultations/call-for-evidence-raising-standards-in-the-tax-advice-market
2. See for example Page 4 of our response https://www.litrg.org.uk/sites/default/files/200825%20Raising%20standards%20in%20the%20tax%20advice%20market%20-%20LITRG%20response%20FINAL.pdf
3. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

^{George Crozier}