Campaigners call for urgent action on diversion of tax refunds

LITRG is hearing from increasing numbers of worried taxpayers, who are raising serious concerns about certain unscrupulous tax refund companies and their use of deeds of assignment.¹

Running a tax refund business is usually legitimate and provides a useful service for those who choose to pay someone to deal with their refund claim, but some taxpayers are left out-of-pocket and concerned that they seem to have been the victim of sharp practice by unscrupulous tax refund companies.

Meredith McCammond, Technical Officer with LITRG, said:

“In light of the problems we are hearing from taxpayers, we call on HMRC to take a new step and stop accepting deeds of assignment from refund companies at face value with immediate effect, and to revisit historic deeds in cases where questions are raised about their validity.”

Problems reported to LITRG in the last 12 months include:

• People targeted by tax refund companies on social media with online ads when their guard may be down
• People willing to pay a fee for assistance to claim a specific refund, but feeling duped (by not seeing or understanding the small print) into signing a wider deed of assignment, meaning unrelated refunds are also then diverted to the tax refund company
• Certain tax refund companies charging people anything up to 50 per cent of the amount to release the unrelated refunds to the taxpayers (or sometimes not releasing them at all)
• Some tax refund companies asking taxpayers for seemingly unnecessary personal data before releasing the refunds in order that they can undertake ‘identify checks’
• ‘Cleverly’ laid out application forms meaning people are being misled into thinking that they are only appointing the tax refund company as their tax agent, not signing a deed of assignment (or that the company are only acting in relation to the specific refund being claimed)
• Taxpayers stating they have simply filled in an enquiry form online – only to then realise later that an ‘electronic’ deed of assignment has been generated and been lodged with HMRC
• Deeds of assignment lodged with HMRC where the taxpayer says the signature on the form is not theirs
• Deeds of assignment lodged with HMRC where the signature on the form is the taxpayer’s but has been collected by a connected company as part of a previous or different claim service
• Some tax refund companies refusing to consent to the removal of the deed of assignment
• Tax refund companies refusing to revoke a deed unless a further fee is paid or simply refusing to engage with taxpayers
• For people who realise they have made a mistake in signing up to their services, tax refund companies ignoring or avoiding their contact during the cooling off period²
• Tax refund companies threatening taxpayers with legal action over unpaid fees, where the individual made an enquiry but say they did not proceed to sign up to their services.

Meredith McCammond said:

“It is an extremely concerning state of affairs. It is entirely legitimate for taxpayers to use tax refund companies to claim refunds on their behalf, because not everyone wants to deal with claims themselves. But there are unfortunate consequences of getting caught up with an unscrupulous tax refund company.

“HMRC have no choice but to accept a valid deed of assignment, but it is incumbent on HMRC to check that a deed is in fact valid before they accept it. This includes making sure that it has been properly signed and understood by the taxpayer.³ The reports we have received from taxpayers suggest that HMRC’s processes are at times too relaxed as to what they are accepting as a ‘valid’ deed of assignment. There is seemingly no other pathway to resolution for taxpayers. In some cases, taxpayers believe they have been a victim of fraud but then have trouble gaining traction with HMRC or other authorities.

“HMRC need to urgently put in place a new step whereby deeds of assignment from tax refund companies are not accepted until HMRC contact the taxpayer directly and check that they are aware of the deed’s existence, that they fully understand what it means and confirm they wish it to be put in place. This would ensure that HMRC only accept those that are valid under their own guidance.

“We have been raising concerns about deeds of assignment for some time and, although HMRC recently announced they would launch a consultation in this area, there is clearly a need for some short-term urgent action from HMRC to protect taxpayers, until they find more permanent solutions. Adding this extra step to the process is an important safeguard which could force those unscrupulous tax refund companies to introduce more transparent processes.

“This safeguard will of course only help people going forward. We would also urge HMRC to put a clear protocol in place to deal with cases where someone challenges the validity of an existing deed, including (in cases of invalid deeds) repaying the taxpayer if necessary and taking action against the tax refund company.

“It is distressing that some people are losing their hard-earned money like this. But what is also concerning is that some people are as angry with HMRC for letting this happen as they are with the tax refund companies. This issue is damaging people’s trust in HMRC and the tax system and needs to be dealt with immediately.”

Notes for editors

1. Signing a deed of assignment is one way that a taxpayer can assign their refund to a third party. Unlike a bare nomination, a deed of assignment can only be revoked if both parties agree, so it is used by tax refund companies to ensure a refund is sent to them in the first instance so they can collect their fee.

2. A cooling off period is a period (i.e. 14 days from the date the application is submitted) within which the taxpayer may cancel the contract by submitting notice in writing to the tax refund company.

3. HMRC’s guidance for PAYE taxpayers as to what constitutes a valid deed of assignment can be found here. There is a separate and slightly different page for Self Assessment taxpayers here.

4. 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.

Contact Hamant Verma, External Relations Officer, 0207 340 2702 [email protected]