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Published on 15 March 2023

Assignments announcement closes window of opportunity

The Low Incomes Tax Reform Group (LITRG) has welcomed the confirmation in today’s Budget that it will render void assignments of income tax repayments with effect from today (15 March 2023)1.

The measure helps to address concerns raised by LITRG about the unacceptable behaviour of some tax refund companies who were found to have been submitting assignments to HMRC which channeled multiple tax refunds to them. In most cases the taxpayer had not signed the assignment intentionally or – in the case of some online applications - had not signed it at all.  

The measure was first announced on 11 January 2023 and LITRG had feared that a long lead in time for its introduction would have led to some tax refund agents upping the ante before the assignments loophole was finally closed by legislation.

Press release. A coloured image of a speakerphone, a paper press release and microphone.

This announcement is welcomed by the tax group who had warned HMRC that unless the provisions took effect immediately, there would be a flurry of market activity prior to any commencement date.

That would have led to more taxpayers being caught out by unscrupulous agents and would also have placed pressure on HMRC service levels.

Victoria Todd, Head of LITRG said:

“The legislation says that any assignments received by HMRC from today onwards will be void. We assume this means that some tax refund applications that are in the post may need to be re-done if they include assignments rather than nominations2. It is worth adding that HMRC must put steps in place to ensure that they act correctly in respect of nominations, so that bona fide agents do not miss out on their fee3.

“However, these wrinkles are nothing compared to what we might have seen had there been a few weeks or months lead in time – huge campaigns to try to generate work, aggressive sales tactics to try and get partially completed applications over the line etc; meaning more taxpayers would have been affected.

“We applaud HMRC – once they accepted the fact that there was a serious problem with the opaque processes of some agents – in acting strongly and decisively. We hope to see similar responses to other issues in this area. For example, with regards to certain activities in the PPI claims sector4, and those agents who exploit HMRC’s process now/check later self-assessment system to make inaccurate or inflated claims.5

“We will be glad to no longer be hearing of people affected by assignments - and about the significant impact this had on their mental health and well-being. However, unless HMRC continue to monitor the situation carefully, taking robust action swiftly if issues like this are identified by them or brought to their attention by taxpayers and other stakeholders, it is likely these queries will get displaced by others.”

Notes for editors

  1. If a taxpayer legally assigns a repayment to a third party by an assignment, that third party becomes legally entitled to the repayment. The assignment can only be revoked if both the taxpayer who made the assignment and the third party agree to it being revoked. Assignments have been misused by certain tax refund companies – including Tax Credits Ltd. In this case, the individuals thought they were applying for a working from home refund via the company, only to find that as a result of the sign-up processes used, they had unwittingly entered into a ‘deed or letter of assignment’, meaning other unconnected tax refunds for those same years were also paid directly to the company, allowing them to take a significant slice of these extra refunds as commission. In many cases, an electronic signature collected as part of the sign up process, was applied to an assignment document that the taxpayer has not understood, seen or approved.
     
  2. The difference between an assignment and a bare nomination are set out in HMRC’s manual.
     
  3. HMRC sometimes do not follow bare nominations and issue repayments directly to taxpayers when a valid nomination was in place.  
     
  4. Companies House records shows that there are sometimes shared directors between PPI claims companies and tax refund companies. Some cases we have heard of appear to suggest that customer databases are being openly shared between the different entities in order that they can target communications promoting each other’s services – whether this is with the requisite data protection authority we do not know. In other cases, a PPI claim ‘a few years back’ with one entity seems to result in a tax refund later being sent to the other entity – the inference being that the signature given ‘a few years back’ on the PPI claims management company paperwork has now been used to generate an application with the tax refund company for tax purposes.
     
  5. More information can be found in our press release.
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