Should I use a tax refund company?
If you are considering using a tax refund company to help submit your tax repayment claim, read this page to work out whether it is the best option for you.
What are tax refund companies?
Tax refund companies, or tax refund organisations, are businesses that specialise in offering services to help you submit a tax repayment claim. They charge for these services. Tax refund companies sometimes charge fees of up to 40 per cent or even 50 per cent of the value of the refund.
Tax refund organisations often operate online. Sometimes they partner with employers and unions who refer workers to their services (for a commission). Websites for tax refund organisations often use headlines to catch your attention, for example, suggesting that you might be due a large amount of money from HM Revenue & Customs (HMRC) and that they can make claiming a refund easy for you.
Some organisations also indicate that they are ‘HMRC approved agents’, however using such a company does not mean that things will be ‘sped up’ as HMRC deal with refund processing on a first-come first-served basis.
Most tax refund organisations charge a minimum fee and this can reduce or eliminate the benefit of making a claim for a tax repayment, depending on the amount of tax involved (more on this below).
However, often, it is straightforward to make a claim for a tax repayment, and you can make the claim yourself at little or no cost.
What do I need to know about using a tax refund company?
The Low Incomes Tax Reform Group published a report voicing concerns about tax refund organisations.
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.
You should be aware of the following points when using a refund company.
The costs charged by refund organisations vary, but often the charge is the higher of:
- a minimum charge (for example, we have seen a minimum fee of £90), and
- a percentage of the tax repayment obtained (we have seen % fees of up to 40% for relatively straightforward claims).
These two things together, mean that the charge may outweigh your repayment, if it is only small.
Sometimes they will also add on charges for transferring money into a bank account, etc. which they are not always transparent about.
The pricing structure incentivises poor practice – for example, submitting inflated or fraudulent claims. We have also heard recently of a tax refund company asking HMRC to remove expenses that had been ‘coded in’ to a tax code, to generate further work for themselves.
Potentially false claims about their status
Tax refund organisations are not HMRC approved agents. They may be registered with HMRC for Anti-Money Laundering purposes and be registered with HMRC as an agent for the purposes of acting on your behalf. But this does not mean that the organisation is in any way affiliated to or approved by HMRC.
Data protection: possible concerns
You may be asked to sign a form 64-8 (authorising your agent) or give some other form of authority (such as a refund deed of assignment – more on this below). The form 64-8 gives HMRC the authority to correspond with the tax refund organisation about your tax affairs. A refund deed of assignment means that your refund will be paid to the tax refund organisation in the first instance, so they can take their fee (more on this below).
As a result of signing authorities like this, you may find that the refund company continues to receive correspondence about you or other tax refunds due to you, if you do not take steps to remove the authority after you have used the organisation’s services.
Receiving your refund
Tax refund organisations normally request authority to receive the repayment on your behalf. They will then deduct their fee and pass the balance to you, perhaps by direct transfer to your own bank account. This creates risks, for example that you might not receive your repayment at all, and that you are sharing your own bank details with the organisation, potentially exposing you to personal fraud.
Tax refund organisations may not be unscrupulous or do anything wrong. You might wish to use a tax refund company and pay a fee to them to help you claim a refund, particularly if you do not understand or have time to do the paperwork yourself, for example. That is fine, provided you have made an informed choice to do so and understand what you are getting for your money.
But as noted above, many refunds are straightforward to claim and we would recommend that you at least try to understand your taxes for yourself even if you do decide to get an agent’s help. You may even be able to make your claim quickly and easily online these days.
Beware – inflated claims
We have heard of some problems with certain tax refund companies claiming inflated, made-up or incorrect employment expenses - particularly travel and subsistence expenses.
In general, the rules for claiming expenses against your employment income are very strict.
For travel expenses, it is important to note that usually the costs of ‘ordinary commuting’ are excluded from tax relief, except where the travel is to a temporary workplace rather than the employee’s permanent workplace. But please note the word ‘temporary’ for tax law is not the same as the ordinary, natural meaning of the word. It is a very complex concept – HMRC’s booklet 490 contains many examples over a range of scenarios, to explain the temporary workplace concept (please note that even though this booklet is referred to as an employer booklet, it is useful for employees too).
As you can see from their booklet, although it is possible that you might do some ‘qualifying’ travel to a temporary workplace once in a while (for example if you work in an office but need to travel to another office for a meeting), in many cases workers may not do much, if any, travel which qualifies for relief.
Tax relief for subsistence costs (for example, food and drink) is only available in connection with a ‘qualifying’ journey to a temporary workplace. Therefore, if the journey itself does not qualify, then both the cost of that journey and any costs of subsistence in connection with that journey will not qualify for tax relief.
If you see tax refund companies saying that they can claim large tax refunds in respect of travel to a temporary workplace, or in respect of subsistence, you should be very wary. HMRC will come after you for their money back, not the tax refund company, who HMRC consider are simply acting as your agent. If a fee has been deducted by the tax refund organisation before they paid you the refund, the debt you have to HMRC may well be more than amount you received in the first place.
Even if your travel and subsistence expenses are allowable, please note that it is also not possible to claim additional tax relief if your employer pays for or reimburses your employment expenses. This is because you have not personally incurred any expense.
Deeds of assignment
As stated above, often, a tax refund company will want to receive the refund first so they can be sure of getting their fees before passing the balance on to you.
There are various ways for a taxpayer to nominate someone else to receive a repayment on their behalf – for example, in a tax return, by completing a form R38 or by writing a letter.
Some taxpayers go further than just a nomination and legally ‘assign’ a repayment by deed or letter to a nominee. A deed or letter of assignment assures the nominee that the repayment will definitely be paid to them as opposed to a nomination that can be withdrawn by the taxpayer at any time.
You can read more about ‘deeds/letters of assignment’ in HMRC’s guidance.
What is the effect of signing a deed or letter of assignment?
If you legally assign a repayment by a deed or letter, the person (or company) you have assigned it to becomes legally entitled to the refund. The deed or letter of assignment is legally binding and HMRC have no option but to issue the refund to the person (or company) to whom it has been assigned.
The assignment can only be revoked (cancelled) if both you (as the taxpayer who made the assignment) and the person to whom you assigned the refund agree to it being revoked. The agreement to revoke the assignment must be in writing and signed by both parties before being sent to HMRC.
A deed or letter of assignment is a different from appointing an agent via a form 64-8. A form 64-8 means that a tax agent is authorised to speak to HMRC on your behalf. You can revoke a form 64-8 without agreement of the other party.
What do I need to watch out for?
If you sign a deed or letter of assignment, check the wording. Sometimes you might have assigned a refund for a specific issue, like uniform expenses or the marriage allowance. Or sometimes it might cover all available tax refunds. This means the company can collect those other tax refunds from HMRC and will then take a percentage of those other refunds as well.
The assignment might be for one year or it might be for several years (although note that our understanding is that it is not possible to assign the rights to refunds for future tax years; this is because you can only assign a right you actually have - refunds for future tax years do not exist yet).
It is therefore very easy for refunds that arise for reasons completely unconnected to the issue you first approached the tax refund agent for help with, to be paid to them!
Sydney, who was asked to work at home from mid-March 2020 due to the coronavirus, asks a tax refund company to help her with a working at home refund for 2019/20 and 2020/21. She signs a letter of assignment in April 2021 and in June 2021 HMRC issue a refund in respect of working at home to the tax refund company.
However, Sydney signed an assignment covering all refunds arising in respect of the 2019/20 and 2020/21 tax years. This means that when HMRC come to do their P800 reconciliation for the 2020/21 tax year, probably at some point in the summer of 2021, it is possible they might also pay any refund to the tax refund company, who may then collect their fee percentage on it.
I don’t recall signing a deed of assignment?
The word ‘deed’ makes people think of a formal legal document but often the inclusion of a few words on an application pack you are asked to sign is enough to be seen as a letter of assignment, even if not a deed (note that HMRC’s guidance suggests that a ‘deed’ needs a witness signature).
For example, if you sign an application pack, you may think you are just giving permission for the tax refund company to act on your behalf. But there may also be some small print saying something such as ‘I unconditionally assign my repayment of tax (for tax years ending 2017/18, 2018/19, 2019/20 and 2020/21) to…. (tax refund company)’.
Sometimes you may agree to lengthy terms and conditions, within which wording may be buried such as: ‘as part of the process of recovering overpaid tax on your refund, a full reconciliation of your tax position will be carried out. This may result in other overpayments of tax being identified and recovered, on which our fee will apply’.
It is vital you are clear about what fees will get collected and what refunds and years any letters of assignment will cover, before you agree to use such companies. If you have inadvertently signed a deed or letter of assignment, then read on.
What should I do if I think I have signed a deed or letter of assignment?
You should check with HMRC as to whether they have a deed or letter of assignment noted on your records.
If they do, and it is valid (more on this below), then you need to check with the tax refund company what they intend to do if a future refund is diverted to them (that is, whether they will forward it on to you in full or not) and/or ask the tax refund company what their process is for revoking the deed or letter of assignment if you don't want it noted on your records anymore.
Some terms and conditions we have seen suggest that a deed of assignment will only be revoked at the discretion of a tax refund company. Others suggest that whilst they may revoke it, they will charge an administrative fee (in addition to collecting the fee on any refunds diverted to them).
If the tax refund company is reluctant to remove the deed or letter of assignment, then you should seek some legal or consumer advice, such as from the Consumer Helpline. They may well recommend that in the first instance, you send a formal letter, in writing saying that you are considering reporting them - a number of enforcement bodies may be interested in a tax refund company that refuses to cooperate and revoke the assignment, particularly as this may be indicative of wider poor practices.
Although HMRC have no option but to follow a valid deed or letter of assignment, businesses who provide certain services (including tax refund services) are required to have anti-money laundering systems and controls in place to meet the UK anti-money laundering legal requirements. If businesses fail to meet their obligations under these rules, penalties and criminal sanctions can be imposed on them. You may want to check whether the tax refund company you have used (or plan to use) has carried out the appropriate checks. If they have not, then HMRC should be informed. If you are not sure how to get in touch with the relevant part of HMRC, then please contact us and tell us of your experiences and the details of the tax refund company concerned. We can feed this into our discussions with HMRC.
If the proprietor of the tax refund company is a member of a professional body, such as the ATT, CIOT or ICAEW, you should report them to the professional body concerned, as refusing to remove a deed of assignment upon request could be a breach of the ethical standards expected. Most professional bodies concerned with tax have a search facility where you can look up specific people to check if they are members.
If you are unsure of the proprietor's name or other details, as most tax refund companies will be Limited (Ltd) companies, you can check the freely available information about Ltd companies on the Companies House website (you can search by name or Ltd Company number - by law Ltd companies have to include their Ltd company number on their stationery and website).
If you do not remember signing anything, then it may be the case that your signature was obtained under false pretenses, or the signature might even be forged. This is a very serious matter and should be reported to Action Fraud. Tax rebate scams are an issue on their radar as you can see from this news article: NHS members targeted by tax rebate scam.
If there is no valid deed or letter of assignment, then HMRC may have mistakenly sent out the refund to the tax refund agent when they should have sent it directly to you. In these circumstances, you should ask HMRC to rework your case immediately, cancel any issued cheques, cancel the deed of assignment and reissue the refund to you.
If HMRC do not agree there has been a mistake on their part but you still have questions as to whether it is a valid deed, you may wish to consider making a complaint.
You can read more about 'deeds of assignment' in HMRC's guidance, including the standards that HMRC expect of a valid deed or letter of assignment. In particular, note HMRC’s requirements that:
- it has to be clear, unambiguous and unconditional
- the wording of the assignment must be provided before the customer’s signature, it cannot appear in small print or after the customer’s signature
- no particular form of words is required for the deed or the letter, but the assignment must specifically identify the repayment that is being assigned. For example, ‘Income tax overpaid by me for the two years ended 5 April 2009’ is acceptable, but ‘any repayment of tax due to me’ is not.
Being put into Self Assessment to get a refund
Normally, a tax refund claim need only be made through the completion of a more formal Self Assessment tax return where the amount of employment expenses exceeds £2,500.
However, we have heard that some tax refund companies may be putting people into the Self Assessment system unnecessarily for lower value expenses. Presumably, this is because the Self Assessment system is automated, so it can sometimes be quicker or easier to get a refund that way, as opposed to claiming through the P87 system.
However, please note you should think extremely carefully about allowing yourself to be put into the complex Self Assessment system just to claim expenses, if you have no other reason to be in it. Once you are in the Self Assessment system, there are very strict penalties for non-compliance with the tax return requirements and deadlines, and it is certainly not something to be taken on lightly or entered into unnecessarily with a short term or casual attitude.
Also, if HMRC check your tax return and find it is incorrect, it is you rather than the agent who will have to account for the underpaid tax, perhaps some years later - as well as inaccuracy penalties potentially. In such cases, if a fee has been deducted by the tax refund organisation before they pay you the refund, the debt to HMRC may well be more than the amount you received in the first place.
What if I get paid a referral fee?
Some tax refund companies pay referral fees to get you to encourage your friends or colleagues to use their services. You should be aware that referral fees are taxable income and will need to be declared to HMRC unless they are exempt under the trading allowance.
If you need to report the referral fees to HMRC, they will probably be viewed as ‘miscellaneous’ income. HMRC may be able to collect any tax you owe on it through adjusting your PAYE tax code rather than through a tax return.
Where can I find more information and help?
If you think you are due a tax repayment, but you are not able to make the claim by yourself, we suggest that you seek assistance from HMRC or from a professional tax adviser.
See our getting help section for information on finding a professional tax adviser. If you cannot afford to use a professional adviser, then one of the tax charities should be able to help you.
You can contact HMRC using the details available on GOV.UK.
If you are considering using a tax refund agent to help you with your Construction Industry Scheme tax return and repayment, please read our guidance first.
If you are a migrant worker who has now left the UK and are considering using a tax refund agent because they can pay your refund to you in your home currency, please be aware that there are usually hefty extra charges for this and/or they may offer you a poor exchange rate. For more information on how you can obtain your refund if you have left the UK, see our migrants section.