Should I use a tax refund company?

Updated on 27 April 2022

Tax basics

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.

Illustration of people and a clipboard with the words tax refund written on it

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.

Most tax refund organisations charge a minimum fee. Tax refund companies sometimes charge fees of up to 40 per cent or even 50 per cent of the value of the refund. 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).

Tax refund organisations often operate online and pay for advertising space so that they appear at the top of search engine results.

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 HMRC do not approve agents as such (more on this below). 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.

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 often, refunds are straightforward to claim yourself from HMRC and for little or no cost. 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.

What do I need to know about using a tax refund company?

The Low Incomes Tax Reform Group published a report in 2013, 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.

Being unregulated means that there are no standards (other than the basic HMRC standards for agents, or professional standards for companies run by members of professional bodies) set by the authorities that refund companies have to follow. So while there are good tax refund companies out there, there are also very poor ones.

You should be aware of the following points when using a refund company.

Cost

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 percentage fees of up to 40 per cent for relatively straightforward claims).

These two things together, mean that the charge may outweigh your repayment, if it is only small. VAT may also be added on.

Sometimes they will also add on charges for transferring money into a bank account, for example, which they are not always transparent about.

The pricing structure encourages 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 included in a PAYE 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.

Some may use a name, branding or logos that could confuse you into thinking that you were dealing with 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 deed or letter 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 deed or letter of assignment means that your refund (and maybe other unconnected refunds) 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 try 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 – see deeds of assignment below. 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.

We are hearing that some tax refund companies are asking taxpayers for seemingly unnecessary personal data before releasing the refunds in order that they can undertake ‘identity checks’. Again sharing such data puts you at risk of personal fraud or even identity theft. You also need to be careful that you look out for anything as part of the final steps to getting your refund that might inadvertently lock you into their service for another year (for example, a box that needs to be unticked to opt out).

Other issues

We are also hearing of the following issues:

  • Tax refund companies ignoring or avoiding their contact during the cooling off period, if people realise they have made a mistake in signing up to their services.
  • 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.

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 HMRC’s booklet 490 (linked to above), 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 have a ‘process now/check later system’. This means if there are any irregularities with claims, these may not come to light for several years.

HMRC will come after you for an incorrect tax refund, 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 the amount of tax refund 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. In contrast, the majority of tax agents do not handle client money and have to present bills to their clients and seek payment from them, much as other providers of services do.

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. But these simple or ‘bare’ nominations of companies to get the individual’s refund can be altered or withdrawn by the taxpayer after they have been made.

As such, some tax refund companies go further than just a nomination and ask taxpayers to legally ‘assign’ a repayment by deed or letter to them. A deed or letter of assignment is a more formal and binding way of taxpayer ‘assigning’ refund – as they cannot be changed or revoked by the taxpayer alone.

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 valid deed or letter, the person (or company) you have assigned it to becomes legally entitled to the refund. The valid 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 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. Sometimes it might cover all available tax refunds for the year (or multiple years). In the latter case, this means the company can collect those other tax refunds from HMRC and will then take a percentage of those other refunds as well.

Note that an assignment means that an agent could receive all claims in respect of a given tax year for four years. It can also cover in-year tax refunds for the current tax year. However, according to HMRC it cannot include future tax years (as taxes must have actually been overpaid to be assigned).

⚠️ WARNING: LITRG are increasingly hearing from people who have used a tax refund company in the past, and who are now discovering that unconnected tax refunds are also going to the tax refund company. The problem with this is that the tax refund company can then collect fees on other/unconnected refunds even though they have done little or no work towards it. We have issued several press releases (here and here) to try and generate some publicity about the issue.

Example

Sydney, who was asked to work at home due to the coronavirus pandemic, asks a tax refund company to help her with a working from home (WFH) refund for the 2020/21 tax year. She signs the application form, which contains a deed of assignment for 2020/21. HMRC issue a refund in respect of working at home to the tax refund company, and they forward it to Sydney after collecting their 35 per cent fee – so Sydney gets only £40.62 of her £62.50 refund.

However, Sydney signed an assignment covering all refunds arising in respect of the 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,and a refund of £350 is automatically generated (due to an over deduction of PAYE by her employer), the £350 is sent to the tax agent, not Sydney. The tax agent only releases it to Sydney, after deducting a 35 per cent fee on it. This means Sydney receives only £227.50 of her £350 refund.

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).

‘Cleverly’ laid out application forms can then mean 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).

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 for a specific purpose. But there may also be some small print saying something such as ‘I unconditionally assign my repayment of tax (for tax years ending 2018/19, 2019/20, 2020/21 and 2021/22) to…. [tax refund company]’.

It is vital you are clear about what the services are, what fees will get collected and what refunds and years any letters of assignment will cover, before you agree to use such companies and before you sign or otherwise agree to anything.

What other things are you hearing about in respect of deeds of assignment?

Problems recently reported to LITRG include:

  • Taxpayers stating they have simply filled in an online questionnaire – 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 appears to be the taxpayer’s, but has been collected by a connected company as part of a previous or different claim service and seems to have superimposed on to the deed.

This is concerning from two perspectives: firstly, that some tax refund companies are acting in this way in order to generate income – and secondly, HMRC don’t seem to be undertaking comprehensive checks on the ‘validity’ of the deed before lodging it in the system.

If you have inadvertently signed a deed or letter of assignment, or if you don’t think you ever signed the deed or letter of assignment that is in place, then read on.

What should I do if I think I might have inadvertently 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 won’t give you this information informally, then you can make a formal Subject Access Request (SAR) to HMRC, asking specifically about what authority is lodged on the record for them to pay your refund to a third party.

If there is a deed or letter of assignment in place, and it is valid (more on this below), then you need to check the following things with the tax refund company:

  • what they intend to do if another refund is diverted to them (that is, whether they will forward it on to you in full or not)
  • 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.

Is the deed or letter of assignment valid?

Under the law as it stands, HMRC have no choice but to accept a valid deed of assignment, but in many cases we are hearing about it seems arguable that the deed is not valid, not least as it seems to have not been properly signed by the taxpayer.

If you do not remember signing anything, then it may be the case that your signature was obtained under false pretences, or the signature might even be forged or superimposed from another document that you have signed at some point (that the tax refund company has managed to obtain – for example, from a connected claims company).

We have recently heard instances of a deed or letter of assignment somehow coming into existence, as a result of someone simply expressing an interest in a service. For example, a deed has been created when someone has completed an online questionnaire/used the tax refund company online calculator, but they have not completed a full claim pack. It may be the case that ticking a box on a screen has somehow triggered the deed or letter of assignment to be signed ‘electronically’ in these cases – it is vital that you are vigilant. 

HMRC’s guidance includes 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;
  • the wording of the assignment must not include any statements about agreement to terms and conditions or fees (terms and conditions/fees can appear in the combined document, but must appear separate to the assignment, in its own section of the form with its own signature);
  • the individual entitled to the repayment must physically sign the letter or deed; an electronic or e-mail signature will not be accepted.

It is not clear how forged, superimposed, or ‘electronic’ signatures generated by ticking or clicking something, on a deed or letter of assignment, meets with these requirements and this is something we have raised with HMRC.

Even if ticking or clicking something somehow signs you up to use the tax refund companies service, HMRC guidance seems to suggest that there needs to be a signature made by the person under the terms and conditions and then under the deed or letter of assignment wording. They need to be separate, and the person needs to sign/agree to both.

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 or letter of assignment, you may wish to consider making a complaint.

If you are unhappy once the formal complaint is dealt with by HMRC, then you could take your complaint to the Adjudicator once the HMRC internal complaints procedure has been exhausted.

What else can I do?

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. To find out more about this and how to contact HMRC, please see the guidance (produced by the CIOT and ATT) here and here.

If you consider you have been scammed or defrauded, contact 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 the proprietor (owner or manager) 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 or letter of assignment upon request could be a breach of ethical standards. 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).

We are aware that several personal finance journalists are very interested in tax refund companies and deeds of assignment. Contacting one of them may be an option if you wanted to highlight your case, although we appreciate not everyone is keen to have publicity in these cases.

Finally, 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.

Being put into Self Assessment to get a refund

Normally, a tax refund claim only needs to be made through completing 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.

Claims for specialist reliefs

LITRG have recently heard of taxpayers being attracted by tax refund agents offering to make legitimate expense relief claims, such as for uniforms, then being asked to register for Self Assessment and to hand over their Government Gateway log in details to the tax refund company. The company then uses these details to prepare and submit tax returns containing inappropriate claims for Enterprise Investment Scheme (EIS) relief.

The taxpayers did not seem to be fully aware of what the tax refund company was doing, and also did not seem to realise the tax refund company would then channel the (often large) refund to themselves via the tax return, with only a small proportion ultimately being passed on to the taxpayers. The taxpayers have now been contacted by HMRC saying refunds were claimed when no EIS relief was actually due and (as taxpayers are typically responsible for the actions of their agents), HMRC therefore require the FULL amount of tax to be repaid to them.

You should never give anyone your Government Gateway username and password. Tax advisers registered with HMRC can file online tax returns on behalf of their clients using their own ‘agent’ credentials and do not need to ask for individual taxpayers’ login details.

In addition, taxpayers should be aware of certain warning signs when signing up with tax refund companies offering help with specialist claims such as:

  • The tax refund company has been recommended because it gets big refunds (compared to what you might usually expect for the type of refund/circumstances)
  • Those who own/run the tax refund company are not members of a professional body
  • The tax refund company does not follow basic professional practices
  • Communication with the firm is only by phone or text message and/or social media
  • The company wants you to set up a Self Assessment record with HMRC
  • The company wants to use your own personal Government Gateway credentials to prepare and file a tax return (as if it has come from you)
  • You are not given a copy of your tax return or tax calculation to approve before submission
  • You do not recognise the entries or claims shown on your tax return – for example, you are claiming tax relief for an investment (or ‘subscription’) in shares when no such investment has been made

We are also aware that some tax refund agents operate in the Research and Development tax credit area, meaning many of the considerations set out on this page apply to taxpayers that own their own businesses.

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.

If I want to use a tax refund company what should I look out for?

  • Ensure you are clear about what you are signing up to – be particularly wary of being targeted on social media when your guard may be down.
  • Check for overinflated promises – for example, the maximum refund for the standard WFH allowance is worth £62.40 (in 2022/23) for most people. It is only possible to go back a maximum of 4 years. If the company promises to be able to get you back £1,000s, then alarm bells should ring.
  • Be on the lookout for wording in application forms such as ‘I unconditionally assign my repayment of tax (for tax years ending 2018/19, 2019/20, 2020/21 and 2021/22) to…. [tax refund company].’
  • Check for signs they are reputable – for example, they have easily accessible terms and conditions, a contact address and telephone number, and a Companies House number on their website.
  • Check for online reviews – for example, in consumer forums, on Trustpilot or Google My Business.
  • Check if the proprietor is a member of a professional body. If so, they should work to high ethical and professional standards and if they do not work to these standards you can make a complaint to the professional body.

Where can I find more information and help?

If you want to claim a tax refund from HMRC, and think you can do this by yourself, look at our guidance on how to claim tax back.

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. If you want to use a tax refund company, you can find some hints and tips on how to avoid any problems above.

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.

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