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. Sometimes it is possible to end up using a tax refund company without really intending to - take care with what you are signing up for – particularly entering details via online advertisements, for example.
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.
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 of tax refund companies asking HMRC to remove expenses that are usually 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 wording to that effect in an application pack), or give some other form of authority, such as a signed nomination or 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 nomination or deed or letter of assignment means that your refund will be paid to the tax refund organisation in the first instance, so they can take their fee.
As we explain in the deeds of assignment section below, in some instances, your signature may be applied to a 64-8, nomination or deed or letter of assignment without you physically signing anything.
Receiving your refund
Tax refund organisations normally request authority to receive the repayment on your behalf – see deeds of assignment section below. They will then deduct their fee and pass the balance to you. This creates risks, for example that you might not receive your repayment at all.
We are hearing that some tax refund companies are asking taxpayers for extensive personal data, including bank details in order that they can undertake ‘identity checks’ before issuing the refunds. (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. This includes checking the identity of their customers at the relevant moment.)
Sharing such data puts you at risk of personal fraud or even identity theft. If you are uncomfortable providing all of the details, then you could ask the tax refund company if they can send a cheque to your home address. This should mean that you do not have to provide your bank details. You may still need to verify your identity to get your refund - although strictly, the rules say they should request documents to verify your identity before they provide any services to you.
If you think the business has failed to meet their obligations under the anti-money laundering rules (which could include checking the identity of their customers at the wrong time), penalties and criminal sanctions can be imposed on them. If the tax refund company you have used has not met their obligations, 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. HMRC have recently removed a tax refund company from the market because of serious anti-money laundering breaches (see Tax Credits Ltd below).
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).
We are also hearing of the following issues:
Tax refund companies ignoring taxpayer attempts to contact them.
- 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.
Problems with deeds or letters of assignment (see below)
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 (or letters) 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, by filling in the Repayment Instructions section of a form or 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 overlooked by HMRC or altered or withdrawn by the taxpayer after they have been made.
As such, in the past, some tax refund companies have gone further than just a nomination and asked 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 a little more about ‘deeds/letters of assignment’ in HMRC’s guidance. We provide more detailed commentary below.
Note that in the Spring 2023 Budget, there was an announcement that assignments of income tax repayments will be rendered void with immediate effect (15 March 2023). This means that HMRC should no longer accept them/follow them. Any applications that were sent to HMRC before the 15 March 2023, that they receive on or after 15 March 2023 that contain assignments, will be legally void. However, as a concession, HMRC are not asking for them to be redone. Instead they will treat them as non-legally binding nominations. Note that you can ask for HMRC to remove a nomination without obtaining the agreement of the agent.
The information below is retained for anyone researching their position as regards an assignment that was received by HMRC prior to this date.
Pre 15 March 2023 - 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.
Pre 15 March 2023 - What do I need to watch out for?
If you are applying for a tax refund through a tax refund company, be careful that the online process that you go through for that particular refund doesn’t end up in a wider deed or letter of assignment being created.
For instance, in cases we have heard of, filling in a questionnaire, using a calculator, expressing an interest or entering an email address and then signing a screen and ticking a box to agree to the terms and conditions, seems to have generated a wider deed or letter of assignment which has then been sent into HMRC. More on this below.
Even if you are happy to sign a deed or letter of assignment for a specific refund like uniform expenses or marriage allowance, check the wording. 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, going back 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 have heard from many people who used a tax refund company in the past, and discovered that unconnected tax refunds were 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.
Pre 15 March 2023 - 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 2021/22 tax year. She signs the application form, which contains an assignment for 2021/22. She is due a refund in respect of working at home and this is forwarded to the tax refund company. This will be issued to Sydney after they have collected 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 2021/22 tax year. This means that another refund due to Sydney for the 2021/22 tax year because of an over-deduction of PAYE by her employer (that would have been issued to her automatically through the 'P800 reconciliation' process) is also 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 'P800' refund.
Pre 15 March 2023 - 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 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 2019/20, 2020/21, 2021/22 and 2022/23) 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 tick anything.
As covered above, in some instances, you may not be asked to physically sign any type of document or claim pack whatsoever. A tax refund company may have an online process that means you ‘sign’ a general screen and tick a box, which the tax refund company says gives them permission to apply your signature to any legally binding documents, including assignments.
This would account for the problems we are hearing of, which include:
- Taxpayers stating they have simply expressed an interest in a service or done something fleeting online– only to then realise later that an assignment has been generated and been lodged with HMRC.
- Assignments lodged with HMRC where the taxpayer says the signature on the form is not theirs.
- Assignments 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 been 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.
Pre 15 March 2023 - 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).
Pre 15 March 2023 - 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.
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 assignment must be in writing and signed by the individual entitled to the repayment
- 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.
There is a serious question mark over whether assignments which are created as a result of a process involving an electronic signature which is then attached to a document that the taxpayer has never seen before, actually creates a valid assignment. If it is not a valid assignment, then HMRC should not accept it.
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 assignment and reissue the refund to you. This recently happened with a tax refund company called Tax Credits Ltd (more on this below).
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.
Tax Credits Ltd
In September 2022, HMRC published a statement in relation to the validity of the assignments of a specific tax refund company (Tax Credits Ltd). They updated it for a further development in February 2023.
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 things like 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 2023/24) 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 2019/20, 2020/21, 2021/22 and 2022/23) 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.
Are any changes to the tax refund company market on the horizon?
In June 2022, HMRC issued a consultation on protecting taxpayers from repayment agents. They have recently issued a response, summarising the consultation submissions and outlining the steps that they plan to take, over and above banning the use of deeds or letters of assignment for tax refund purposes (see above). You can find a summary of the position in our press release.
What can I do if I think I have been caught out?
If you feel that you have been caught out by a tax refund company with regards to costs or other poor commercial practices or feel that their terms and conditions are unfair, then you should seek some legal or consumer advice, such as from the Consumer Helpline.
A number of enforcement bodies are likely to be interested to hear of your experiences with tax refund companies, including the National Trading Standards, the Information Commissioner's Office (ICO) and the Advertising Standards Agency.
As a consequence of the Tax Credits Ltd situation, HMRC have created a form on which you can report a tax refund company. This is not to obtain specific assistance, but rather to assist HMRC in building their evidence base and understanding of what these companies are doing. This hopefully will in turn enable them to take action against these companies. You can find more information and access the form from our article.
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 issues with deeds or letters of assignment 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 or letters 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.
You may want to write to your MP to make them aware of your case. The enforcement bodies listed at the end of the question above may be interested in deeds or letters of assignment issues as well as wider problems with tax refund companies.
Our article on the Tax Credits Ltd situation, sets out other steps you may wish to take if you find yourself caught up with an unscrupulous tax refund company.
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.