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HMRC clamps down on tax repayment agents but are contractors protected?

Graham Webber of WTT says contractors di not have the same protections as other taxpayers
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Are tax repayment agents worth the risk and “convenience”?

After receiving thousands of complaints from taxpayers about unscrupulous tactics by tax repayment agents, HMRC is bringing in protections that will change the way tax repayment agents are paid.

The Freelance Informer questions: If a tax rebate is 100% free when requested directly from HMRC, why would anyone risk going through a repayment agent and not getting a 100% payout? And are contractors given the same protections as other taxpayers?

What is a repayment agent?

Repayment agents are specialist firms that help people and companies make claims for tax refunds, sometimes to access tax relief or repayments they may otherwise have been unaware of. These services are not free and are run on a commission-fee basis. But as complaints have come in from users of these agents after feeling trapped by making a couple of clicks through Facebook ads on tax refunds, which is often where these firms advertise, HM Revenue and Customs (HMRC) is adding in protections.

HMRC received more than 2,200 complaints about repayment agents between January and October 2022, including those relating to the use of assignments, which legally transfer the benefit of the taxpayer’s repayments to the agent; taxpayers not being made aware of or fully understanding terms and conditions; and people being unaware that they are dealing with a third party and not HMRC, according to Daily Record reports.

Frequently people have unwittingly “signed” deeds of assignment covering the four previous tax years by ticking a terms and conditions box, meaning that any refunds for those years will be paid to the repayment agent even when the refund is being generated by HMRC’s PAYE reconciliation process, according to Taxaid, a charity that helps people on low incomes when they get into difficulties with their tax affairs.  

Under new arrangements, if a taxpayer chooses to use a repayment agent to reclaim overpaid tax and wants it sent to the agent, they will need to make a nomination, which they can cancel at any time. The new process will make it easier for taxpayers to stay in control of their repayments.

Why do people use repayment agents in the first place?

Convenience and speed seem to be the main drivers.

“Often people are tempted by online advertising that promises a tax refund and the repayment agent websites make it really easy to sign up to their service,” said Taxaid’s Valerie Boggs in a report.

“In contrast,” she said, “HMRC’s website can be difficult particularly for older taxpayers who may not have the ID documents needed to obtain a Government Gateway account. This is particularly frustrating as one of the most frequent claims by older eligible taxpayers is for marriage allowance, which incidentally is not on the list of common claims on HMRC’s website. Further confusion is created by letters that some of our callers have reported receiving several years after a PPI claim pushing them to make marriage allowance transfers because, “time is running out”.”

“So, this simplicity has a price, and the agents often charge a fixed fee as well as a percentage of the total refund,” according to Taxaid.

The charity provides a typical example:

A tax repayment agent will often charge a fixed fee of £100 plus 42% of the refund which for those on low incomes is very expensive compared with claiming free on HMRC’s website. HMRC will process the claim and check later, and if they disallow some of the claim they will write to the taxpayer and demand repayment of some of the refund. In the worst cases, the amount that HMRC are demanding is more than the refund (if anything) they received because of the high fees. Sometimes the repayment agent no longer exists, and the taxpayer can’t pay the tax now demanded by HMRC. 

Taxaid said that business practices of some repayment agents can leave vulnerable taxpayers losing a significant proportion of their refund, or with a tax bill, and have heard first-hand from their callers the financial hardship this can cause. 

Taxpayers deserve better

Angela MacDonald, HMRC’s Deputy Chief Executive and Second Permanent Secretary, said:

Taxpayers deserve better – we want to make sure they are better protected before choosing to enter into an agreement with a repayment agent. HMRC’s updated standards for agents will level the playing field and provide the benchmark we expect all repayment agents to meet.

The changes form part of the government’s commitment to tackle problems in the repayment agent market, which is currently an unregulated sector, much like the contractor and temp worker’s umbrella company industry.

Responses to HMRC’s recent consultation overwhelmingly supported the need for improving standards in the repayment agent sector.

The updated HMRC standard for agents includes:

  • greater evidence of customer consent – this aims to ensure that taxpayers better understand the agreement they’re entering into
  • stricter transparency rules, including introducing a 14-day ‘cooling off’ period for customers after entering into an arrangement with an agent, and an obligation on agents to ensure all communications and advertising material are fair, clear, accurate and do not mislead or conceal material facts
  • updated standards for agents – applicable to all tax agents and include greater transparency requirements
  • a new HMRC registration process for repayment agents – to make the agent sector more transparent so customers better understand what they are signing up to

“HMRC will introduce legislation to change the way repayment agents are paid for their services and better protect customers from the unscrupulous tactics used by some operators,” said the tax authority.

“This means stopping the use of legally binding ‘assignments’ as part of claiming an Income Tax repayment, which could only be cancelled if the agent and taxpayer both agreed to do so. This can be challenging for customers who become dissatisfied with their agent, or who simply wish to take over managing their own claim,” said HMRC in a statement.

Victoria Atkins, Financial Secretary to the Treasury, said:

“For too long taxpayers have been left in the dark as a result of misleading and opaque agreements with repayments agents. These new measures will ensure those who are entitled to claim a tax repayment or relief can do so freely and easily – whether they choose to do this themselves or by using an agent.”

Victoria Todd, Head of the Low Incomes Tax Reform Group, said of the changes:

“Refund companies have a legitimate role in the tax system, but the practices of some of these companies in recent years have been unacceptable. The proposed changes will hopefully address problems around the use of assignments, increase transparency for taxpayers and set clearer standards for these companies’ behaviour.

“Alongside this, it is important that more effort goes into raising awareness of refunds and ensuring it is as simple as possible for taxpayers to access them. We look forward to working with HMRC on the detail of the proposals.”

Are contractors given the same protections as other taxpayers?

These claims from new third-party owners could be stopped with simple law changes (loans taxable as income cannot be demanded) but it suits HMRC to permit pressure to grow on my clients.

Graham Webber, WTT Consulting

Graham Webber of tax specialists WTT Consulting said in a LinkedIn post this week that “HMRC has not introduced legislation to protect taxpayers (or punish promoters) but has instead brought legislation to punish contractors (loan charge) and has permitted ‘loans’ (which HMRC said are really salary) to be claimed by parties who claim to now own them.”

These claims from new third-party owners could be stopped with simple law changes (loans taxable as income cannot be demanded) but it suits HMRC to permit pressure to grow on my clients,” said Webber.

“This is a pressure that has already had tragic consequences but continues,” he said.

He continued: “I call on HM Revenue & Customs to show that they are capable of treating all taxpayers the same and engage with us to resolve an issue that has – in part – been caused by them, using this latest statement as a guide and template.”

How and where can I claim a 100% tax refund?

Further details on the approach to registration for repayment agents will be set out in due course. If taxpayers think they are owed a tax rebate, they can claim directly from HMRC via the free and secure service on GOV.UK and will receive 100% of the money.

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