HMRC to change rules for tax repayment agents

The way tax repayment agents are paid for their services is to be changed by HMRC, in an attempt to “raise standards, and protect taxpayers who use them”.

Victoria Atkins, financial secretary to the Treasury, said taxpayers had been “left in the dark as a result of misleading and opaque agreements with repayments agents,” and that the new measure would make it “easier to navigate the system for all taxpayers using an agent to claim money that’s owed to them”.

HMRC said it would introduce legislation to stop the use of legally binding ‘assignments’ as part of claiming an income tax repayment, which can only be cancelled if the agent and taxpayer both agreed to do so. The tax authority says the updated rules will mean 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 “better protect customers from the unscrupulous tactics used by some operators” and make it easier for taxpayers “to stay in control of their repayments”, according to an HMRC statement. Angela MacDonald, HMRC’s deputy chief executive and second permanent secretary, added that the updated standards for agents would “level the playing field and provide the benchmark we expect all repayment agents to meet”.

Change welcomed

The move was welcomed by tax professionals. Sarah Coles, senior personal finance analyst at investment firm Hargreaves Lansdown, said taxpayers were being charged high fees by “companies they had sometimes been bamboozled into believing were part of HMRC – for some, they were even charged these fees on rebates the company had nothing to do with too”.

In some cases, she explained, companies were set up so that taxpayers assigned income tax repayments to them – these would then take their fees from the payment and forward it on, and any rebates they received during the following four years would also flow to the company, who would take a fee again. Coles added that this happened “even if the company had nothing to do with the second claim – to make matters worse, these assignments can’t be cancelled without the company agreeing, and some refused to do so”. HMRC’s new rules will cancel all these assignments, she said, and in future companies will have to work under a different structure – as nominees – and firms “will be banned from inferring in their adverts that they’re working on behalf of HMRC”.

Unfortunately, Coles added, “HMRC decided not to look more closely at the level of fees being charged by these firms – which can be as high as 48%. Given the level of most of these claims, this often ends up being a relatively small sum. However, it runs the risk of mounting to major costs when there are larger rebates involved.”

Tax rules… rule

Chris Etherington, tax partner at accountancy firm RSM, told Financial Accountant that there had been “numerous cases of taxpayers being duped by unscrupulous repayment agents making illegitimate claims for tax refunds”. While acknowledging taxpayers might turn to repayment agents because they cannot afford the services of an accountant or tax adviser – with many agents taking their fee from the tax refund itself – he said: “It is a difficult line to tread for HMRC as there is clearly a public need for the services of repayment agents, so it’s important that any changes do not go so far as to close down the entire market.

“Ultimately, whilst the measures announced are important, it is the complexity of the tax system which is preventing taxpayers from making such claims themselves,” Etherington added. “HMRC and the government need to work towards simplifying the rules around making claims for tax refunds and increasing awareness of how to do so.”