HMRC Tightens Up Tax Refund Market

January 16, 20230

The government is set to introduce transparency requirements for agents and legislate to ban the use of deeds of assignments of income tax repayments as part of its plans to crack down on the repayment agent market.

As part of plans revealed in the response to the Raising standards in tax advice consultation, HMRC has announced a number of steps to improve transparency in the repayment agent market and protect customers.

In the ministerial forward, financial secretary to the Treasury Victoria Atkins explained that the feedback from the consultation found that some repayment agents are not transparent about their terms and conditions which led to some taxpayers not understanding what they were signing away or even that they were dealing with a third party and not HMRC directly.

Changes to tackle the tax refund market

The changes HMRC will enforce to tighten the market include:

  1. Introducing legislation to render void assignments of income tax repayments
  2. immediately introducing new transparency requirements for agents in the HMRC Standard for Agents
  3. explore introducing mandatory pre-contractual disclosure forms, and strengthen checks on repayment agents
  4. undertake further work to strengthen the evidence that a claim has been made with a customer’s consent before processing it so we can improve the way in which customers authorise their agent
  5. introduce a new requirement for repayment agents to register with HMRC as part of wider work exploring options to enhance the regulatory framework for tax advice and tax services.

Repayment agents

Repayment agents have become a growing concern as the number of taxpayers opting to use their services to claim repayments on expenses and income tax reliefs has increased significantly.

Repayment agents often use pop-up adverts on websites or social media channels and taxpayers, who may be unaware that they might be entitled to claim for the advertised tax rebate directly with HMRC for free, unwittingly use the high volume agent instead (HVA).

The HVA will then take a commission from the claim (from 10% to 50% of the refund obtained as HMRC research discovered) or even use a deed of assignment to take commission on future claims made by the taxpayer.

Action taken by HMRC

The new plans to tighten the repayment agent market comes as HMRC has taken action to raise transparency and stamp out unscrupulous agents.

In May last year,HMRC made the P87 form mandatory which meant claims for tax reliefs and expenses had to be made on the prescribed form, rather than a tax refund company’s own customised claim form which often led to taxpayers signing a deed or letter of assignment.

The tax authority even took the step of reimbursing 60,000 taxpayers who had used Tax Credits Ltd to handle their rebate claim, after HMRC accused the HVA of not being transparent with the documents it was asking clients to sign. This led to more stories of taxpayers being duped into handing over a high percentage of their refund to the repayment agent.

Writing on AccountingWEB Paul Aplin has called on HMRC to be more proactive in helping taxpayers make routine claims.

“Clearer information, restrictions on the use of assignments and registration of repayment agents would all help improve this area of the market. But I still believe that HMRC should be more proactive in raising awareness of the potential for claims and then guiding taxpayers through a simple, free, online process to secure their refund,” concluded Aplin.


The consultation also looked into the restriction of assignments. Of the seven responses from repayment agents, four said they routinely used assignments because it guaranteed payment for work, with one saying that they were concerned about clerical errors where HMRC would pay the taxpayer directly.

HMRC has already created a repayment agent taskforce to review the processes used by agents to establish assignments and as a result of the consultation, the government has said it will legislate to render void assignments of income tax repayments.

Having led the charge on calling HMRC to raise awareness of certain refund companies, the Low Income Tax Reform Group (LITRG) welcomed the steps to address the abuse of assignments by certain refund companies but raised some concerns that going too far with restricting assignments could disrupt responsible tax refund companies.

“Tackling bad tax refund companies while enabling those which behave responsibly to continue to operate is a careful balancing act,” commented Meredith McCammond, LITRG technical officer.

”We understand HMRC’s decision on prohibiting assignments as being the easiest and quickest way of restoring taxpayer confidence, which has been badly damaged by cases like Tax Credits Ltd. However good tax refund companies have a legitimate role to play in the tax system, often helping taxpayers access refunds that, for various reasons, they would otherwise miss out on.”

She said that instead of assignments these companies will now have to rely on bare nominations. These, she said, are “not binding on HMRC and can be unilaterally withdrawn by the taxpayer. Any impacts of this change on the market and on taxpayers, must be carefully monitored.”

LITRG also echoed calls made by Aplin to raise awareness of refunds. McCammond also pointed to the mandation of the inclusion of an employer PAYE reference number on the P87 which some taxpayers don’t have access to as an example of HMRC still having “a long way to go in making the claims process as accessible as possible”.


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