Taxpayers given stronger protections to prevent them being caught out by third-party tax rebate firms
New measures designed to protect taxpayers against "unscrupulous tactics" used by some third-party tax rebate firms have been announced by HMRC. It follows an investigation by MoneySavingExpert.com (MSE) into one third-party tax rebate firm that was alleged to have submitted claims using forged signatures, without consent.
Update: 27 April 2023: The Government has today confirmed that tax rebate firms will need to register with HMRC within a three-month window from 2 May 2023 until 2 August 2023.
Any firms that don't register but continue to submit tax reclaims on behalf of consumers after 2 August 2023 may be subject to fines or even stopped from operating as a business.
Under the crackdown, firms claiming tax refunds on behalf of consumers will no longer be able to lock them into contracts that are difficult to escape. They will also have to meet new, higher standards, as monitored by HMRC. See below for more on these measures.
However, it's not yet clear when these changes will take force - and legislation needs to be updated before the rules on hard-to-break contracts can take effect. We've asked HMRC for more info and we will update this story when we know more.
You don't need to wait for these changes to take force though - see our step-by-step help below on how to claim a tax rebate, for free, yourself. You can also see our Copycat websites guide for help on similar sites to avoid.
Tax rebate firms will no longer be able to make it difficult for consumers to cancel contracts
Tax rebate firms submit tax repayment claims on your behalf for a fee. They typically ask you to grant them permission to do so by signing a document or electronic form called an 'assignment'. This gives firms authority to reclaim tax for you and makes it legally binding that any money reclaimed has to be paid to them. These assignments can only be cancelled when both you and the tax rebate firm agree to do so.
Under the rules, new legally binding assignments will be banned. Instead, if you use a third-party tax rebate firm you will need to make a so-called 'nomination'. This means the third-party can receive your payment on your behalf but you remain legally entitled to it - and you can cancel your contract at any time.
Any assignments signed before the legislation is introduced will remain legally binding.
They'll also have to register with HMRC and meet its standards
Tax rebate firms don't currently have to register with HMRC but this will change going forward.
HMRC will also update its standards, requiring firms to show greater evidence that taxpayers understand what they're getting into and creating an obligation to ensure all communications and advertising material are fair, clear, accurate and do not mislead or conceal the facts.
We've asked whether these changes apply to both new and existing firms and we'll update this story when we know more. We've asked asked for further details on what the registration process will look like, and what will happen if firms fail to meet the new standards.
60,000 customers of one tax rebate firms were refunded after an MSE investigation
In September 2022, HMRC revealed it would refund 60,000 customers of one particular firm, called Tax Credits Ltd, after it found "insufficient evidence" that people were aware they were entering into legally binding agreements with the firm. We'd revealed in July 2022 that hundreds of people had complained about being duped by Tax Credits Ltd. The firm took 48% of any rebate due.
Today's move also follows a consultation by HMRC looking at ways to better protect taxpayers claiming tax refunds after it was found that, in some cases, firms had pushed the boundaries of eligibility, exploited customers, or made fraudulent claims.
You can go straight to HMRC. It's free and all you need to do is fill in some details online, whether you're claiming tax relief (at gov.uk/tax-relief-for-employees) or a tax rebate (at gov.uk/claim-tax-refund). If you don't have access to the internet, you can also call HMRC on 0300 200 3300.
Watch out for copycat websites - these need to make clear they aren't affiliated with the Government and will say this somewhere on their site. Also, check the URL, if it doesn't end in "gov.uk", it's not a Government body.
Plus, watch out for small print, 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]," warns charity Low Incomes Tax Reform Group (LITRG). This statement gives firms permission to take payment from previous tax years too.
Commenting on today's news, Victoria Todd, head of the LITRG, said: "Refund companies have a legitimate role in the tax system, but the practices of some of these companies in recent years have been unacceptable."