More protection for taxpayers using third parties to claim rebates

Taxpayers claiming rebates via third parties like repayment agents will be protected under proposed new legislation.

Businesses specialising in helping people and firms make claims for tax refunds often advertise on social media and tend to operate on a commission-based fee structure, HM Revenue & Customs (HMRC) said.

The tax authority said it 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.

The new measures will include:

  • Updated standards for all tax agents to include greater transparency requirements
  • A new HMRC registration process to make the agent sector more transparent so customers better understand what they are signing up to
  • A 14-day cooling-off period for taxpayers after entering into an arrangement with an agent.

While many repayments do a good job supporting customers to access tax relief or repayments they may otherwise have been unaware of, HMRC says it frequently sees cases where repayment agents have exploited their clients, or made fraudulent claims.

HMRC received more than 2,200 complaints about repayment agents between January 2022 and October 2022, including:

  • 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
  • People being unaware that they are dealing with a third party and not HMRC

The legislation will crack down on 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.

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 Association of Taxation Technicians (ATT) has broadly welcomed the plans. But it questioned whether it is enough to protect the public from tax agents who are not members of professional bodies, and not subject to the stricter professional standards of those who are.

Further details on the approach to registration for repayment agents will be set out in due course.

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Posted in Business.