Tax refund companies under fire for high fees

People are losing out on hundreds of pounds after being enticed into using third-party companies to claim tax rebates instead of going directly to HMRC, according to Which?

In a survey of over 4,000 people, the consumer champion found one in five (22%) had been contacted by a tax refund company, heard of one by word of mouth or come across a tax refund company online.

Referring to them as ‘Refund reprobates’, Which? counted a total of 208 firms with ‘tax reclaim’, ‘tax refund’, ‘tax claim’ and ‘tax rebate’ in their names on Companies House, and found ‘tax rebate’ gets 40,500 Google searches a month, despite tax rebates being easy and free to claim via HMRC.

HMRC said: ‘We don’t accredit or in any way approve agents and take firm action against any not complying with the law. We encourage customers to come to us to make their marriage allowance claim. It takes only a few minutes to complete the online application and eligible claims receive 100% of their entitlement. It is important that people thinking of using a tax agent are clear in advance about fees and are satisfied they’ll get the service they sign up for.’

Which? found some third-party firms using similar branding and language that you would usually expect from HMRC. Which? A letter sent by the firm Rebate Gateway to a taxpayer and their partner usesd the HMRC recognisable teal colour, as well as similar fonts and phrases, which may lead the recipients to conclude they were contacted by the government department itself.

Which? investigated 14 companies that either showed up in the results or were flagged by a consumer negative experience. Finding that four out of the 14 companies had no mention of the fees they charge on their main website page or in their FAQs section, but the term ‘no win, no fee’ was used in some cases.

Tax refund companies typically take 25 per cent to 48 per cent as fees. Which? found that when additional service costs are added, customers are sometimes left with less money than the firm which processed their rebate.

Services offering help to claim Marriage Allowance are particularly common. This tax break lets one partner transfer 10 per cent of their tax-free personal allowance to their spouse, providing their spouse earns less than the current personal allowance. It can reduce the couple’s tax bill by up to £252 a year, while a backdated claim can be made for up to £1,220.

According to the Consumer Rights Act 2015, customers must be charged a ‘reasonable amount’ for a service. However, for a fully backdated Marriage Allowance claim worth £1,220, some tax refund companies charge nearly half in commission. For example, Tax Credits Ltd takes £585.60 on a service fee of 48%. Which? experts believe it is questionable whether this constitutes a reasonable amount.

Which? also found that customers are usually asked to sign legally binding contracts called a ‘deed of assignment’ giving the tax refund company permission to make a rebate claim on their behalf. Alarmingly, depending on the terms, this could stay in place beyond the initial claim, allowing the company to take a share of tax rebates the customer is owed into the future, regardless of whether the collector does further work for them.

There is presently little recourse for customers unhappy with a tax refund firm. These companies are not regulated so aren’t subject to the same rules as claims-management companies (CMCs). They do not need to be registered with the Financial Conduct Authority and consumers can not take complaints to the Financial Ombudsman Service (FOS).

Which? is advising consumers to always try claiming a tax rebate by going directly to HMRC in the first instance as the process for making a claim online is relatively straightforward and the applicant will get 100% of their money. Always be wary of third-party firms that may appear prominently in online search results, no matter how legitimate they may seem. 

Jenny Ross, Which? Money Editor, said: 

“Our research shows that huge numbers of people are coming into contact with firms seeking to entice them into handing over potentially hundreds of pounds of their tax rebate in unnecessary and hard to justify fees.

“For most people with a rebate to claim, HMRC is the best port of call. Go to its website directly to ensure you aren’t left footing any unnecessary bills.”

Claim it yourself

If you want to claim a tax rebate either for marriage tax allowance, or working from home etc, then use the free services provided by HMRC.

The following buttons link to the GOV/HMRC official and free means of claiming tax allowances, rebates and refunds:

PAYadvice.UK 17/1/2021

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