The government are applying measures to remove taxpayer’s ability to legally assign to a third party their income tax repayment, or their right to an income tax repayment. Assignments of income tax repayments will now have no legal effect and the repayment will remain the property of the taxpayer.
Following the summary of responses document regarding the recently-concluded consultation, ‘Raising standards in tax advice: protecting customers claiming tax repayments’ published on 11 January 2023, the government has announced at Budget legislation to render void assignments of income tax repayments. This legislation commences from 15 March 2023.
The consequences are:
- any assignment notified to (received by) HMRC on or after 15 th March 2023 will be legally void
- any assignment documents, including those signed before 15th March 2023, notified to (received by) HMRC on or after 15 th March 2023 will be legally void. As a concession for the time being, however, HMRC will continue to accept these ‘assignment documents’ but treat them as non-legally binding nominations
- agents do not need to amend assignment documents already signed by their clients but not yet sent to HMRC for the reasons set out above. Moving forwards, agents are asked to use nomination forms where a repayment is to be made to them rather than the taxpayer
What is this about and why?
This change removes a taxpayer’s ability to legally assign to a third party their income tax repayment. Assignments of income tax repayments now have no legal effect and the repayment remains the property of the taxpayer.
Many tax repayment agents who were actively promoting their service in social media and other methods were requiring their clients to sign assignments which transfer legal entitlement to the current and all future income tax repayments to that agent.
These arrangements have been shown in many cases to be exploitative as many of the taxpayers did not understand the consequences of what they were signing, nor that the assignment could not be unilaterally rescinded. Legally binding assignments ensured that repayment agents are paid their excessive fees. Their use also allows repayment agents to benefit from other repayments that their clients are not aware of.
This measure arose from the call for evidence on Raising Standards in the Tax Advice Market published in March 2020, during which concerns were raised by consumer protection groups about the use and abuse of assignments by repayments agents.
Assignments, comprising statutory assignments and equitable assignments, are a concept of property law. In England and Wales, the Law of Property Act 1925 S136: in Northern Ireland section 87 of the Judicature (Northern Ireland) Act 1978 and in Scotland, the Transmission of Moveable Property (Scotland) Act 1862.
Legislation is introduced as part of the Spring Finance Bill 2023 and had UK-wide application. The legislation does not amend property law, rather it renders void any assignment of an income tax repayment notice.
This will help protect an estimated 400,000 taxpayers. The measure removes the ability to use assignments to legally transfer their income tax repayments to a third party. Removing the ability to use assignments supports taxpayers having better-informed choices, including making claims for themselves or finding an agent who charges fees reflecting the value of the work undertaken.
Taxpayers who do not wish to deal with HMRC directly will still be able to use an agent to claim repayments on their behalf, and for the repayment to be made to the agent, but by using nominations, which are not legally binding, and which they can easily rescind.
Those who choose to make claims on their own behalf will benefit from the full repayment amount without the costs incurred by instructing a repayment agent.