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HMRC cracks down on rogue repayment agents

HMRC is taking immediate action to clamp down on rogue repayment agents who entice taxpayers into agreements to reclaim overpaid tax while taking large commissions

In future, repayment agents will have to register with HMRC before they can act for clients and offer repayment claim services.

The HMRC standard for agents has also been updated to require greater transparency on the part of repayment agents, clearer evidence of customer consent and a 14-day cooling off period.

Most importantly, repayment agents will no longer be able to trap taxpayers in assignment agreements which are difficult to cancel. The new measure to render void assignments of income tax payments will require legislation.

Agents who routinely used assignments told HMRC that prohibiting assignments would severely impact their profitability and could potentially put them out of business.

Currently taxpayers must sign assignment agreements to give the repayment agent permission to handle the repayment request.

Many taxpayers have been caught out by inadvertently signing the agreements and then being unable to get out of them as both the taxpayer and the agent have to sign off if the taxpayer wants to cancel the assignment.

In a statement, HMRC said ‘this can be challenging for customers who become dissatisfied with their agent, or who simply wish to take over managing their own claim.’

Around 500,000 individuals used repayment agents to claim income tax repayments in tax year 2020-21. HMRC received 2,200 complaints about repayment agents between January and October 2022.

The measures are designed to protect taxpayers who use a repayment agent to reclaim overpaid tax and are designed to raise standards among repayment agents.

‘This will require legislation to change the way repayment agents are paid for their services and better protect customers from the unscrupulous tactics used by some operators,’ HMRC said.

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 new process will make it easier for taxpayers to stay in control of their repayments.

Angela MacDonald, HMRC’s deputy chief executive, said: ‘Taxpayers deserve better – we want to make sure they are better protected before choosing to enter into an agreement with a repayment agent.

‘HMRC’s updated standards for agents will level the playing field and provide the benchmark we expect all repayment agents to meet.’

The changes follow HMRC’s consultation last summer on Raising standards in tax advice: Protecting customers claiming tax repayments. Responses to the consultation highlighted the need to improve agent transparency and standards with the overall aim of better protection for taxpayers.

As a result, HMRC is setting out the following measures:

  • updated standards for agents – applicable to all tax agents and including greater transparency requirements; and
  • a new HMRC registration process for repayment agents – to make the agent sector more transparent so customers better understand what they are signing up to.

Victoria Todd, head of the Low Incomes Tax Reform Group (LITRG), said: ‘We welcome these additional steps, which show HMRC recognises the important role they play in consumer protection.

‘Refund companies have a legitimate role in the tax system, but the practices of some of these companies in recent years have been unacceptable. The proposed changes will hopefully address problems around the use of assignments, increase transparency for taxpayers and set clearer standards for these companies’ behaviour.

‘Alongside this, it is important that more effort goes into raising awareness of refunds and ensuring it is as simple as possible for taxpayers to access them.'

These changes form part of the government’s commitment to tackle problems in the repayment agent market, which is currently an unregulated sector.

Victoria Atkins, financial secretary to the Treasury, said: ‘For too long taxpayers have been left in the dark as a result of misleading and opaque agreements with repayments agents. These new measures will ensure those who are entitled to claim a tax repayment or relief can do so freely and easily – whether they choose to do this themselves or by using an agent.’

Responses to HMRC’s recent consultation overwhelmingly supported the need for improving standards in the repayment agent sector.

The updated HMRC standard for agents includes:

  • greater evidence of customer consent. This aims to ensure that taxpayers better understand the agreement they are entering into;
  • stricter transparency rules, including introducing a 14-day cooling off period for customers after entering into an arrangement with an agent; and
  • an obligation on agents to ensure all communications and advertising material are fair, clear, accurate and do not mislead or conceal material facts.

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

If taxpayers think they are owed a tax rebate, they can claim directly from HMRC via the free and secure service on gov.uk, Claim a tax refund, and will receive 100% of the money owed.

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