Tax charity warns of hidden refund company trap

The UK has one of the longest tax codes in the world so it’s no surprise that many taxpayers overpay. For example, they may be unaware of the nuances of the marriage allowance and so not claim it, or they may work in an industry where they are entitled to claim a flat-rate expense for clothing and have not asked to have their PAYE code adjusted. Many of these taxpayers will assume that an accountant is too expensive, so they appoint a tax refund company to handle a claim on their behalf.

Tax refund companies tend to target specific types of taxpayer who are likely to be owed refunds, e.g. healthcare workers, or those who are within the construction industry scheme. Sometimes, the company will insist that the taxpayer signs a deed of assignment so that the refund is paid to them, rather than the taxpayer. The company then pays the taxpayer the net amount. This is a legitimate method of practice, but the LITRG has discovered that some companies are using deeds which cover “any other refunds” due to the taxpayer regardless of whether the company has been involved in claiming it. The company will still deduct a fee. Extreme care should be taken when signing up to these services to ensure individuals don’t end up trapped in an arrangement that may be difficult to escape from. The LITRG has called on HMRC to intervene and pay close attention to whom it is making payments to. It has also updated its guidance regarding refund companies.