In recent years, an increasing number of organisations have been built around a business model of making low value, high volume claims for tax repayments on behalf of clients. These organisations are referred to by HMRC as repayment agents.
The consultation document published by HMRC on 22 June 2022 outlines potential measures to address some of the key issues it has identified as arising as a result of an expansion of this market. The consultation focusses on claims relating to income tax reliefs as this is the area where volumes are most significant. However, HMRC will consider extending the proposed measures, if adopted, to other tax areas.
The three key areas identified are as follows:
- Taxpayers do not always know what they are signing up to.
- The impact of assignments used by some repayment agents to legally transfer the right to repayment from the taxpayer.
- The volume of claims being made where no repayment is due, resulting in delays for genuine claimants.
In its consultation document, HMRC sets out what it is already doing in relation to each of these areas and the further measures it plans to take.
Lack of or unclear information
The issues that agents have found in this area include:
- Information given by agents that suggest to the taxpayer that they are dealing directly with HMRC.
- Lack of information about fees.
- No explanation that an assignment will be used or the implications of this, including the fact that an assignment cannot be unilaterally rescinded by the taxpayer once it is in place.
HMRC expects all agents (including repayment agents) to adhere to its Standard for Agents. HMRC has several powers it can use where the standard is breached by an agent and behaviour change is not achieved voluntarily, or where poor behaviour is so serious that swift action is required. HMRC plans to refresh the standard to include specific amendments relating to transparency around contingent fees and terms of engagement with clients.
HMRC plans to make improvements to its operational procedures so that it can refer agents it suspects of breaching advertising standards or consumer rights to the relevant bodies. It also proposes to introduce measures modelled on those applied to financial services providers by the Financial Conduct Authority, such as a mandatory pre-contractual disclosure form.
The use of assignments
Assignments involve the transfer of personal rights over property (including a right to a tax repayment) from one person to another. As a result of the taxpayer signing such an assignment, a repayment legally belongs to the repayment agent, whom HMRC is obliged to pay.
Repayment agents typically use assignments as they guarantee payment of the agent’s fees. If they are broadly worded (typically covering the past four years, rather than the specific claim made), they can enable the agent to benefit from any other repayment owed to the taxpayer within that four-year period, even if the agent was not involved in the claim.
HMRC has already changed the way it processes employment expense claims on form P87 from 7 May 2022.
It has also encouraged the use of nomination rather than assignment by providing nomination forms in a standard format, designed to be processed automatically. This allows for quicker processing of repayment claims. Nominations involve no legal transfer of ownership and can be unilaterally removed by taxpayers, thereby enhancing the taxpayer’s rights.
HMRC would like to go further and is seeking views on the following options (to apply UK-wide) to restrict the assignment of tax repayments:
- Complete prohibition of the assignment of tax repayments.
- Mandate a prescribed tax repayment assignment format to include a clearly worded customer protection message.
- Require HMRC to formally agree to the assignment of tax for it to be valid.
Tackling the large volume of claims
Repayment agents frequently send in thousands of claims at one time, which often include claims where no repayment is due. The volume of these claims can have a significant effect on HMRC’s ability to meet its expected service levels.
HMRC already suspends working on the claims of agents it finds are submitting large numbers of claims where no repayment is due, until the agent has demonstrated that they have improved the standard of claims submitted.
In the consultation document, HMRC also proposes to require all tax repayment agents to formally register with HMRC before it accepts any claims. This would involve agents providing details to HMRC about their business, such as the names of any directors, trading address, company registration number, and details of their Anti-Money Laundering Supervision registration. HMRC would check the validity of these credentials.
HMRC is seeking views on the preferred registration route. This could, for example, involve signing up to the Agent Services Account. It may also include being formally authorised by clients with HMRC before the agent can submit a claim, either by using form 64-8 or HMRC’s online authorisation service.
How to respond
The consultation runs until 14 September 2022. ICAEW will be submitting a written response. If you have any comments and would like them to be considered in ICAEW’s response, please send them to firstname.lastname@example.org
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