HM Revenue and Customs is cracking down on tax relief companies that charge extortionate fees to customers for making claims that shouldn’t cost a dime.
Firms actively advertise online and target taxpayers who want tax credits for benefits such as marriage benefits or work-from-home tax credits.
If you have paid too much tax, you can ask HMRC for a refund and they will file your claim directly with no fees.
But over the past decade, a new generation of tax credit companies has emerged that act as unnecessary intermediaries, claiming on your behalf and charging fees of up to 50% for the privilege.
Cathy Morley of The Olx Praca this month refunded a reader £4,500 he owed to a firm after he inadvertently forfeited his right to a full discount.
Charities TaxAid and Tax Help for Older People say they have seen a huge increase in the number of vulnerable people being victimized in the past few months alone. Often people turn to a tax refund company without even knowing it, says Gillian Banks, advisory manager for both charities.
“Often these are low-income seniors who may have responded to an online ad and entered their details without knowing the company would then make a claim,” she said. “The first thing they know about it is when they get a letter from HMRC saying the tax refund is being sent to a refund company.”
Ms Banks said refund companies sometimes forge signatures on contracts. She said she spoke to victims who lost hundreds or even thousands of pounds after unknowingly filing a lawsuit.
HMRC has already begun consultations, inviting taxpayers, charities and tax agents to suggest how best to protect consumers.
One of the proposals under discussion is that tax refund companies should be formally registered. John Hood, tax partner at Moore Kingston Smith, says this could “deter unscrupulous agents from starting new business.”
HMRC also asks how misleading advertising and unclear terms and conditions can be dealt with.
According to Ms. Banks, the most significant action proposed by HMRC relates to assignments. These contracts give the tax credit company the right to act on your behalf when filing a claim.
She said: “This means that HMRC sends the money directly to the reimbursement company and not to you, the applicant. The prohibition of the use of assignments could potentially be the most important outcome of the consultation.”
Martin James of consumer complaints company Resolver said it was “outrageous” that companies have been allowed to take advantage of vulnerable consumers for so long.
He added: “If the platforms that allow these rip-offs are not addressed, these firms will continue to proliferate and consumers will lose out.”
If you believe you are eligible for a refund, you can apply directly to HMRC free of charge. You will most likely need your social security number, passport details, and information about any jobs you had or benefits you claimed.
If you have been misled into thinking you are dealing with HMRC, you can file a complaint with Citizens Advice.