HM Revenue and Customs is clamping down on tax rebate firms that charge customers extortionate fees to make claims that should not cost a penny.
The firms advertise heavily online and target taxpayers looking to claim tax back for perks such as marriage allowance or tax relief for working from home.
If you’ve paid too much tax, you can ask HMRC for a refund and they’ll make the claim to you directly, with no fees.
But over the last decade, a new breed of tax rebate companies has risen, acting as unnecessary middlemen making the claim on your behalf – and charging as much as 50pc commission for the privilege.
The Telegraph’s Katie Morley this month won a reader back £4,500 they owed one firm after inadvertently signing away their right to a full rebate.
Charities TaxAid and Tax Help for Older People say they’ve seen a huge rise in the number of vulnerable people being targeted in the last few months alone. Often, people will use a tax refund company without even realising it, said Gillian Banks, an advice manager at both charities.
“These are often older people on a low income who may have answered an advert online and entered their details not knowing the company would then make a claim,” she said. “The first they know about it is when they receive a letter from HMRC telling them that a tax refund is being sent to the refund company.”
Ms Banks said refund companies will sometimes fake signatures on contracts. She said she had spoken to victims who had lost hundreds, or even thousands, of pounds after unknowingly making a claim.
HMRC has now launched a consultation, inviting taxpayers, charities and tax agents to suggest how to better protect consumers.
One of the proposals up for discussion is that tax refund companies should have to formally register. John Hood, a tax partner with Moore Kingston Smith, says this could “deter unscrupulous agents setting up new businesses”.
HMRC is also asking how misleading advertisements and unclear terms and conditions can be tackled.
For Ms Banks, the most significant of HMRC’s proposed measures relates to deeds of assignments. These contracts grant permission for the tax rebate company to act on your behalf to make the claim.
She said: “This means HMRC sends the money directly to the refund company, and not to you, the claimant. Prohibiting the use of assignments could potentially be the most powerful outcome of the consultation.”
Martyn James, of consumer complaints firm Resolver, said it was “outrageous” that companies had been allowed to take advantage of vulnerable consumers for so long.
He added: “Unless the platforms that enable these rip-offs are tackled too, these firms will continue to spread and consumers will lose out.”
If you think you’re owed a refund, you can claim directly from HMRC for free. You’ll likely need your National Insurance number, passport details, as well as details of any jobs you’ve had or benefits you’ve claimed.
If you were misled into thinking you were dealing with HMRC, you can make a complaint to Citizens Advice.