What are tax refund companies and why should I be careful of them?
Tax refund companies, or tax refund organisations, are businesses that specialise in offering services to help you submit a tax repayment claim. They charge for these services. Tax refund organisations often operate online.
Websites for tax refund organisations often use headlines to catch your attention – for example, suggesting that you might be due a large amount of money from HM Revenue & Customs (HMRC) and that they can make claiming a refund easy for you. Some organisations also indicate that they are ‘HMRC approved agents’.
Often it is straightforward to make a claim for a tax repayment, and you can make the claim yourself at little or no cost.
Most tax refund organisations charge a minimum fee and this can reduce or eliminate the benefit of making a claim for a tax repayment, depending on the amount of tax involved.
The Low Incomes Tax Reform Group (LITRG) published a report voicing concerns about tax refund organisations. This in the reports section of our main LITRG website. Some tax refund companies are meeting a genuine need in the market and operate according to appropriate standards, but the area is unregulated and there is a huge spectrum of providers.
You should be aware of the following points when using a refund organisation:
The costs charged by refund organisations vary, but often the charge is the higher of:
- a minimum charge, and
- a percentage of the tax repayment obtained.
This means that the charge may outweigh your repayment if it is only small.
- Potentially false claims about their status:
Tax refund organisations are not HMRC approved agents. They may be registered with HMRC for Anti-Money Laundering purposes and be registered with HMRC as an agent for the purposes of acting on your behalf. But this does not mean that the organisation has received any formal approval from HMRC.
- Data protection – possible concerns:
You may be asked to sign a form 64-8 authority or pass on an authorisation code to the tax refund organisation. This gives HMRC the authority to correspond with the tax refund organisation about your tax affairs. You may find that you keep using and paying for the services of the tax refund organisation year after year if you do not take steps to remove the authority after you have used the organisation’s services.
- Receiving your refund:
Tax refund organisations normally request authority to receive the repayment on your behalf. They will then deduct their fee and pass the balance to you, perhaps by direct transfer to your own bank account. This creates risks, for example that you might not receive your repayment at all, and that you are sharing your own bank details with the organisation, potentially exposing you to personal fraud.
Tax refund organisations may not be unscrupulous or do anything wrong. You might wish to use a tax refund organisation or a qualified tax adviser and pay a fee to them for helping you claim a refund, particularly if you do not understand or have time to do the paperwork yourself, for example.
However, as noted above, many refunds are straightforward to claim and we would recommend that you at least try to understand your taxes for yourself even if you do decide to get an agent’s help. You may even be able to make your claim quickly and easily online, via your HMRC Personal Tax Account. For more information, see our digital services guide.
If you think you are due a tax repayment, but you are not able to make the claim by yourself, we suggest that you seek assistance from HMRC or from a tax adviser.
You can contact HMRC using the details available on their website.