HMRC shuts down tax refund company - will your rebate be affected?

As part of its tax refund company crackdown, HMRC has stopped Tax Credits Ltd from being able to operate as a tax repayment agent. 

The tax authority said this move was due to the discovery of serious anti-money laundering breaches, and comes just weeks after it announced a series of measures to 'better protect' customers against unscrupulous tax refund firms.

Here, Which? explains what this means for customers of Tax Credits Ltd, and how you can claim tax rebates free of charge when you go directly to HMRC.

What will happen to my tax rebate?

HMRC has said that around 11,000 people who’d made a tax refund claim through Tax Credits Ltd had their payments frozen during its investigation, which started in May 2022. 

Those who are still waiting for their tax refund will have the money paid to them directly by HMRC. These refunds will be made automatically. 

All affected Tax Credits Ltd customers will be contacted by HMRC by the end of March to explain their refund.

Why has Tax Credits Ltd been shut down?

HMRC said Tax Credits Ltd had committed ‘serious anti-money laundering breaches’ – these regulations are required by companies operating as tax agents in order to prevent businesses laundering money for criminals.

As a result, it is now a criminal offence for Tax Credits Ltd to operate as a tax repayment agent.

In September 2022, the tax authority said it would repay 60,000 people who used Tax Credits Ltd between December 2021 and May 2022, after the company had introduced a new sign-up process. HMRC said it wasn't satisfied that the new system sufficiently informed customers about what they were signing up to.

Which? has also highlighted the high fees being charged by Tax Credits Ltd, with an investigation last year highlighting how customers were effectively paying 48% of their tax rebates for the company's services.

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How do tax refund companies work?

Tax refund companies offer a service to help customers claim overpaid tax from HMRC – in some cases, it might be money people didn't realise they could claim, or they may not want to go directly to HMRC themselves. 

The tax refund companies make the claim on the customer's behalf, and if it's successful, HMRC will usually send a rebate cheque to the company. The company deducts its fee from this amount and pays you what's left. 

Many customers are happy with the service they receive, but following a 12-week consultation looking into the companies last year, HMRC uncovered issues related to the legally binding 'deed of assignment' that enables tax agents to claim on your behalf. 

This can only be revoked with both customer and company agreement, and the company can take payments from future tax rebates for as long as it is still in place – even if it didn't make the claim for you.

The bulk of complaints to HMRC were a result of customers not understanding, or not being made aware of, this agreement – which mirrors what we found in our investigation.

What's more, as tax refund companies are unregulated, consumers can't turn to the Financial Ombudsman Service if they have a complaint. 

Changes being introduced by HMRC

Last month, the tax authority announced a package of measures to make improvements for customers seeking tax refunds from third parties. These include:

• stopping the use of legally binding assignments and replacing them with 'agent nominations', which can be cancelled at any time
• introducing a new registration process for tax agents, so HMRC can check money-laundering supervision
• updating standards, with requirements for 14-day cooling-off periods, and better transparency.

Find out more: HMRC to clamp down on tax refund companies with shady practices

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How to claim a tax refund directly from HMRC

You'll be owed a tax refund if you've paid too much tax. This might be the case if:

• you've started a new job and are on an incorrect PAYE tax code
• you've received foreign income
• you've received interest from a PPI refund
• you've received a redundancy payment
• you have more than one job
• you only worked for part of the tax year
• you're eligible for backdated marriage allowance. 

In many instances, HMRC calculates overpaid tax automatically and sends a P800 form to explain how to claim the money back. 

If this hasn't happened and you think you're owed a refund, you can go through HMRC's step-by-step online process. 

You'll be asked what you paid too much tax on, before being taken through a series of questions to find out a bit more about your circumstances.