Scores of taxpayers have been left out of pocket by up to £4,000 each after Her Majesty’s Revenue and Customs (HMRC) paid tax rebates they were owed to a third-party claims firm.
Tax Credits Ltd, which trades as Taxrebate.uk, posts what many have mistaken for official HMRC ads on social media stating that potential customers may be due rebates of overpaid tax worth hundreds of pounds, and inviting them to check their eligibility via its online form.
Many of those who responded claim they believed they were dealing with HMRC and didn’t realise that Tax Credits could take about 48% of any rebate due. All of those who contacted the Observer say they were unaware they had signed a binding contract that assigned all rebates over the past four years to the company, and committed them to allowing it to claim on their behalf for the following tax year. Tax Credits says it has no intention of misleading customers.
Vanessa Chalmers* says she is owed £4,700 after HMRC sent a refund of overpaid tax to Tax Credits earlier this month. She says she had completed what she thought was an inquiry form, linked to HMRC via a Facebook ad, to see if she was eligible for a working from home tax credit.
Months later, she was notified by HMRC that a £4,700 overpayment for the last tax year had been identified.
“I’m PAYE so it didn’t make sense, then I noticed in the letter a digit was missing from my salary, which must have triggered the calculation, so I alerted HMRC to the error,” she says.
A month on, HMRC informed her that she had to repay the £4,700. To her horror, she discovered that the erroneous rebate had been paid to Tax Credits Ltd.
Unbeknownst to her, she says, the company had signed her up to a “deed of assignment” which transferred to it the legal right to any rebate due to her from the last four years, and any future payments for the following tax year, even those it did not claim on her behalf.
“Its terms and conditions say they will keep 48% of any rebate, yet HMRC expects me to repay them the full £4,700 because of a mistake not of my making,” she says. “I was told that the only way to remove Tax Credits from my account was to send HMRC a letter with wet [inked] signatures from the company and myself, yet HMRC added Tax Credits on the strength of an online inquiry form with no wet signature.”
HMRC asked Tax Credits to return the funds after the Observer intervened. It says: “This is an isolated case caused by a human error. We have contacted Ms Chalmers directly and apologised. She will not be left out of pocket as a result.”
Tax Credits says: “Ms Chalmers provided a signed instruction to make a claim after entering details including her national insurance number and clicking to confirm she had read and agreed to our terms. An error was made by HMRC which resulted in an incorrect overpayment of £4781.82. We have returned this to HMRC.”
Campaign organisation the Low Incomes Tax Reform Group (LITRG) told the Observer that it alerted HMRC to concerns about Tax Credits last June. The company is currently being investigated by the Insolvency Service after the Observer reported complaints about its business practices in January, but HMRC continues to pay it personal rebates.
Tax rebate firms make claims to HMRC on behalf of individuals and deduct a fee for their services. However, taxpayers can make claims backdated by up to four years directly via the HMRC website for no charge.
HMRC insists that it is obliged to pay personal rebates to Tax Credits Ltd because of a legally binding contract which assigns the rights to an individual’s rebates to the company.
However, complainants claim that they were unaware that they had entered into a contract with a third-party company, whose green typeface, they argue, is similar to HMRC’s, and whose registered address is the same as HMRC’s Welsh office.
Some of those who have requested a copy of the deed of assignment they purportedly signed claim they don’t recognise the signature in their name. One deed, seen by the Observer, bears what appears to be a completely different signature to that on the same customer’s bank card.
Some have been now told they must submit sensitive personal information, including their passport and NI number, before they can receive their share of the rebate once the fee has been deducted.
HMRC has advised those affected to complain to Tax Credits direct, but Tax Credits does not readily provide a phone number and people have claimed it does not respond to customer emails.
A receptionist at the firm’s registered address told the Observer the company had moved out a year ago. Tax Credits insisted it still had an “active lease” at the end of May. Last Wednesday, according to Companies House, it changed its registered address to one in London.
HMRC says it could not comment on individual companies, but urged customers to be “careful” when responding to online adverts. “Where a customer has used a repayment agent, and has an assignment in place, we take steps to ensure its validity and will investigate when we suspect a customer’s signature is not genuine,” it says. “When HMRC receives allegations about an agent’s behaviour, we will consider whether it is appropriate to pause repayments to that agent whilst we investigate further.”
Last week it announced a consultation on proposed measures to protect taxpayers from poor practice by claims firms. Raising Standards in Tax Advice cites misleading advertising, high fees and opaque terms and conditions, and states that some claims firms swamp HMRC with large numbers of speculative claims. The proposals include restricting the use of deeds and assignments and requiring claims firms to register with HMRC.
Tax Credits tells the Observer that it is no longer accepting new claims while it processes a backlog. It says that existing customers were required to provide an electronic signature and to confirm they had read its terms and conditions. It claims that the discrepancies in customer signatures may be explained by the fact that handwriting can differ on screen and on paper.
“Our terms and conditions state that clients authorise us to scan their signature to use for making applications, including (but not limited to) applying the scanned signature to HMRC application forms and deeds of assignments.”
It says rebates are paid to customers within 48 hours of verifying their identity, and if ID is not provided within six months it retains the money. It said that it was still based at its registered address in Cardiff. But the company’s registered address changed on Wednesday.
LITRG says it has urged HMRC to check that deeds of assignments meet its own guidance on transparency. “We have received a steady stream of queries from taxpayers about the unscrupulous use of deeds of assignment for almost two years,” says its spokesperson Joanne Walker.
“Evidence suggests that some of these deeds of assignment are not valid according to HMRC’s own guidance, but, so far, HMRC has not responded to our call to stop accepting deeds of assignment from tax refund companies at face value.”
* Name has been changed