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LITRG warns taxpayers of refund company fraud

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The rapid growth of high volume agents is raising new concerns after recent spate of fraudulent activity by tax refund companies.

26th Nov 2021
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The Low Incomes Tax Reform Group (LITRG) is warning taxpayers not to share their Government Gateway username and password details with anyone – including companies that offer to make tax relief claims on their behalf.

This comes after a spate of reports from taxpayers about fraudulent tax relief claims that were submitted via self assessment tax returns.

LITRG issued a list of fraud warning signs, including advice that nobody such as tax advisers, accountants or tax refund companies needs your Government Gateway credentials to undertake work on your behalf.

According to taxpayers involved in the fraudulent claims, the refund company involved asked them to register for a self assessment tax return to claim employment expenses. The company then used the individual’s Government Gateway login credentials to prepare and submit a tax return containing inappropriate claims for Enterprise Investment Scheme (EIS) relief, a sophisticated incentive that is not relevant for most taxpayers. 

By allowing the adviser to use their credentials, the taxpayers had no way of proving they had not submitted the fraudulent tax return.

LITRG has been raising concerns about certain tax refund companies for some time, most recently around the use of deeds of assignment. The use of Government Gateway credentials represents another extremely worrying development.

Meredith McCammond, technical officer at LITRG, commented: “It is entirely legitimate for taxpayers to use tax refund companies to claim refunds on their behalf because not everyone wants to deal with claims themselves and some people would prefer to pay someone to claim on their behalf. But we warn that there are serious consequences of getting caught up with an unscrupulous tax refund company.”

Taxpayers favor HVAs

This comes as even more of a concern following evidence from research conducted by HMRC, which issued a report on the use of high volume agents (HVAs) to claim tax rebates after noting an rise in taxpayers using these services rather than claiming directly through HMRC.

HVAs typically gain new customers through advertising on social platforms or other digital media. They also normally work on commission, or a ‘no repayment, no fee’ basis. 

Deed of assignment

Customers that sign up will be required to submit a deed of assignment during the initial process, which allows the HVA to receive rebates and commission for additional claims for the four previous tax years. This is agreed whether or not the HVA carried out any work on further claims made.

HMRC's lastest report found that the percentage commission participants had been charged by HVAs ranged from 10% to 50%.

Earlier this year, LITRG too reported higher rates of such cases, with confused and alarmed taxpayers contacting the pressure group after being issued additional fees for unconnected tax refunds after using a company for a specific claim.

Research method

To understand why taxpayers turned to HVAs rather than claim directly, HMRC commissioned Kantar Public to study the issue more deeply. The market research conducted  30 in-depth interviews with people who had used an HVA to claim job related expenses or marriage allowance within the last three years.

Of the 30 people questioned, two had made claims for job-related expenses (for example mechanics claiming for tools or NHS workers claiming uniform allowances) and six had made claims for marriage allowance (not working due to ill-health or working reduced hours).

The findings

The research showed that nine people had received a low claim (less than £100), 13 had received a medium claim (£100-500), and four had received a high claim (over £500). Four people did not receive any refund at all.

Although there was some variation, participants were typically confident in dealing with their finances and reported feeling confident in their tax knowledge to the point where they were happy to take care of their own tax affairs. Only a few described themselves as “not good with money”, or relied on others for financial advice.

However, low confidence in dealing with tax was not found to be a barrier to accessing HMRC support. There were some people who said they were not confident in dealing with tax but who had accessed HMRC support in the past and found it to be helpful in solving their query, or felt confident that they could access HMRC support if they needed help resolving a tax issue.

Experience of interacting with HMRC was actually common, with many participants having used the GOV.UK website and the HMRC helpline to resolve tax issues. The research found that perceptions of HMRC’s service were not a barrier in contacting HMRC if they needed to.

The way in which participants found out they could claim tax relief were as follows:

  • Peers (for Marriage Allowance and job-related expenses claimants).
  • Colleagues (for claimants of job-related expenses).
  • HVA adverts.
  • Work-related channels.

Participants had generally become aware of the specific HVA they went on to claim through at the same time as finding out about the opportunity to claim for the tax relief. This was because employers and work-based contacts had recommended a particular HVA at the same time as telling the claimant about the opportunity to claim, and HVA adverts highlighted both the specific HVA and the opportunity to claim.

A large number of participants were also unaware of the effects of the deed of assignment that they had agreed to.

Supporting claims through HMRC

The participants suggested that HMRC should aim to raise awareness and knowledge of the claims process, namely:

  • that it is possible to claim directly through HMRC rather than via an HVA
  • that HVAs and HMRC are not the same entity and are separate and different from each other
  • how to claim directly to HMRC, including where to find the claim form, and clear guidance on how to complete the form
  • reassurance that claiming directly does not take too long and is not difficult to do, and that no charge is applied

Participants who were dissatisfied with the HVA wanted HMRC to go a step further to regulate the market and prevent HVAs from operating as they currently are:

“HMRC should stop these sites going out. Everything should be done through HMRC,” commented one Marriage Allowance claimant.

What do you think of the HMRC claims process? Do you agree with the participants' responses? Let us know in the comments.

Replies (2)

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By Paul Crowley
26th Nov 2021 20:49

Difficult to resolve the logic of the claimed responses
All apparently think HMRC is wonderful, know how tax works and had no problem getting the GG organised
But then all chose to pay someone else to do their claims and knowingly passed on user IDs and passwords?
Could it be that they thought the claims company would claim much more refund than they could justify claiming for themselves?
Was is it also that they all wanted to give HMRC the "right" answers?
He who pays for the survey tends to get the result he pays for

Claims
2 for job expenses
6 for marriage allowance
22 claim purpse undeclared

Incomplete details for over 70% of claims

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Replying to Paul Crowley:
avatar
By tedbuck
29th Nov 2021 12:08

Who pays for the survey.....?
As Paul says you get the answers you want.
I did an HMRC survey a while back and was impressed(?) that the questions didn't really anticipate a negative response so any positive answers were good for HMRC but negative responses weren't really likely to register.
Sounds a bit like MTDfITSA doesn't it?
I still think HMRC are looking at fines as a means 0f Taxation - after all they can say that the tax rates haven't risen and sit back and reap in the fines for non-compliance.
I should think that they are on a good thing - how many people actually comply with the detailed requirements of MTD for VAT - very few I should think at the bottom end of the market.

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