New P87 transparency targets tax refund companiesby
Many individuals have complained about the diversion of their tax refunds to third parties as a result of deeds or letters of assignment. Meredith McCammond from the Low Incomes Tax Reform Group sets out why the new P87 process in place from 6 May 2022 could help.
From 6 May 2022, claims for income tax relief on employment expenses must be made on HMRC’s prescribed form P87. This means that tax refund companies will no longer be able to use their own customised claim forms which often incorporate a deed or letter of assignment.
What is a deed or letter of assignment?
Deeds or letters of assignment are a formal way of a taxpayer ‘assigning’ a refund to a tax refund company so they can collect their fee. They cannot be changed or revoked unilaterally like a bare or simple nomination.
But taxpayers are not just being asked by some tax refund companies to sign assignments in respect of a particular refund – they are being presented with assignments that are for entire tax years or even multiple tax years.
This means that some people who have used a tax refund company in respect of a particular tax refund are seeing unconnected tax refunds also being sent to the same company.
People duped into signing them?
Some agents submit repayment claims and assignments of repayment on their own customised forms, rather than using the standard HMRC forms.
The problem is that often the inclusion of a few operative words on a tax refund company claim form can be enough to be seen as a valid assignment by HMRC.
For example, if a taxpayer signs a claim form in respect of a working from home refund, they may think they are only giving permission for the tax refund company to act on their behalf for that specific purpose.
But there may also be wording included with the signature box saying something like: ‘I unconditionally assign my repayment of tax (for tax years ending 2018/19, 2019/20, 2020/21 and 2021/22) to... (tax refund company)’.
People may not see or understand this. Moreover, HMRC has told the Low Income Tax Reform Group (LITRG) that even where there is only one signature on the claim form, if it is below the ‘I unconditionally assign’ aspect, then it is valid for both the claim and the assignment.
There are also issues around how the customised forms have been signed. Some people have indicated to LITRG that they did not sign the forms submitted to HMRC and in some cases it appears an electronic signature, seemingly gathered as part of an online process, has been used on the forms sent to HMRC.
In such cases it is not clear whether taxpayers were presented with the deed of assignment wording at the same point the signature was collected, nor whether HMRC was aware if the signature was obtained electronically.
Examples LITRG has seen
In addition to working from home example, some people in similar situations have contacted us about deeds or letters of assignments. When their subsequent P800 reconciliations have been done, HMRC pays this (perhaps much larger) refund to the tax refund company, who then collects their percentage fee even though they have done little or no work towards it.
We have also seen some tax refund companies refusing to revoke an assignment unless a further fee is paid, or simply refusing to engage with the taxpayer.
It is of course legitimate for taxpayers to use tax refund companies to claim refunds on their behalf, because not everyone wants to deal with claims themselves. But some taxpayers have contacted us in distress having had refunds unexpectedly diverted as described above, with significant impacts on their finances and well-being.
How big is the problem?
Some recent Parliamentary questions sought to gauge the scale of this problem, but the responses said that data is not readily available.
However, the answer to one question about numbers of complaints around deeds or letters of assignment suggests that the problem is persistent but also increasing.
How might the new P87 process help?
From 6 May 2022, HMRC will mandate use of the P87 form for paper claims and will reject claims made on substitute forms. This is achieved by way of a Direction (currently in draft) made under SI2022/227.
The prescribed P87 contains a space for a nomination as you would expect. However, assignments will have to be by way of a separately signed document rather than being combined in the wording of the claim form. Also, if a wider deed or letter of assignment is attached to the form, this will not go through the automated process but will be processed manually.
In cases where a separate deed or letter of assignment is attached, we hope HMRC will then check the ‘validity’ of the assignment before lodging it in the system. For example, HMRC’s guidance (PAYE91040) says that assignments with an electronic or email signature are not valid, so should be rejected.
What are the other benefits?
The prescribed P87 form is designed to work with technology that will accelerate the processing of the updated form, provided it meets the automation criteria (for example, it doesn’t have any attachments).
Some other improvements have been made – for example, the P87 now has the functionality for multi-year claims and up to five employments.
Are there any downsides?
Provided the technology works as it should and reads the forms correctly, we cannot immediately see any downsides for taxpayers. We understand that the other options (telephone, online) will remain available to those who want to make their own claims.
We do not believe that the changes should adversely affect professional advisers who are providing legitimate advice or even High Volume Repayment Agents offering benign arrangements. However, we welcome any comments on this to feed into our work, via https://www.litrg.org.uk/contact-us.
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Meredith McCammond is a Technical Officer for LITRG and Chartered Tax Adviser, formerly in practice. LITRG is an initiative of the Chartered Institute of Taxation which is a charity. Since1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated...