Policy paper

Information for customers of Tax Credits Ltd – refunding tax reclaims

Updated 20 February 2023

A large number of taxpayers who have reclaimed tax payments using the repayment agent Tax Credits Ltd since December 2021 will be due a direct refund from HMRC.

HMRC has found that up to 60,000 clients of the repayment agent Tax Credits Ltd signed up through a new online process.

The company introduced the process in December 2021 and following an investigation, HMRC was not satisfied that the new process and documentation led to a valid assignment of repayments to Tax Credits Ltd. There was insufficient evidence within the process of the client’s intention to assign ownership of their refund to Tax Credits Ltd, including clients not being shown the documentation or being specifically asked to sign the page.

HMRC will now make payments directly to affected clients.

1. What will be refunded

There will be two kinds of refunds made, depending on the circumstances of the client.

1. In May 2022, HMRC paused the payments for all claims from Tax Credits Ltd while the investigation was ongoing. All paused claims made using the new process since May 2022 will be paid in full directly to clients by HMRC.

2. For claims already paid by HMRC to Tax Credits Ltd (made between December 2021 and May 2022), those clients who will have received payment, minus fees, from Tax Credits Ltd will be paid directly by HMRC.

Other Tax Credits Ltd clients used a sign-up process that involved a paper form. HMRC’s investigation showed that this process and documentation led to a valid assignment. These taxpayers’ refunds will continue to be paid through Tax Credits Ltd.

2. When and how the refunds will be made

HMRC will directly refund all affected clients of Tax Credits Ltd and will write to them explaining their refund. All refunds will be made automatically, and Tax Credits Ltd clients do not need to take any action to receive their money.

The process for making refunds to affected taxpayers whose claims have been paused since May will begin immediately, with all refunds due to be made by mid-November.

For claims already paid by HMRC to Tax Credits Ltd (those made between December 2021 and May), taxpayers who have received payment, minus fees, from Tax Credits Ltd can also expect to receive their direct refunds from HMRC by mid-November.

3. Repayment agents

Taxpayers can use repayment agents to make claims for repayments of tax, and many are happy with the service they receive. However, a large number of taxpayers have complained about how their agent obtained their agreement to act for them and about the transparency of agents.

Taxpayers using a repayment agent agree what is known as an assignment, which makes the agent legally entitled to the tax repayment, with the agent then paying their client the agreed portion.

Taxpayers can make their own claims direct with HMRC via GOV.UK to ensure they get to keep all of what they are due.

The evidence shows this was a specific issue with Tax Credits Ltd’s processes and documentation, and there isn’t evidence of similar issues amongst other repayment agents. However, HMRC is reviewing the processes and documentation of other repayment agents to ensure they lead to valid assignments.

There are broader concerns about how repayment agents operate and HMRC published the consultation Raising standards in tax advice: Protecting customers claiming tax repayments in June 2022 to consider ways to better protect taxpayers. The consultation closed on 14 September 2022. HMRC is currently analysing the responses to the consultation and considering our next steps.

HMRC urges anyone thinking of using a repayment agent to actively read the agent’s terms and conditions on documents and websites, so they understand in advance the fees they will pay, the service they’re signing up for and any legal contract they may be entering into.

If anyone can show they have used a repayment agent to make a claim with HMRC via an invalid assignment process, they can contact HMRC.

4. Update (20 February 2023)

Previously we stated that Tax Credits Ltd clients who used a sign-up process that involved a paper form, formerly considered to be what’s known as a valid assignment, would receive their refunds through Tax Credits Ltd. However, this has not been possible within a reasonable timeframe so to avoid further delay these clients whose claims had been paused during investigations into Tax Credits Ltd will now receive any refunds they are due directly from HMRC; all refunds will be made automatically, and these clients do not need to take any action to receive their money.