Income Tax Repayments

Income Tax Repayments can still be paid to accountants (or tax agents)

There has been some confusion as to what a tax refund company is – are they accountants or not. The simple answer is in most cases no. Basically, tax refund companies make a claim on behalf of a client for a tax refund only and Apostle Accounting in Stowmarket made headlines just recently to cause confusion, although many other tax refund companies have too. Most qualified accountants are recognised by HMRC and these all have an agents services account (ASA) that are registered and an agent code issued, like we are.

When a taxpayer assigns a tax repayment to a third party by an 'assignment' that third party, such as a tax refund company, becomes legally entitled to the repayment. The assignment can only be revoked if the taxpayer who made the assignment and the third party agree.

The low incomes tax reform group has seen examples where taxpayers have claimed a small repayment through a tax refund company, say for a working at home allowance. When HMRC reconcile their tax position for a subsequent year (on form P800) they send that much larger tax refund to the tax refund company instead of the taxpayer. In some cases, the tax refund company has refused to revoke the assignment without a further fee.

HMRC have taken several steps to prevent abuse by high volume tax refund companies including tightening up the processing of refunds claimed on paper P87 forms and rejecting any substitute forms. Tax refund companies are also now required to register with HMRC.

In January 2023 HMRC announced that they would ban the use of deeds of assignment and as a result all assignments of income tax repayments are treated as void from 15 March 2023. In the meantime, HMRC will treat assignments received on or after 15 March 2023 as non-legally binding nominations.

Accountants may want to receive tax refunds on behalf of their clients particularly when dealing with repayment claims for construction industry scheme subcontractors. The accountant will take their fee from the tax refund and pass the balance on to the taxpayer. The client nominates the accountant to receive the tax repayment by ticking a box on their self assessment tax return and entering the accountant’s client bank account details. The form P87 which is used to claim employment expenses also includes a box to appoint a bare nominee, again the accountants.

HMRC will continue to accept bare nominations for tax refunds where the nominee is an accountant or tax agent. However, they have stated in the PAYE manual that 'the individual remains the person legally entitled to the repayment and we comply with the nomination at our discretion'. Indeed, sometimes HMRC will issue the tax repayment directly to the taxpayer even where a bare nomination is in place.

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