Consultation published on protecting customers claiming tax repayments

HM Revenue & Customs published a consultation document in June 2022 titled "Raising standards in tax advice: protecting customers claiming tax repayments"¹. The consultation sought views on a number of proposals, including whether the government should restrict the use of assignments by repayment agents¹. Most respondents were in favour of a legislative change, and the government response announcing the intention to legislate was published on 11 January 2023¹.

The measure that followed removes a taxpayer's ability to legally assign to a third party their income tax repayment, or their right to an income tax repayment¹. Assignments of income tax repayments will have no legal effect and the repayment will remain the property of the taxpayer¹. The legislation is to be introduced in Spring Finance Bill 2023 and have UK-wide application, and it does not amend property law¹. The operative date is 15 March 2023, affecting assignments of which notice is received by HMRC on or after that date¹.

The background given is that many repayment agents require clients to sign assignments transferring legal entitlement to the repayment to the agent¹. HMRC states these arrangements have been exploitative as many taxpayers do not understand the consequences of what they are signing, not least that an assignment cannot be unilaterally rescinded¹. The measure arose from the call for evidence on Raising Standards in the Tax Advice Market published in March 2020, during which consumer protection groups raised concerns about the use of assignments by repayment agents¹.

The current law on assignments sits in property law: in England and Wales the Law of Property Act 1925 S136, in Northern Ireland section 87 of the Judicature (Northern Ireland) Act 1978, and in Scotland the Transmission of Moveable Property (Scotland) Act 1862¹.

Why it matters for households

The change affects individuals entitled to income tax repayments from HMRC who use a business, accountancy firm or agent to facilitate access to a repayment, as well as the facilitating businesses themselves¹. HMRC estimates around 400,000 taxpayers and around 200 repayment agents are affected¹. From 15 March 2023, an assignment of an income tax repayment has no legal effect, so the repayment remains the property of the taxpayer¹. Taxpayers who do not wish to deal with HMRC directly can still use an agent to claim repayments on their behalf, and for the repayment to be made to the agent, but by using nominations, which are not legally binding and can easily be rescinded¹. HMRC says those who claim on their own behalf benefit from the full repayment amount without the costs of instructing a repayment agent¹. The measure is not expected to have adverse effects on any group sharing protected characteristics, and no impact is expected on family formation, stability or breakdown¹.

What happens next

The legislation is to be introduced in Spring Finance Bill 2023 with UK-wide application¹. HMRC says the measure will be kept under review through communications with affected taxpayer groups, and that additional communications will be published to ensure customers are fully aware of their options¹. Questions about the change are directed to Christiana Daly on 03000 594708 or tapstechnicalconsultation-assignment@hmrc.gov.uk¹.