Can you give me an example?
John, who was asked to work at home due to the coronavirus, asks a tax refund company to help him with a working-from-home tax refund (worth £62.50) for 2020-21 tax year. John signs the application form which contains the words ‘I unconditionally assign my repayment of tax for the 2020-21 tax year to the tax agent’ – although the clever lay out of the application form means John does not notice it. HMRC issue a refund in respect of working at home to the tax refund company, and they forward it to John after collecting their 35 per cent fee – so John gets £40.62 of his £62.50 refund.
HMRC do their annual pay and tax reconciliation for 2020-21 and a refund of £350 is automatically generated in the summer of 2021, due to an over deduction of PAYE by John’s employer. But due to the assignment John inadvertently signed, that £350 refund was sent to the tax agent, not John. The tax agent only releases it to John after collecting their 35 per cent fee on it. John receives £227.50 of his £350 refund.
What other things are you hearing about in respect of deeds of assignment?
Problems reported to us in the past 12 months include:
- Taxpayers stating they have simply filled in an online questionnaire, only to then realise later that an electronic deed of assignment has been generated and been lodged with HMRC.
- Deeds of assignment lodged with HMRC where the taxpayer says the signature on the form is not theirs.
- Deeds of assignment lodged with HMRC where the signature on the form is the taxpayer’s but has been collected by a connected company as part of a previous or different claim service and seems to have superimposed on to the deed.
This is concerning from two perspectives: firstly, that some tax refund companies are acting in this way in order to generate income, and secondly that HMRC does not seem to be undertaking any real checks on the validity of the deed before lodging it in the system.
HMRC’s own guidance in its PAYE manual sets out criteria for a valid deed, including that it has to be clear, the wording of the assignment cannot appear in small print, and that it must be physically signed.
What can HMRC do to stop this happening?
Under the law as it stands, HMRC has no choice but to accept a valid deed of assignment, but in the instances above, where the deed has not even been properly signed by the taxpayer, it is arguable that the deed is not valid.
In our view, HMRC need to urgently put in place a new step whereby deeds of assignment from tax refund companies are not accepted until HMRC contact the taxpayer directly and check that they are aware of the deed’s existence, that they fully understand what it means and confirm they wish it to be put in place. This would ensure that HMRC only accepts those that are valid under their own guidance.
