Tax rebate handling websites aren't doing anything against the law, but you don't need them!
Online companies which specialise in claiming back overpaid tax seem to be springing up all over the place. That’s hardly surprising given that the recent tax code blunders by HM Revenue and Customs are presenting ‘expert’ claims handlers with the perfect opportunity to cash in.
HMRC track record
There’s no question the taxman has a truly appalling track record when it comes to tax calculations. Only last month it surfaced that a new system for dealing with PAYE tax had exposed around six million errors! This is on top of tax coding mistakes which HMRC admitted to in January where the average taxpayer affected by the gaffe had lost out to the tune of £1,300.
Unfortunately, the recent problems suggest that around 1.4 million people have underpaid tax and will be required to settle what they owe to the revenue. But it’s also estimated that some 4.3 million taxpayers have actually paid more than they should. This will likely push plenty of business in the direction of the tax rebate websites. But I can’t say I’m happy about it.
Shocking fees
These services will deal with a tax reclaim on your behalf in return for a fee. They will chase HMRC for you, but you’ll still need to complete all the nasty, time-consuming paperwork yourself and provide the necessary documentation such as P45s and P60s.
But I’m not at all convinced these businesses offer good value when their assistance really doesn’t come cheap. In fact, the fee charged can cost anything from 10% of the HMRC refund right up to a whopping 40%.
I can’t deny these services are completely legal and above board. After all, you can’t expect anyone to handle your claim for nothing. But I think the charges are truly extortionate given that you’re perfectly capable of tackling it yourself.
Find out how to cut your tax bill without the effort of complex tax planning.
How costly are tax rebate handling websites?
To give you an idea of just how expensive tax claim handlers can be, here are just four typical examples of the many, many services on offer:
First up, The Entitlements Agency quite simply enables taxpayers to print off and complete a claim form to get the ball rolling which they will forward onto HMRC. In return, you’ll be charged a painful flat fee of 17% (+ VAT) of any rebate they manage to claim back on your behalf. If your rebate was say £300, The Entitlements Agency would keep £51 plus £8.93 in VAT, meaning you have lost a chunk of almost £60 from your rebate.
Interestingly, when I typed ‘Inland Revenue’ - the precursor to HMRC - into Google, I was surprised to see The Entitlements Agency advert appears at the top of the page. The url for the site is actually www.inland-revenue.org.uk. If you ask me this makes the site appear officially HMRC sanctioned even though it’s completely independent from any government agency.
Another example is TaxFix. The website claims the average rebate secured for its customers runs to £1,220, and proudly announces that it has dealt with over 100,000 successful claims. It operates a ‘No refund, No fee’ policy but charges commission of between 16.9% + VAT and 18.8% + VAT depending on how quickly you return your application for a rebate after your initial enquiry.
A minimum administration fee will be charged on successful tax rebates of £89.99. However, once a repayment has been received from HMRC, this amount minus the commission will be refunded.
Meanwhile, ClaimTaxRebate.com also operates an online ‘No refund, No fee’ policy. The site charges a slightly lower fee of 14% of the total repayment claimed back from HMRC. But alarmingly there’s a minimum charge of £99. If your rebate was worth £200, the fees would run to the equivalent of almost 50%!!
But perhaps one of the worst offenders is TaxRefundCo which retains a massive 40p of every £1 refunded. In other words, the service charges fees of 40%. It claims that by yourself, and without the assistance of a tax expert ‘...there's little chance you will recover any tax you have paid in error, so you could look at this as 60p in the pound gained, rather than 40p in the pound lost.’
John Fitzsimons reveals which tax topped our poll of lovemoney.com readers as their most loathed.
How to claim tax back yourself
Of course, no one likes to spend their precious time writing to HMRC, but why pay someone else to do it for you when you can do it for free yourself?
You’ll find plenty of guidance at lovemoney.com which will help you work out whether you’re paying the right amount of tax. First of all, take a look at How to get a tax refund. This article explains how to check your annual P60 - the document which outlines all income you have earned and tax deducted for the tax year just ended.
It also takes you through the process for claiming tax back yourself if you think you may have inadvertently overpaid. We even outline the information and documentation you should include in your claim letter.
Tax experts are now advising that taxpayers, who contact HMRC by post, are facing a 13-week delay before getting a response due to the sheer volume of claims. We suggest you contact HMRC by telephone or email in the first instance, and keep a log of all correspondence. Find HMRC contact details here.
The second article you should look at is This tax error could cost you thousands! This article will help you understand your payslip so you can check the right amounts of tax and national insurance have been deducted from your salary on an ongoing basis.
If you think the revenue owes you, please consider dealing with the claim yourself before you shell out to an expensive third party. Good luck!
More: Pensioners - the taxman is targeting you! | What the Child Benefit cut means for you