Income tax refunds – beware if they’re too good to be true

It’s always satisfying to receive income tax refunds. After paying out what you thought was the correct amount of tax, you suddenly get a cheque from HMRC.  Sometimes it can be for hundreds or thousands of pounds.

That said, you should be wary of companies that promise to get you large income tax refunds. If you saw the recent episode of BBC’s Rip Off Britain, you’ll know that many people recently received income tax refunds with a sting in the tail.

What’s the story?

According to the BBC, an accountancy firm in Suffolk was promising to help people claim tax relief for work expenses.

Hundreds of people got in touch with the company, which then claimed refunds on their behalf. The firm then deducted 24% of the refund as fees. Some 1,400 people used the service between 2016 and December 2021.

Why were the income tax refunds problematic?

Unfortunately, many people who used the company’s service have since become the subject of compliance checks. For example, food industry worker Lee Osborne sent the company copies of his P60 tax statements. He says he didn’t forward details of his expenses. However, he said the company sent back calculations under the title ‘allowable expenses’. The firm told him he was owed £19,000 by HMRC. After deducting its fee, it then gave Mr Osborne £14,000.

Two years later, HMRC told Mr Osborne it was opening a tax investigation into his Self-Assessment Tax Return. It said that it believed he had claimed job-related expenses that he may not have been entitled to get.

Thanks to added interest, Mr Osborne now owes HMRC £21,000. He says he can’t prove he’s entitled to the expenses because he didn’t know what the firm had claimed for – and that he doesn’t have the receipts.

How many people are affected?

The BBC says that Dan Poulter, the MP for Central Suffolk and North Ipswich, says the number of complaints he’s received about the firm are ‘unprecedented’. Lee Osborne has also reached out to other people facing repayment demands. There are currently 800 of them. Between them they owe HMRC £1.8 million.

What does the company say?

The company says it rejects any claim of wrongdoing in the ‘strongest possible terms’. It says it provided HMRC with figures based on ‘the figures received and the conversations held with clients’.

While HMRC says it can’t comment on individual cases, it does point out that when people use a tax agent they are ‘always responsible for claims which are submitted on their behalf.’ It has also said that ‘You should treat promises of easy money with real caution – if it sounds too good to be true, it probably is.’

The police are currently investigating ‘a large number of allegations of fraud’ concerning the company.

How can I get income tax refunds?

Whatever the outcome of this story, it does highlight the importance of getting proper advice before applying for income tax refunds. Our expert accountants are able to advise you on tax planning and, if there are legitimate reasons for getting an income tax refund, they’ll let you know. However, the fact remains that, if someone promises you a large refund that you’re surprised about, it’s wise to be sceptical and get a second opinion from a reputable accountancy firm.