A recent investigation by MoneySavingExpert.com found that a company called Tax Credits Ltd (trading as taxrebate.uk and incorporated in 2020) was alleged to have submitted non-consensual tax rebate claims to HMRC using forged signatures and keeping refunded monies that were owed to taxpayers.
HMRC concluded that there was ‘insufficient evidence’ that people were aware that they were entering into legally binding agreements with Tax Credits Ltd. In response, HMRC paused all payments for claims submitted by Tax Credits Ltd from May 2022 and agreed to refund 60,000 taxpayers who had had tax rebates processed by the company.
Unfortunately, this case is not unique. Our tax professionals, in conversation with clients and accountants, have found that a growing number of businesses are signing legal documentation that gives advisors the legal right to pocket their cash. In some cases, criminal proceedings are underway to retrieve funds from rogue tax advisors, some of whom have recently entered the R&D tax credit market.
How does this happen? Unscrupulous use of deeds of assignment
Tax advisors asking clients to sign ‘deeds of assignment’ is a growing trend in the tax sector which transfers major powers and rights from taxpayers to third parties. A form of property law, deeds of assignment are used to legally transfer the right to repayment from the taxpayer to the agent. In other words, if you legally assign repayment by a valid deed or letter, the person or company you have assigned it to (the agent) becomes legally entitled to the refund. This includes any refunds associated with the submission of R&D tax credit claims. Whether a taxpayer or business ultimately receives their funds depends solely on the willingness of agents to part with funds they are legally ‘entitled’ to hold.
It is worth noting that there are instances where an accountant may arrange for the funds to be deposited in a separate client account. This practice is regulated by ICAEW Clients’ Money Regulation 8A and is different to the tactics employed by non-regulated rogue firms. Companies retain the services of accountants for their valuable advice and to remain in compliance with HMRC policies and guidelines. Beware of allowing unscrupulous tax agents to bypass the scrutiny of your accountant.
The word ‘deed’ is often used to describe formal legal documents; however, the inclusion of a few words inside an application pack is enough to be considered a valid letter of assignment. Once an assignment has been signed, it cannot be unilaterally rescinded by the taxpayer as the repayment agent is now the legal owner. Both parties must agree to rescind the deed of assignment on a bi-lateral basis.
Deeds of assignment can be broadly worded and transfer repayment rights covering the past 4 years rather than the specific tax claim being made. Depending on interpretation, assignments may enable agents to benefit from any other repayment owed to the taxpayer within that 4-year period even if they were not involved in the claim.
“At no point did I sign any contract. I called HMRC and was told I’d given this company authority to claim my rebate”.
HMRC receives hundreds of formal complaints each year explicitly referring to assignments and repayment rights, a number that increases annually.
Let’s be clear. Using the services of an R&D tax credit consultancy does not require clients to sign deeds of assignment and is a policy enacted by advisors to take control of funds. Cost Care Tax has processed thousands of successful R&D claims without this requirement and shall continue to do so.
What are 64-8 forms and how are they different?
The ‘authorising your agent (64-8)’ form gives authorisation for an agent, such as an accountant, tax agent or financial advisor, to deal directly with HMRC on your behalf in relation to many areas of taxation including R&D tax relief, VAT, PAYE for employers, and Corporation Tax. Unlike deeds of assignment, an agent’s authorisation can be removed unilaterally by the taxpayer at any time and does not transfer repayment rights.
It is possible for taxpayers to assign multiple agents by submitting individual 64-8 forms and specifying what tax matters may or may not be disclosed to the agent. However, splitting tax oversight in this way may involve burdensome administration and cause confusion if multiple advisors are inadvertently given authority over the same tax scheme.
Although 64-8 forms are less pernicious than deeds of assignment, they are not without their pitfalls:
- Advisors will continue to receive sensitive HMRC correspondence regarding individual/business tax affairs following an R&D tax relief claim unless authority is revoked.
- Authorising a non-qualified advisor to retain full responsibility over R&D tax correspondence leads to loss of control.
- Accountants and taxpayers lose oversight of R&D tax relief claims therefore making financial management more difficult and opaque.
- 64-8 forms and deeds of assignment enable rogue firms to bypass the scrutiny of accountants.
Eminent tax barrister Keith Gordon considers the Supreme Court’s decision in a case where a taxpayer’s notice of enquiry was sent to the wrong address – Tinkler v HMRC (2018)
A recent upper tribunal decision illustrates the risks businesses could face after signing a 64-8 form with their tax advisers.
“I also wonder whether the decision taken by HMRC to argue in the Tribunals that a signed 64-8 authorises HMRC to send statutory notices to advisers without any copy being sent to the taxpayer personally could cause shockwaves amongst the Department because of the consequences of the decision.”
What does HMRC say?
HMRC launched a consultation on 22nd June 2022 to look at introducing new rules to help protect taxpayers and businesses. It will consider restricting the use of legal contracts that transfer repayment rights from taxpayers to agents and introducing measures to ensure legal information is seen prior to entering into a contract. HMRC may even require agents to register with HMRC. The consultation will seek a variety of views and is due to run for 12 weeks with a summary of responses scheduled for December 2022.
Cost Care Tax Promise
R&D tax credit advisors with a demonstrable history in the sector that do not require the signing of deeds of assignment or 64-8 forms should be a priority when choosing a tax partner. The demand for deeds of assignment signifies an absence of trust, either in the advisor’s own ability or a company’s willingness to pay fees when they are due.
HMRC views agents or tax consultants that employ deeds of assignment with suspicion and are sometimes ‘red flagged’ by compliance officers. As such, there is a higher likelihood of an enquiry being raised against R&D tax credit claims submitted by these agents. We have a healthy, long-term relationship with HMRC who recognises Cost Care Tax’s unwavering commitment to due diligence, client care and taxpayer protection.
- We will never ask clients to sign deeds of assignment or 64-8 agreements unless specifically requested.
- We will never submit a claim or report to HMRC that we do not believe will stand up to scrutiny.
How Cost Care Tax can help
We’ve been in the tax business for over 25 years and have claimed back over £110 million in R&D tax relief for thousands of innovative businesses. From initial assessment through to the submission of a comprehensive report, your claim will be managed by tax experts who will be honest about what qualifies and what does not.
Due diligence is ordinarily enough to avoid complicated and time-consuming enquiries, however even solid cases can attract the attention of HMRC. For this reason, enquiry support is included as standard in our fee, and we work directly with HMRC to reach a positive resolution.
With a wealth of experience gained over many years of submitting R&D tax credit reports to HMRC, we are well placed to assess the eligibility of your claim. Call us today for a no obligation exploratory conversation with one of our tax experts.