Taxpayers claiming rebates via third parties will have stronger protections under a shake-up to the way repayment agents can operate.

Businesses specialising in helping people and firms make claims for tax refunds often advertise on social media and tend to operate on a commission-based fee structure, HM Revenue and Customs (HMRC) said.

The revenue body said many repayment agents support customers to access tax relief or repayments they may otherwise have been unaware of.

But it has also frequently seen cases where repayment agents have pushed the boundaries of eligibility, exploited customers, or made fraudulent claims.

HMRC received more than 2,200 complaints about repayment agents between January 2022 and October 2022, including those relating to the use of assignments, which legally transfer the benefit of the taxpayer’s repayments to the agent; taxpayers not being made aware of or fully understanding terms and conditions; and people being unaware that they are dealing with a third party and not HMRC.

Taxpayers deserve better - we want to make sure they are better protected before choosing to enter into an agreement with a repayment agent

If someone believes they are owed a tax rebate, they can claim directly from HMRC via gov.uk and they will receive 100% of the money owed.

HMRC said it will introduce legislation to change the way repayment agents are paid for their services and better protect customers from the unscrupulous tactics used by some operators.

This includes stopping the use of legally binding assignments as part of claiming an income tax repayment, which could only be cancelled if the agent and taxpayer both agreed to do so.

This can be challenging for customers who become dissatisfied with their agent, or who simply wish to take over managing their own claim, the revenue body said.

Under new arrangements, if a taxpayer chooses to use a repayment agent to reclaim overpaid tax and wants it sent to the agent, they will need to make a nomination, which they can cancel at any time.

The new process aims to make it easier for taxpayers to stay in control of their repayments.

HMRC said there will also be a new registration process for repayment agents, to make the agent sector more transparent so customers better understand what they are signing up to.

These new measures will ensure those who are entitled to claim a tax repayment or relief can do so freely and easily - whether they choose to do this themselves or by using an agent

Further details on the approach to registration for repayment agents will be set out in due course.

Currently, repayment agents are not required to register with HMRC, so the department’s ability to proactively check they are registered for anti-money laundering supervision and that they meet HMRC’s standards for agents is limited.

The revenue body also said updated standards for agents include greater evidence of customer consent, to ensure that taxpayers better understand the agreement they are entering into and stricter transparency rules, including introducing a 14-day cooling off period for customers after entering into an arrangement with an agent.

The plans follow a consultation last summer and form part of steps to tackle problems in the repayment agent market, which is currently an unregulated sector.

Angela MacDonald, HMRC’s deputy chief executive and second permanent secretary, said: “Taxpayers deserve better – we want to make sure they are better protected before choosing to enter into an agreement with a repayment agent. HMRC’s updated standards for agents will level the playing field and provide the benchmark we expect all repayment agents to meet.”

Financial Secretary to the Treasury Victoria Atkins said: “For too long taxpayers have been left in the dark as a result of misleading and opaque agreements with repayment agents.

“These new measures will ensure those who are entitled to claim a tax repayment or relief can do so freely and easily – whether they choose to do this themselves or by using an agent.”

it is important that more effort goes into raising awareness of refunds and ensuring it is as simple as possible for taxpayers to access them

Victoria Todd, head of the Low Incomes Tax Reform Group, said: “Refund companies have a legitimate role in the tax system, but the practices of some of these companies in recent years have been unacceptable.

“The proposed changes will hopefully address problems around the use of assignments, increase transparency for taxpayers, and set clearer standards for these companies’ behaviour.

“Alongside this, it is important that more effort goes into raising awareness of refunds and ensuring it is as simple as possible for taxpayers to access them.

“We look forward to working with HMRC on the detail of the proposals.”

John Cullinane, director of public policy for the Chartered Institute of Taxation (CIOT), said: “The consumer protection regulatory gap is best met by trying to strengthen and support what the professional bodies do; we should aim for a situation where all advisers are members of professional bodies and where those who behave unacceptably cannot practice if they are expelled from a professional body.

“We recognise this may require additional scrutiny of professional bodies themselves, though this should be through a body established to have a consumer protection objective, and independent of the state’s need for revenue.”

Sam Richardson, deputy Which? Money editor, said: “Which? research has highlighted how people have lost hundreds of pounds after being lured in by third-party companies to claim tax rebates only to be hit with hard-to-justify fees, so it’s good to see tougher rules in place to protect consumers.”