Scams and Tax Refunds
In the past couple of weeks, we have received a number of calls from clients (or more accurately on behalf of their spouse) and friends advising that they have been approached by firms or individuals promising them tax refunds of up to £4,000 for job related expenses.Furthermore, it seems there are more and more adverts on social media promising to obtain tax refunds on expenses you may have incurred as an employee.
The first thing to remember is "if it seems too good to be true, it usually is", so please check these things with a reputable firm.
There are strict guidelines set by HMRC on the tax relief that can be claimed by employees, on any expenses that you incur "wholly, exclusively and necessary" relating to your employment.
There are some costs that can be claimed, for example using your home as office. Due to Covid-19, the tax relief was simplified and relaxed during the pandemic by HMRC for the time that many of us were working from home. During the pandemic, you could claim a fixed deduction of £6 per week for the full tax year if you spent any time working from home in the tax year.
So, how much does this get you back??
The simplified method of claiming can potentially apply to both the 20/21 and 21/22 tax years. You receive tax relief on this at the rate at which you pay tax.
So, for a basic rate taxpayer this equates to 20% basic rate tax relief on the £6 per week, so £1.20 per week in tax relief. For the full tax year this would save £62.40. The tax relief would increase to £124.80 for a higher rate taxpayer paying tax at 40%.
Quite a lot different from the suggested tax refunds of up to £4,000!
In order to obtain tax refunds of, for example, circa £2,000, if you are a higher rate tax payer, the firms are claiming that expenses of £5,000 have been incurred. If you are a basic rate tax payer, they are saying you have incurred costs relating to your employment of £10,000 – that's a lot of uniform cleaning!!!
These firms make the claim, and due to the amounts, HMRC often make the repayment. These firms then take their cut (usually at 25% plus VAT) and make the excess repayment to you. Excellent you think – they have repaid the tax, so it must be correct.
WRONG! HMRC can look into the repayment claims (and often use their powers to obtain details of claims from these firms) at a later date, even a number of years in the future. If the claims are found to be excessive, they will seek to recover all of the repayment from you, plus interest and penalties (and remember, you have actually paid nearly a third of the tax repayment to the firm supposedly who has helped you……it will be interesting to see if they will repay their fees to you!).
And on top of this, self-assessment tax returns are likely to be issued in future years, meaning you will be obliged to complete tax returns in the future.
And it doesn't stop there!
We are aware that some of these companies are making these claims, and after doing so, using your details to make fraudulent claims for other tax reliefs. The money for such fraudulent claims is paid into their bank accounts but using your personal details! HMRC are aware of such claims, and we know from them that these fraudulent claims amount to thousands of pounds, and that the individual has absolutely no idea are being made in their name.
Our message is therefore very simple: please contact a reputable accountancy firm to help you get the best tax advice and if required, assist with these claims and remember "if it seems too good to be true, it usually is"!
Given the increase in the cost of living, these firms and adverts look to take advantage of the current situation. People may receive a tax refund and be ecstatic, use this money to help with living, pay for holidays, etc. But remember, if the claim is excessive, HMRC will look to recover, along with penalties and interest, and chances are you have used and spent the repayment.
You may be thinking, can you claim anything? Well, yes you can!
In addition to the working from home allowance, you may be able to claim tax relief on other expenses you incur as an employee. You may be able to claim tax relief on things that you must buy for your job, you have used your own money and you only use these things for your work. (i.e. the wholly, exclusively and necessary test!). Tax relief can also be claimed on other costs incurred such as laundry costs for cleaning your uniform if you wear one and professional membership fees. Any potential claim can be for the last 4 years.
You can make the claim yourself using your personal tax account https://www.gov.uk/personal-tax-account.
Please be very careful with adverts you see on social media, and always when providing your personal details.
If you have any questions or concerns regarding tax claims, please do not hesitate to contact us.