Ian Gilroy, Sales Manager at Shieldpay, discusses the tax rebate payments problem and offers five key reasons why using a TPMA enables a smoother transaction for both tax rebate specialist and claimant
What are tax rebates?
The system for calculating and deducting income tax can result in taxpayers overpaying throughout the year. HMRC does, however, have a counter-system in place which balances out the surplus to reimburse those affected at the tax year end. Both employed and self-employed workers can be eligible depending on the claim reason – these cover a broad range, including claiming for travel, tools or specialist clothing as well as residency changes or pension payments.
Due to the Covid pandemic and the related government financial support schemes, there is increased opportunity for claiming. The introduced SEISS programme, supporting the self-employed workforce who may have had their livelihood impacted by the pandemic and lockdowns, has been claimed by 2.8 million people so far and totalled £24.5bn with the average claim being £2800.
The highest proportion of SEISS claims have been from the construction industry. As an industry with a high number of self-employed workers, the scheme has been an important aid during the pandemic to support cashflow, alongside the already established CIS.
What are the challenges when claiming for the rebate?
For some, such as the working from home tax relief, there is a simple online portal to fill in and submit the information. For others, such as the CIS, however, it is a less straightforward process requiring a Self Assessment tax return or other more complex forms. In these instances where specific financial information and documentation is required within a given timeframe, those claiming may want to call on the assistance of specialist tax experts.
Tax refund specialists are highly knowledgeable in the process of submitting a tax repayment claim and offer services to support those claiming. Once determined eligible, the specialist will manage the claim - from determining the full extent of the amount owed and building the claim with all the supporting paperwork through to payment.
The payment problem
Depending on the specialist company employed, the repayment from HMRC can either be paid directly to the claimant, or the specialist may apply to secure the money before making the payment to the claimant.
In the first case, there can be delays in payment to the tax rebate specialist for their services which can mean they need to engage in unnecessary chasing of the client and a greater administrative workload.
For the latter option, the tax rebate specialist needs permission from the claimant to receive the money on their behalf. While it is a simple ask to HMRC, it can be a cause for concern for the claimant as they will want their money as quickly as possible and have full visibility over the payment – knowing how much they were entitled to from HMRC as well as the amount charged by the specialist for the claim service.
The solution: use a TPMA to manage the transaction
Third-Party-Managed Accounts (TPMAs), also known as ‘escrow accounts’ or ‘designated accounts’, can be a solution to the tax rebates payments problem.
With Shieldpay, the tax refund is paid directly into the TPMA by HMRC. With this money received, the tax rebate specialist can then settle their fee immediately and send the funds to the claimant, guaranteeing payment and saving time from having to pursue the client for payment.
TPMA providers may differ in the services offered as part of their solution. Shieldpay’s TPMA solution provides integrated KYC/AML services, payment acquiring services, ongoing transaction monitoring, bank account verification, payment settlement and financial statements through one complete digital platform.
Five reasons why tax rebate specialists should use a TPMA:1. Removes administrative burden
Using a TPMA removes the stress of managing payments – whether for the payment of the service to the firm or for the final transfer of tax refund to the claimant. The Shieldpay platform tracks and records all payments, providing all parties a clear audit trail for credit receipts and fees.2. Speed
With Shieldpay’s digital solution, accounts can be set up quickly and payments are tracked on the platform, reducing the time required to communicate between parties. The platform also enables instant payment authorisation to ensure money is transferred on time and when expected. The time saved from using our TPMA can go back to the business for more profitable activities, such as business development.3. Guaranteed payment
Managing transactions through a digital platform ensures all parties involved have full visibility of the scheduled payments which can aid in a smoother cashflow.4. Reduced risk
Although there is no specific regulation for tax refund specialists, those registered with a professional body will need to consider following their chosen body’s rules. While not a necessity of compliance, using Shieldpay is a safe payments solution with robust due diligence processes and full regulation from the FCA as a payments institution. Risk is also reduced for all parties as there is certainty of prompt payment.5. Enhanced client service
The added transparency of using Shieldpay helps build trust and increases responsiveness which can improve the relationship between firm and claimant, helping to ensure repeat business year on year.
As tax rules and rates have changed considerably in recent years, and with more measures on the horizon to stimulate the economy, many employers and employees will rely on tax experts to navigate the changes. As an example, the fifth SEISS grant will be opening later this month but the calculation for this will differ compared to the first four. For this, we may see more self-employed workers relying on a tax rebate service to ensure they receive the full amount owed. Using a TPMA service supports in the payments process, giving the claimant complete peace of mind in the tax rebate specialist and the specialist certainty of payment for their service.
Shieldpay's technology-led solution provides Third-Party Managed Accounts (TPMA), corporate escrow and paying agent services across the professional, financial and legal services industries. Get in touch to find out more.