Tax refund windfalls easily eroded

The frog wears a rather fetching Hawaiian shirt. He alternates between licking his eyeballs and nursing a long drink. It must be that time of year again.

The end of the tax year brings the prospect of a juicy windfall for some.

It also inevitably brings the frog- the TV mascot of -out of the woodwork, along with all his tax agency friends.

''Get ready to enjoy your tax refund!'', he croaks cheerfully.

But if you cut the middleman out of your tax refund picture, there'd be a lot more moolah to enjoy.

''There's really no benefit- all they're doing is clipping the ticket'', says Sue Chetwin, Consumer NZ chief executive.

''You're far better doing it yourself.''

The mere mention of tax returns tends to inspire fear and loathing, so it's not surprising that it gets tossed in the too-hard basket.

But applying for a refund yourself is surprisingly simple and stress-free, especially for those on a simple salary or wage.

The alternative is to have someone else do it for you but you end up paying a commission as high as 20 or 30 per cent. Tax agencies can get away with charging like a wounded bull because people consider the rebate to be ''free'' money anyway.

Of course, it's not. Like the rest of your paycheque, every cent was undoubtedly earned through blood and sweat and toil.

For the middleman, it's money for jam. No wonder the market is crowded with a dozen players, all clamouring to offer their services.

Throw the words ''NZ'' or ''kiwi'', ''tax'', ''my'' and ''refunds'' in a blender, and what it spews back out are the confusingly similar monikers of the various firms.

Most charge percentage based commissions between 12 and 20 per cent. The rest use a sliding scale  which tends to work out closer to 30 per cent or even higher.

With the average refund processed in New Zealand somewhere around $460, that's going to be a good chunk of money eaten up in fees.

Here's a sampling of how big a bite comes out of that aforementioned average windfall:

Simple As Refunds: Scaling fee $130
My Refund: Scaling fee $120
NZ Tax Refunds: 19.5 per cent commission$90
Tax Refunds: 18 per cent commission$83
MyTax, Tax Return: 15 per cent commission $69
Kiwi Tax Refund: 12 per cent commission $55
My Tax Refund: Flat fee $34

If the numbers themselves aren't eyebrow-raising enough, some websites are not exactly upfront about the sting in the tail.

Several fee schedules are buried in the terms and conditions, while others can't be seen until you are at the stage of filling out the actual application.

If all this has you feeling green around the gills, there is always an alternative.

The cost of a DIY tax refund comes to a grand total of $0 and for most people it's pretty straightforward:

Five Easy Steps

Step one:
If you haven't done so already, register for an online services account on the IRD website

You will need a name and an IRD number. If you don't know them, you've got bigger problems. You will also need to activate the account by phone.

Step two:
Log in and navigate to the ''Money back'' tab, which is marked by a piggy bank icon.

Step three:
Select the first option, Do I Need To File?, which is  a questionnaire designed to check whether you need to file an individual return (IR3).

As a general rule, if you're on a salary or wage you won't, and if you're a contractor or self-employed you will. Again, this can be done online.

Step four:
Once you've determined that, click on Do I Get a Refund? Dig out your last payslip of the year and punch your total earnings and total PAYE tax into the calculator.

Now you know whether you owe the IRD, or whether it owes you.

Step five:
If you haven't paid enough tax, just do nothing (even the IRD say that on its website) - better luck next year.
If you've paid too much, you're in the money! Return to the Money back tab and request a personal tax summary.

Done! With an account set up and pay details on hand, a test run of the entire process clocked in at a mere four minutes and thirty-seven seconds.

No headaches, no complications, no sweat.

Based on the heftiest agency fee of $130, the DIY approach paid off at the rate of $28 a minute.

With the IRD website so user-friendly these days, are tax agencies becoming obsolete?

They certainly don't think so.

Take MyTaxBack, for example. It proudly proclaims itself to be ''a modern day Robin Hood'', in the same breath declaring a 17.4 per cent (plus GST) commission. Perhaps it has the merry man confused with the Sheriff of Nottingham?

To be fair, going through a middleman does have some merit, especially for those who want to avoid any hassle. If you want to wash your hands of the whole sordid affair, paying someone else to do it is your prerogative.

''Most people get their hair cut, they have their lawns mowed'', says NZ Tax Refunds chief executive Cilla Hegarty. ''We're just a service.''

As she points out, plenty of people simply don't want to bother. Others might not have the computer access, or even the capacity for dealing with the IRD.

The questions along the DIY route are pretty basic, but if you misunderstand them you could end up with less than you should get.

Then there's the sheer convenience of the ''set and forget'' option - leaving your finances in the hands of tax specialists.

''They know that each year we'll be looking after them and making sure they're getting what they're entitled to," Hegarty said.

All of which are good reasons, but they come at a price.

My Tax Refund has one of the most reasonable offerings on the market, recently moving to a flat fee of $34.

Manager Gavin Barr doesn't have a bad word to say about his competitors, but he does think the usual fee structure is ''probably a bit archaic''.

''When the industry started off, I suppose a lot of them were in the malls and so forth, and had pretty heavy cost structures scenarios in place for that.''

But though some agencies are still pressing the flesh, the big move to online has eliminated many of those costs.

Instead of passing the savings on, some companies have actually bumped up their commissions in recent years, indicating that Barr's company will probably remain an outlier.

DIY will remain a good option for many if the tax agencies aren't prepared to drop their fees.

If you  can't be bothered, have more complicated returns or lack confidence in dealing with the whole situation, then use an agency.

If not, give the frog the hop and make the most of your entire refund.