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Raising standards in the tax advice market

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Warning agents that the issue of tax regulation has not gone away, Paul Aplin argues that any action must be evidence based, proportionate and designed to minimise additional compliance costs. 

7th Feb 2022
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One of the themes I predicted for 2022 was a focus on standards in the tax advice market. It was hardly crystal ball gazing: last November, HMRC published a summary of the responses to its consultation “Raising Standards in the Tax Advice Market: Professional Indemnity Insurance and Defining Tax Advice” and while the compulsory PII proposal was dropped, the government made clear its intention to remain focused on agent standards in 2022.

What’s the problem?

The raising standards response document states that “the government recognises the important role that tax advisers play in helping taxpayers navigate the tax system, comply with their obligations, and receive their entitlements by providing support and advice to their clients”, while noting that some act “incompetently or unprofessionally”.

We have all seen examples of poor work (which I might define as work we would not want to put our own names to) but my experience over the past 40 years has been that the vast majority of work done by agents is of a very professional standard.

It is important to distinguish between the mistakes we all make at times because we are only human, and poor work resulting from poor (or out of date) knowledge or through a lack of care or professionalism. Where there is poor work in the market, it is in everyone’s interest to see it addressed.

The document gives us some clues about what may be coming. The government is considering “the case for moving further towards statutory regulation”. Although there were differences of view on the form that any action should take, there was broad agreement that there is a case for intervention in a market where there are currently no minimum requirements to satisfy in order to set up as a tax adviser and no oversight for those who do not belong to professional bodies.

Coming up next

There is a commitment to making any interventions proportionate and reasonable (and there is no purpose to be served by interventions that fail to correctly identify and effectively rectify real problems).

Three criteria for interventions are identified: clarity on any standards, so that everyone knows what is expected; transparency, so that taxpayers know what to look for when engaging an adviser; and enforcement to provide effective sanctions for breaches of standards.     

One fundamental thing that has to be agreed is the definition of tax advice for this exercise.

There is a definition in the Money Laundering Regulations and another in the Dishonest Agent legislation. The former defines a tax adviser as “a firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party”.

Around half of respondents to the consultation preferred this to the Dishonest Agent legislation definition, which refers only to “an individual” and not to firms.

There was a consensus among respondents that exclusions would be necessary for accountants and bookkeepers carrying out compliance activities, the supply of generic tax information and for tax advice not given by way of business.

Further consultation is expected in the early part of this year.

Action taken

Some actions have already been taken of course. Both the revised Professional Conduct in Relation to Taxation (PCRT) standard effective from March 2017, which applies to members of AAT, ACCA, ATT, CIOT, ICAS, ICAEW and STEP and HMRC’s Standard for Agents (which includes some of the elements of PCRT) set out clear principles for tax advisers.

The CCAB also published revised guidance in July 2021 on the high-level principles to be taken into account when considering if a member may have breached their Code of Ethics. HMRC has taken action through a series of measures (beginning with DOTAS in 2004) to address aggressive tax schemes.

Left and right field

In June 2021 CFE Tax Advisers Europe released a discussion paper “Professional Judgement in Tax Planning – an Ethics Quality Bar for All Tax Advisers”. The central ethical question that inspired the paper was “if it is legal, is it acceptable?”. The paper arrived at five key questions:

  • Is there a genuine economic purpose for the tax planning apart from achieving a tax benefit, either now or in the future?
  • Are the arrangements artificial or manipulated in a form-over-substance approach to achieve a tax benefit?
  • Is the tax planning based on interpretations of applicable international and national tax law which are likely to be considered credible by the courts and informed stakeholders?
  • Would the arrangement be implemented if the relevant tax authority had a full overview of every aspect of the planning?
  • Are there other potential reasons why the tax planning could be perceived by policymakers and the public as abusive?

The International Ethics Board for Accountants (IESBA) also recently approved a project to consider revisions to the existing ethical Code for professional accountants in business and public practice when providing tax planning and related services. This code forms the underpinning to PCRT, so to the extent that it does not already address them, any changes to the ethical code could result in further changes to PCRT.

While these developments focus on advice rather than basic standards of competence, they are part of the same big picture and will be very much on the government’s radar.  

Evidence based

Some will say that we have been talking about these issues for many years. Others will say that significant progress has already been made on defining and raising standards (through PCRT and the HMRC Agent Standard) as well as on shrinking the market for abusive, artificial schemes. Both views are true.

The critical thing will be to ensure that the problems which remain to be addressed are correctly identified and clearly understood, so that any action taken to deal with them is evidence-based, effective and proportionate.

Otherwise, we risk adding yet more compliance costs and burdens on those who are already compliant, without having any real impact on the problem.

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Replies (14)

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By Hugo Fair
08th Feb 2022 00:14

"One fundamental thing that has to be agreed is the definition of tax advice for this exercise" ... yeah, quite, and it's not remotely achievable whilst remaining practicable.

Take something as 'simple' as Payroll services. Is it tax advice if you are:
* Explaining the pros and cons of NPA vs RAS before employee chooses scheme?
* Explaining the potential impact of Lifetime Allowance, Annual Allowance and Tapering?
* Showing how changing the timing of a bonus & a pension contrib can dramatically change tax due?

Most people doing the above would say No, No and No ... but I've met IFAs who get confused over the first point, can barely help with the second point, and are calling for a lifeguard by the third point.
Yet all in a day's work for a competent payroller - who wouldn't recognise the label of 'tax adviser' but is demonstrably affecting the decisions of a taxpayer (who may pay considerably less tax as a result).

Of course there are far more convoluted & complex scenarios out there across the breadth of various accounting services, but if there's no current agreement even on something as basic as payroll and pensions (in which almost everyone has some sort of stake) ...

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By Justin Bryant
08th Feb 2022 09:43

How about a project for raising standards in HMRC and Government & Civil Service generally (I think that's what DC wanted to do)?

That would deliver many £bns of savings & efficiencies I expect (it'd be hard to know where to start).

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Replying to Justin Bryant:
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By Ralph-gab
08th Feb 2022 10:28

Exactly my thoughts on this. If HMRC had more competent advisors the "dodgy" advisors might not have a market.

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By johnjenkins
08th Feb 2022 10:25

I'm pretty sure the underlying theme is to stop "tax advisors" coming up with schemes (artificial or otherwise) which drastically reduce tax payers liability. The problem with all these themes is that they catch the innocent whilst doing nothing to stop the rot.
It would appear that the more HMRC try to increase the tax take, the more problems they have and can't sort out.
IR35 is a classic. Employment status is another. I could go on but we all know where HMRC have gone and continually will go wrong.
Rishi didn't have to ask the treasury for ideas, all he has to do is look at Aweb.

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By ireallyshouldknowthisbut
08th Feb 2022 10:50

This seems to be more about outsourcing HMRC competence to the tax profession (and so reducing the number of enquiries) than any genuine attempt to 'root out the bad agents'.

I would have thought the best approach would be:
1. Recruit enough tax inspectors such that all businesses get inspections within (say) 3-5 years of starting up, and then periodically on a risk basis say every 10-15 years or so. Recruit from practice, not fresh outs. Pay good money, and give them time to do a proper job.
2. Use that data to stratify good/bad agents
3. For poor agents, go in hard and investigate a large number of their clients. it is likely if there will be common errors so it ought to be relatively easy to find things done systematically wrong.

Through this process tax agents would get rapid feedback about their competence (lets face it the ICAEW who I am a member of does not check my technical competence, only if I have filled in my money laundering risk assessment matrix) which would raise standards [assuming competent officers] and reduce dodgy practices.

Poor agents would in effect be put out of business if they have large numbers of clients under enquiry.

The trouble with all of this is is relies on a competent tax body with knowledgeable staff and a lot of hard grindy work. But in 5 years you would probably have got agents to up their game, or get out of the business and greatly increase the tax take.

Those conversations with clients "well its borderline, but HMRC have a less than 1 in 1000 chance of looking at your file, and even if they do are unlikely to notice as they aint too bright and we can probably run rings around them" will morph into "well you are due an check in the next 2 years, and I am not having that risk on my client profile or they will be going through my whole list"

Tax agents need checking, and need some fear. It really aint that hard but will cost time and money to do, but would result in significant gains to the treasury over time.

Qualifications don't mean a lot, and rules are not obeyed by the dodgy accountants anyhow, so tweaking accountants obligations wont change a thing.

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Replying to ireallyshouldknowthisbut:
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By johnjenkins
08th Feb 2022 11:16

The agents that aren't savvy will perhaps go out of business (and perhaps should). However the ones that HMRC are after will always find a way around rules. Even now some will not put returns through under their business name but will use the clients' account to file or commercial software in clients name.
What HMRC need to do is to go back to the old days but use up to date technology instead of replacing staff with technology.

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Replying to ireallyshouldknowthisbut:
By tonyaustin
08th Feb 2022 12:47

I seem to recall that was how Inland Revenue did things 20, 30, 40, 50 years ago, before merging with Customs and self-assessment!

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Lone Wolf
By Lone_Wolf
08th Feb 2022 11:22

"The government made clear its intention to remain focused on agent standards in 2022."

I wonder if they will apply similar scrutiny to their own standards?

You could argue that taking lessons in ethical and professional behaviour from the current government is a completely laughable prospect.

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By David Gordon FCCA
08th Feb 2022 11:56

I personally keep saying:
There is no ethics or question of morality in Tax Avoidance.
1)
Tax Avoidance is arranging taxpayer's affairs in accordance with accepted interpretation of tax regulation. This is fundamentally legal within the law.
The taxpayer is entitled in law to so arrange his affairs as to pay the minimum amount of tax permissible within the law.
Anything else is Tax Evasion- which is illegal.
Any action or refraining from action which starts with the words or inference:
"This is what the law says but I think for Moral or Ethical reasons this is what you ought or ought not to do, is a slippery slope to subjective taxation, enforced by Persons in Substantial Control of the tax system, because they can. i:e; HMRC
2)
Just as important, it allows and facilitates legislators avoiding proper scrutiny of legislation.
This give rise to the cartloads of horse feathers we currently have to deal with, which in turn creates a vast and profitable , but legal, tax avoidance industry.
3)
The majority of us are well aware that HMRC expertly uses the principle set out in 1) above to force
tax and penalties out of taxpayers, which if "Ethical" and or "Moral"principles were taken into account, such demands would be heaved out the window.
Time does not permit me to give you examples from my one man and an assistant practice
If you ask me, I will.

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By North East Accountant
08th Feb 2022 13:47

I'd bet good money that what Paul Alpin says in his last sentence will happen;

"we risk adding yet more compliance costs and burdens on those who are already compliant, without having any real impact on the problem.

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By Christopher J Thacker
08th Feb 2022 18:02

Perhaps HMRC are looking down the wrong end of the telescope? Might it be better if they improved their own [declining] standards, and by the way, I understand that in France any individual wishing to start a business or enter self employment, must first pass an examination in tax and and business law, set by the local chamber of commerce. That is why there are fewer self employed people in France.
Also of course, the French requirements for individuals to carry an ID Card means that fewer can operate under the wire.

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By Ash Business Consultants
08th Feb 2022 18:12

I wonder where the risk and bad agents really are, and who comes up with all the dodgy tax avoidance schemes, the little guy doing a few tax returns for the local, plumber, hair dresser, taxi driver and maybe the odd small limited company, or the big guys, from the chartered institutions/big accountancy firms, that operate in a world awash with billions, huge fees to protect and demanding wealthy clients/corporations?

Hmmm it's a difficult one, did I see an article in this very publication only two days ago about KPMG being taken to court for £1.3billion over the collapse of Carillion? hmm have I ever seen an article like this before?

Yep it's that little sole trader he's the risk, let's get him, caused Enron, Berni Madoff, all those CDS that collapsed the banking industry in 2007, got a client list with numbered bank accounts in the Caymans..... etc

What a joke.

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By AndrewV12
14th Feb 2022 11:57

Extract above
'was a focus on standards in the tax advice market.'

I didn't know there were any standards in the tax advice market.

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By David Gordon FCCA
15th Feb 2022 13:43

AndrewV12

But this is the exact point that current professionals are missing!
There are no "Standards" in tax advice.
The question is, "Is the advice in accordance with a judicial interpretation of the law?"
If it is, it is good advice within the contract between client and professional.
That is it
or in terms of my practice, are you prepared in front of Bob the Builder to say,
"If we do this, all within the law, it will save you £100, but po-face says really this not fair to other taxpayers so we won't take this lawful action"
I will lend you a cricket-box for your protection, just in case!
Is there any lawful difference between Bob the self-employed builder, Horace the HMRC manager working from home, and or Twinkytoes the billionaire popstar?
Except for the zeros added to the £1 sign?

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