HMRC ‘dishonest agent’ letter wreaks havoc

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Members of the community have thrashed out at the “accusatory” tone of a letter sent by HMRC headed “Dealing with dishonest tax agents”.

According to one disgruntled agent, AccountingWEB member perpetual, the letter included seven pages of guidance on how to complete a tax return, followed by a two page memorandum of agreement (MOA), which had to be signed.

Perpetual admitted filing a large portion of refund returns, but said his firm’s service was new with roughly 150 clients and CIS refunds totalling around £300,000, of which £3,000 was returned to HMRC as consequences of review/enquiries.

The main point of objection was seemingly being forced to sign the MOA through coercion.

“If we don’t sign we are being threatened with blanket investigations or withholding of all refunds relating to our clients,” he said. “The MOA also puts forward that we agree to changes in our practice, which they haven’t seen. That we agree to a review of our procedures and meetings to discuss our work.”

Adamant that his firm completed accurate returns, to the best of his knowledge, Perpetual said it was ultimately the clients’ responsibility and put the predicament to the community.

Other accountants were keen to advise how best to deal with this situation, with most recommending “don’t sign anything without taking advice”.

Nichola Ross Martin advised discussing the issue with a professional body and added she could not imagine that they would have written to him without “considerable due diligence”. Others suggested getting a solicitor involved and “kicking it back at them”.

Perpetual came back saying his next stop would be to write “a stern letter” to HMRC putting the firm’s case as to why they won’t sign, but were willing to cooperate.

Flash Gordon, Ding Dong and others advised against a heavy-handed, threatening approach. ShirleyM also took a more restrained line: “If you go in with the heavy guns blazing it may indicate that you want to head them off before they get into the pass (looking at your records and procedures).”

It was down to tax editor Rebecca Benneyworth to point out that the dishonest agent process had not started yet and that the process for dealing with a dishonest agent was quite different from that outlined in the original post.

“It cannot be an accusation as this can only be sent in a determination, against which there are rights of appeal,” she said. “Maybe OP has understandably got het up about a challenging letter and read a bit more into it than it says. HMRC has also NOT commenced ‘agent view’ nor is this currently what agent view will do as currently proposed.”

Commenting on why Perpetual’s firm had come under the microscope, Benneyworth said the Revenue had separately been looking at high volume repayment agents as a risk category.

“Be assured that resources are only expended where risk is identified. You can easily demonstrate that the risk does not apply to your clients so that should be your objective,” she said.

Perpetual then said they wouldn’t be claiming for defamation and opted for a more measured approach rather than “going ballistic” at them.

As reported by AccountingWEB in recent weeks, action against dishonest agents has been envisioned as a rare avenue and only a handful of agents are likely to be caught.

Retired barrister John Flood, who wrote about the “trouble ahead” for dishonest tax agents, agreed that it will not be used frequently, but added: “I think they are worried about the smaller firms who can be less than scrupulous in the conduct of their affairs.

“The standard of proof is I believe to the higher criminal standard. This is because of a variety of Human Rights case which require this standard when the sanction is significant notwithstanding that the country concerned operates a scheme under its civil law.”

He added: “If they do suspect something it is now their practice to try to resolve things without the need for a tribunal case and to prevent repetition of misconduct and sometimes a blanket approach is adopted for all in a particular area of concern.”

The original letter from HMRC was finally produced on the thread for the community to read, which led Flash Gordon to comment: “It's actually fairly warm and fluffy for HMRC” with others such as ShirleyM and Ding Dong agreeing that the letter was reasonable.

An HMRC spokesperson told AccountingWEB that the letter was part of day-to-day compliance work to address the risks that many repayment agents have been found to pose to the Exchequer.

“This work has been going on for a number of years but it appears that the author is one of approximately 120 repayment agents that have recently been written to about HMRC’s concerns in this area. The work is neither related to HMRC’s Tax Agent Strategy (which is currently only piloting client filing and payment issues with a very small number of tax agents), nor does it relate to the new Dishonest Tax Agent legislation that only comes into effect for offences committed after 1 April.”

“In essence, it invites the agent to consider the returns submitted against the risks HMRC believe to be present. HMRC looks forward to working in a collaborative manner with the author or any other agent who may have received a similar letter to openly discuss the issues identified to bring matters to a conclusion based on the facts presented”, the department said.

Have you received a similar letter from HMRC on this topic?

About Robert Lovell

Business and finance journalist


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    14th Mar 2013 17:45

    What is this gibberish

    "Perpetual admitted filing a large portion of refund returns, but said his firm’s service was new with just 150 clients and that they were only talking £3,000 from CIS refunds totalling more than £300,000."

    Please read the posts please and make this make sense. 150 clients, roughly yes. Refunds in a year, not sure but I did say £300k as an initial guess. £3000 referred to amount returned to HMRC as consequences of review/enquiries etc, those largely being on returns we didn't complete.

    Also a copy of the letter wouldnt go amiss, personally warm and fluffy isnt how i would describe it as the word dishonest appears 5 times.

    As any followers of the thread will know I said I would keep stum until we had analysed our clients, that will be finished tomorrow and I will probably give an outline update of our findings before our reply to HMRC

    Thanks (0)
    By elansea
    14th Mar 2013 19:43

    Storm in a teacup

    Methinks he protests too much!

    Thanks (4)
    14th Mar 2013 22:31


    The attitude of some to the letter received by "Perpetual" reminds me of the following -


    First they came for the Communists
    And I did not speak out
    Because I was not a Communist
    Then they came for the Socialists
    And I did not speak out
    Because I was not a Socialist
    Then they came for the trade unionists
    And I did not speak out
    Because I was not a trade unionist
    Then they came for the Jews
    And I did not speak out
    Because I was not a Jew
    Then they came for me
    And there was no one left
    To speak out for me 

    Thanks (1)
    15th Mar 2013 08:52

    the key to this for me

    Either the word "dishonest" is in this letter or it is not.  If it is it should be binned forthwith until HMRC can write civil letters to Perpetual.  If it is not, it is worth dignifying with a reply.

    Thanks (1)
    15th Mar 2013 09:23

    The key ...

    There was much scaremongering, and there were many exaggerated claims that the letter was accusatory. There is a link to the letter in the Any Answers thread. 

    I've read the letter and didn't spot the word 'dishonest' once.

    Any client who has decent records can justify their expenses (no matter how high) and should be fine ..... and their accountant, too :)

    Thanks (2)
    By BKD
    15th Mar 2013 10:11

    . (posted twice)

    Thanks (0)
    By BKD
    15th Mar 2013 10:10

    Hmmm, Shirley

    You need to read more carefully :)

    But your points are correct. There was far too much scaremongering and exaggeration, not helped by the fact that the OP told porkies regarding the opening lines of the letter. I'm pretty sure that, whilst many of the points made would remain valid, the thread would not have blown up in the way that it did had the opening comment been more accurate.

    Of course, there were other reasons why the debate became a little hot ;) ;)

    Thanks (2)
    15th Mar 2013 10:18

    OK @BKD

    I'll read it again ... more slowly :)

    Overall though, I didn't find the letter to be threatening. It did ask some hard questions, but as I said in the other thread, how else are HMRC to distinguish between honest & dishonest agents? I am sure the dishonest agents won't admit they are doing wrong, especially to HMRC.

    Thanks (0)
    18th Mar 2013 11:35



    Where is it all going? Dishonesty! Morality! In the final analysis it's all tax on someone's income, and taxation can be dishonest and is mostly immoral.


    Scrap most of the "social engineering" taxes and the CIS controlling taxes and such like. 

    Then re-train HMRC staff in reality. ie. Whose money is it in the first place and then train them to help you keep as much as you can. 

    Anyway - never in my lifetime. Certainly not before the electricity has gone off for good and computers are a thing of the past.

    Thanks (0)
    By mrme89
    18th Mar 2013 11:53

    The word dishonest is mentioned 5 times, 4 times on page 4 and once on page 8.


    However, overall I don’t deem the letter to be threatening. The second paragraph - “This letter does not constitute any type of formal enquiry or compliance check on you or your clients. We are only looking to work with you, with your co-operation, to explore new ways of tackling risks that may feature in the returns you file”.

    It would appear that HMRC are trying to work with the honest agents and weed out the dishonest ones, and are giving all agents the heads-up on the risk area they have identified.


    Thanks (1)
    By deg2yq
    18th Mar 2013 12:26

    I must say i welcome this approach

    This should help put an end to cowboy refund companies

    Thanks (3)
    18th Mar 2013 12:29

    Risk does not equal dishonest

    I had some experience of this over 25 years ago when I was on the other side of the fence.  There are some firms with large numbers of CIS clients.  Some were good; some were shocking.  The shocking ones were bottom feeders; it was not a case of qualifications it was a lack of comprehension of bookkeeping.  In a couple of instances it was pretty apparent the expenses in some income statements had been standardised and only the income changed.  However, the agents were never accused of dishonesty but it was mde plain to them their work bordered incompetence.

    From experience on both sides there is a fundamental problem with CIS workers; many did not keep good records, some kept no records at all.  That did not mean they did not have expenses nor did it mean they advised the agent of all income.  That does not make the agent dishonest nor does it make him a risk; the clients are the risk.  There is some advantage to these agents for HMRC it is at least a focal point for identifying the risk.

    There is no indication Perpetual is incompetent and it seems HMRC does not allege that.  However, the references to dishonesty should be challenged so that the real reasons for the letter can be established.  Of course the odds of being able to speak face to face with the letter's author are remote.  The outcome is likely to be unrewarding but might be worth the attempt as it could lead to a better understanding by both sides.

    Whilst my firm may have taken a cowardly approach, we do not take on CIS work; it's invariably messy, low margin and has too many HMRC enquiries.  We do chase work but I feel it rakes three years before a client becomes profitable - year one's profit is swallowed by money laundering and engagement costs, year two's by the cost of getting the raw data into the system in the first year and year three is where you reach break even.  Many CIS clients are after the cheap deal and are not interested in quality control checks on their returns or bespoke service.  We are not Fortnum & Mason but we are not Poundland either but that is nothing to do with dishonesty.



    Thanks (0)
    18th Mar 2013 12:30

    Dishonest is hard to discern

    Its not always possible to find out about a client being dishonest - we had one recently who we discovered (by accident) was taking old safes and cabinets, supposedly to get rid of, reconditioning them and selling them on for cash which has not gone through the books - we approached the owner saying these sales needed recording and two weeks later he changed accountants and is refusing to pay our accrued fees of almost 3,000 using fanciful arguments. If we had not overheard a conversation we would have been filing accounts that considerably understated his tax liability.

    This article just goes to show that accountants need to get clients to sign some sort of honesty/disclosure agreement so the accountant does not get blamed by the revenue for a dishonest client.

    Thanks (0)
    18th Mar 2013 12:35

    You have a choice, be slack or earn penalties for your client.

    I have seen issues with a few small clients, particualry CIS. I could prepare a set of accounts which were ambiguous OR be late with the return, even be very late or not submit the return.

    I do not think that daily penalties should exist for CIS returns, most of them should be employed anyway.

    If perpetual signs the MOA what about contarctors who should be employed, where does he stand? A subby who is given a van for example and no hire agreement and who works 100 per cent for the contractor?

    Thanks (0)
    By pembo
    18th Mar 2013 13:06

    would have been nice

    had HMRC requested a meeting with the firms they are concerned about to thrash this out but suppose those days are long gone. Sounds like continuing fall out from the Christos Charalambous  case in 2010 and given the state of the nations finances HMRC have been given a free hand to behave how they want.

    Thanks (0)
    18th Mar 2013 13:11

    Revenue relationship

    Many years ago I purchased a small practice from an unqualified 'accountant' (ex-HMRC), who had an 80%+ investigation rate.

    I phoned one of the senior inspectors and arranged a meeting to explain that I had taken over the practice, and that there would now be a different approach. We sat for sometime and clarified the Revenues worries, and how we would resolve them together in the future.

    I think it was most probably the best investment I made in the practice, as the investigation rate drop to single figure within a year, and continued to have an excellent working relationship until I sold my practice.

    Maybe the 'personal touch' is missing.


    Thanks (0)
    18th Mar 2013 13:32

    Poor writing skills and attitude

    Isn't this really a case of a very poorly worded letter (as usual) from HMRC.?    Add to that the culture within HMRC that "they" are always right and everyone is out to defraud them, and such letters are the inevitable result.

    Thanks (1)
    18th Mar 2013 14:30

    Are we just talking subbies?

    Having waded through these posts and read the original letter I realise I should have referred to the source in the first place!

    The issue here is repayment claims for self-employed individuals - specifically subcontractors on CIS.

    A large proportion of my private tax clients get repayments, because PAYE codes are usually wrong or they have the majority of their income taxed at source. This is not what this letter is about.

    I infer from the HMRC letter that they believe there is a significant number of agents who prepare self employed pages using estimated expenses, and/or where they make no allowance for private use (eg of motor, telephone, etc). I agree it's unacceptable for HMRC to accuse them of being dishonest - except perhaps towards their clients in terms of the poor service they provide - but it's certainly unprofessional and falls well below the standards I would hope the majority of clients expect.

    We make a big thing of record-keeping and will only base expenses on receipts, or a cashbook or similar where the client records their own expenditure. Why would I base expenses just on estimates? Two most likely reasons: 1. lack of client training - you don't just accept what they give you, you tell them what records they need to keep. New clients should get a copy of the HMRC self assessment record keeping booklet to get the point over. 2.Fee pressure - i.e. these firms grossly undercharge for tax returns and don't therefore have the time to do them properly. If that's the case, then frankly I'm with HMRC all the way!

    Thanks (2)
    18th Mar 2013 14:48

    New form of anger
    What is thrashing out?

    Thanks (0)
    18th Mar 2013 14:50

    Babyish and immature correspondence on behalf of the HMRC

    I think this shows their state of mind more than anything; they have made blanket allegations of dishonesty. To which I would have said "If you have anything then I will expect a warranted police officer on my door step and for me to be arrested". I would then have said to them that if they had anything less than proof which would lead to me arrest that they should then shut the hell up and run along back to the kindergarten from whence they emanated.

    Its about time these people who issue these letters stop being babies, wasting time and start playing the adult game. Sending silly letters is just so much hot air, to be quite frank.


    Thanks (0)
    18th Mar 2013 14:53

    Re. Perpetual

    Thanks for pointing out the alternations to the background information - the copy in the article has been amended as per your suggestions.

    Also, a copy of the original letter is externally held on file - see this comment to read it in full.



    Thanks (0)
    18th Mar 2013 19:33

    Realistically what this seems to be is a 'heads up' from HMRC to about 120 agents who are 'on their radar' because they deal with a large number of income tax repayment cases.

    What the letter does is give advance warning to these agents that they are on the list for a visit and a review of how they prepare returns from 2012/13 onwards. The agents have an opportunity to minimise the hassle they will get from HMRC by adopting a system of advising their clients of the need to keep records and checking at least a sample of expenses records where the expenses are between 10% and 20% of gross income, and undertaking a rather more thorough examination of clients' records where expenses exceed 20% of gross income.  Where those checks by the agent show that the client's records are not adequate to support the expenses claimed then the expenses claimed should be reduced in line with the client's records.

    If the agent is willing to adopt that system he can sign the Memorandum of Understanding and HMRC will take some comfort from that (but will still visit and will look to see the MoU is being adhered to).

    The alternative is to expect a higher than average number of tax enquiries and HMRC may place a temporary stop on repayments on self assessment returns submitted by the agent.

    Of course if an agent is dishonest then, under the new legislation implemented from April 2013 the agent can be subject to a civil penalty of up to £50,000.

    I can see nothing in the letter or the MoU which I would describe as an "allegation of dishonesty" against the agent. Nor is there any suggestion of a "warranted police officer" turning up on the agent's doorstep at 6:00 a.m.

    It is a fact that a very small minority of tax agents behave in the most appalling fashion.

    A few years ago HMRC were in the habit of handing out multi-million pound VAT refunds to anyone who submitted some figures on a VAT return. Thank goodness they are no longer acting like that!


    Thanks (2)
    By Flash Gordon
    18th Mar 2013 19:59

    Warm and fluffy

    I believe I said that it was warm and fluffy 'for HMRC', not in general.

    But I do love seeing my name in print :)

    Thanks (1)
    19th Mar 2013 13:00


    Realise the HMRC culture. They do not trust you or your clients - and they are always on the "white" side.

    As my recently retired HMRC Inspector nephew said "all Directors are leeches".

    Having been a Group MD who always paid his taxes, I was peeved to find that this was the commonly held belief in "HMRC" and "DTI" circles.

    So - to suggest that tax Agents are "dishonest" is nothing other than their training and routines encourages them to believe.

    Hence the well publicised attitude that not paying more tax than is legally permitted is "immoral".

    I intend to continue such immorality.


    Thanks (1)
    22nd Mar 2013 14:01

    Retired Nephew?

    "As my recently retired HMRC Inspector nephew said ......"

    No, surely you can't be old enough to have a retired nephew.  Unless..... no, don't get me started!

    Thanks (0)
    24th Mar 2013 22:11

    Ex business partner's dealings with tax

    I sold out my share of an accountsancy practice 6 years ago.My ex business partner, not an accountant,was party to VAT Returns being amended and accounts/tax returns not showing a true picture.I finished off one VAT return and put in Output VAT on an overspent cash difference.He took this client's records on personally and reduced the VAT payment down to an amount the client could afford. I was taken off the job and he allowed another employee to finish off further VAT returns, accounts and Tax Returns.He also had dealings with another two clients who wre perporting to make a loss and claim VAT refunds.Both clients had been in trouble with the authorites before and he allowed that to continue.My ex business partner and his wife were clearing nearly £40k per year, after tax and NI, and he had claimed £4,500 of tax credits by not informing the authorities of his true income.When both departments shared their knowledge and asked for the tax credits to be refunded by instalments and he then asked me to deal with the matter to get him and his wife to avoid the repayment.When I refused he took me to the cleaners and avoided paying me the full amount for my shares and kept all sums I had invested in the business including unpaid salary.Should I wait to inform the authorities of his illegal behaviour or should I pay £1,000 to have the company reinstated at companies house and go ahead with suing him and the old and his new limited company to get back some of what is owed to me.

    Thanks (0)
    to spcm
    24th Mar 2013 22:40

    You cannot be serious, asking such questions. Have some moral fibre and put in reports about him to the authorities. While you are at it, report him to the police for fraud and false accounting.

    If you have to ask such questions in the first place you really should never have been an accountant.


    Thanks (3)
    By Baison
    11th Apr 2013 21:06

    I have signed the MoU and since April 6th have lost 10 clients having explained the MoU and asked for MOT certs to 'prove' the claim for mileage written on their mileage log. 10 clients in 5 days...if this continues I may have to shut up shop and look for a 9 to 5.. 

    The guidance also tells us to question household income with those with low profit.  One guy told me to mind my own bloody business and that I have no right to ask him for that information. And actually, Im not sure I do have the right.  I dont have the powers of a HMRC inspector.

    Over the years I have got so sick of hearing that some guy down the road had £4,000 so why is mine only £1,800 (my reply always being that they are obviously over claiming on their expenses)...This would suggest to me that HMRC are not targeting the real dishonest ones because they just keep doing it year on year and it becomes 'normal' to their tax file.

    Of 180 CIS sub-contractors on my client list last year, 6 were subject to compliance checks. 3 of which either submitted their own returns or had someone else to do them for them (although they still remain on my on-line list).  I notified HMRC that I would be unable to assist as I had had no involvement in preparing the returns.  

    Another was checked as even though they were under CIS, the main contractor had filed them under PAYE causing discrepencies in the figures filed. This resulted in my client having to pay £200 back as the HMRC inspector advised that my client would have to thrash it out with the main contractor to get it put right!!!!  

    The other 2 were due to silly errors like failing to tell me they had received £230 in state benefits and another not providing information of an employment which lasted 5 weeks.

    Makes me wonder why they have picked me for the MoU??? How many of these have been issued accross the country I wonder??

    Thanks (0)
    25th Apr 2013 13:23

    our reply, their reply


    Well we wrote off a 5 page letter essentially refuting our perceived risk status as inferred by receiving the letter. This went off 21 March ish via email as per instructions.

    No reply or confirmation of receipt, chased on 15 April.

    24 April, phone call received. Thanking us for our reply, they have taken this into consideration and moved us to the lower end of their interest but they still want to have a snoop but probably not for 6-9 months and they will be in touch then.

    But rest of the conversation was of more interest. This strikes me as a war of attrition, knock a £1 off each return to gain £1.5million across all CIS subcontractors. Target for project is £57million, that is £40 per return ish based on research I found. 

    Not really hard to find an error margin of £40 in any return from the top of the tree to the very bottom. 

    I was told HMRC have been complicit possibly for the convenience of everyone of being pragmatic in terms of ignoring the little things (use of home for eg) as expense/reward factor is neligble, ie why argue over a £200 expense item. Well no more! HMRC are now looking to apply the strict letter of law across the board even if the amounts involved are tiny. I guess a case of look after the pennies, but how much effort and expense will go into chasing those pennies.

    I guess the £57million could be achieved in a lot less effort by chasing down even just 1 mutilnational taking the mickey, but instead review 1.5million tax returns for £40 each. Err common sense rules again.

    Please note I have double posted this onto the main news thread for other who may not have been aware of this Any Answers thread.

    Thanks (0)
    25th Apr 2013 15:39


    I think you will find that the answer is one that I am always giving on these boards and that is that HMRC are full of it

    If they are telling you that they intend to review 1.5million cases for £40.00 each, that is also a blag. These boys could not review their way out of a paper bag. They have not got the resources or intelligence to do it, relying instead on propaganda.

    What they tell you they are going to do and what they are actually going to do are two completely different things.


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