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Tax agents – the good, the bad and the occasional mistake by Rebecca Benneyworth

19th Jun 2009
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This week, Rebecca Benneyworth looks again at the “Working with Tax Agents” issues, considering some of the examples provided in HMRC’s consultation of the areas where HMRC would like new powers, and seeks to move the discussion on.

Last week’s study of the suggestions in the consultation about exactly what powers HMRC were considering drew considerable adverse comment from members, but much of this was directed at HMRC. While there may be issues with the front line service provision, these must be regarded as a separate issue to raise with HMRC, and cannot be allowed to interfere with active debate on the subject of powers in relation to agents.

The simple fact is that this consultation is not being carried on for the pleasure of it, nor to purely explore views on the subject. It is intended to (and will) lead to specific powers which will no doubt appear in the Finance Bill 2010. These powers will happen whether the profession engages or not, so it is essential that those in tax practice get involved in constructive debate about what might be acceptable.

I suspect that much of the unexpressed (so far) concern is that any powers could end up being used widely or inappropriately and that this would erode confidence in HMRC and ultimately further damage the relationship between tax agents and the tax authority. However, this misses the point. The first design objective (see last week’s article) is to reassure competent agents, both by assuring them that new powers are not aimed at them, and that the new powers will remove the absolutely incompetent and essentially fraudulent agent from practice. This must be of benefit to us, as it improves the profile of the entire profession, and with self interest in mind, both relieves us from the trouble of clearing up after these people and releases their clients for the better agents to provide a good service to.

We shall have to take on trust the fact that HMRC are not intending to use the powers against agents when it is not appropriate to do so – but we can also recognise that it is not in the authority’s interest to do so – we act for around 80% of businesses, and a significant proportion of private tax clients, so damaging the relationship with good agents would be madness for HMRC. Let their own self interest drive the effective application of adequate safeguards, which we must ensure are placed in the legislation.

So let’s roll up our sleeves and start thinking about what might work. There are essentially three areas where HMRC has expressed an interest in gaining power to act against agents. This week, I shall consider mistakes by agents.

Mistake

The consultation document gave me some worries on this subject as the suggestions seemed draconian, but on deeper consideration this is probably the most important area, as any agent could (and probably does) make an occasional mistake. The current penalty legislation in Finance Act 2007 accepts that “we all make mistakes” and offers no penalty on a taxpayer for a genuine mistake, when reasonable care has been taken. The proposals looked at the possibility of introducing a penalty for mistakes by agents (which could be suspended) and a process which would enable HMRC to check whether the same mistake had been made on other cases. Some parts of the proposals seemed unduly onerous from the agent perspective, including the idea that the agent would appoint an independent reviewer to ensure that any similar errors had been identified and corrected.

Should a professional agent be permitted to make the odd mistake, or are we – uniquely - expected to be perfect? I think that a system which does not allow us to make the occasional error would be of real concern. So how do we phrase a power to ensure that if a mistake is more than a one-off it is addressed without delay? For example, if an agent was unaware that AIA was not available on cars, he might have claimed the allowance for all of his clients. If HMRC discovered this error on one client, it is natural that the agent would feel defensive and be unwilling to go back to other clients and tell them that he had made a mistake, and that they had to pay more tax as a result. How would HMRC then address this? Or, it is possible that the agent knew that AIA was not available on cars, but that he had a “senior moment” when preparing the capital allowances computation and forgot (just once) to exclude the expenditure from the claim. Same mistake, but very different outcomes for HMRC in seeking to ensure that returns are correct.

So the risk is that one mistake might be many mistakes of the same nature. And could HMRC rely on the agent voluntarily arranging to correct every instance of this? I suspect that some agents would be reluctant, and would consider finding these mistakes HMRC’s job. But if that is the outcome, then a significant number of clients from that agent should be selected for compliance check. Is that what we would prefer? It exposes all of us to this outcome, even where a one-off mistake has genuinely been made.

We have to accept that with a risk driven operation, then logically the discovery of an error made by an agent has to lead to consideration that this represents a risk that (a) the agent has made the same mistake in relation to other clients, and (b) the agent is likely to have made many other mistakes of a different nature, as this error is an indication of poor technical skills.

Your comments needed

So the first area for members to comment on is what happens when the agent does make a mistake? How should HMRC distinguish between a single instance of an error and one which is systemic? Can we run a “three strikes and you’re negligent” operation, which takes us beyond the consideration of a simple error to overall incompetent? Should membership of a professional body lead to an assumption that the error is a one-off unless proved otherwise by experience? Can we rely on agents to correct similar mistakes when they find that they have been wrong about something?

Please give us your views, as we are intending to collate our collective thoughts into a response to HMRC on this document.

Last week's features included an article on the rationale behind the need for powers, including "Working with tax agents - the issues" a summary of the design principles behind the powers, and "Working with tax agents - the specific proposals", a summary of the sorts of powers that HMRC are considering introducing.

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Replies (10)

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By tom2another
16th Jun 2009 17:15

don't have any powers to deal with agents
I'd have thought that picking all the clients of a duff agent for investigation is pretty much going to wipe any agent out one way or another. If that ain't power what is????

Tom

ps loved the money laundering link so much I trawled through the manual looking for worse pages, and boy, there are loads. Sad or what!

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By pawncob
16th Jun 2009 14:45

An example of HMRC aiding it's "customers"
Following on from Viv's comment I thought the MLR might include disciplinary powers, but when I looked all I got was this:
http://www.hmrc.gov.uk/manuals/mlr1ppmanual/mlr1pp11160.htm

Very helpful.
What's the point in posting this?

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
16th Jun 2009 13:46

Thanks Penny
We shall be hosting a page with the live webcast on at https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=199133&d=1025&h=1019&f=1026&dateformat=%25o%20%25B%20%25Y
and you can post questions into it both now and during the webcast.

I'm sure someone out there has something constructive to add to this debate - unless we can get involved rather than slinging rocks we are going to get what we deserve.

Viv - you say HMRC can get rid of bad agents now, they don't need new powers. Have I missed something important because I thought that was exactly the point of the consultation - that in reality they don't have any powers to deal with agents.....Can you tell me more?

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By AnonymousUser
16th Jun 2009 09:42

working with agents
Rebecca.........you are making the mistake often made.......you are intellectualising the argument. Reality will be different. Once these people get big sticks they tend to use them indiscriminately. this re-assurance will boil down to the big firms being left alone whilst the smaller ones will take the brunt.......and god help the one man/woman bands. Sure rogue agents need to be driven out of the system, but that could be done NOW without any further legislation. I'm sorry but the touch of this Government is always about big sticks and legislation, they treat no one as responsible human beings and have acted this way, across all fronts for the past ten years. HMRC adopt their tactics....say one thing , do another, so whilst inviting SME's with cash flow problems to phone their special helpline on the one hand, they are putting in Debt Collectors at the same time. Where will intellectualising get you when the real battles begin ! ...humph! Viv O

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By rhangus.
15th Jun 2009 12:37

I think I'm in credit by about 100
I see what you mean about the AIA example used where you could extrapolate one hastily done set of figures.
I would hate to think that they could come and look through all clients records based on this one mistake.

Only recently I received calcualtions for MCA that were all wrong. Would the same apply to the lady who wrote to me on that occasion? Will HMRC review her work in the area of MCA and look back and reverse the fortune she has inadvertantly saved HMRC at the expense of those individual tax payers?
Her mistake was coupled with non reply to letters, losing my client off of my list of clients, losing the 5 tax returns I personally handed in to my local tax office, getting the time wrong in the sense that they only initially allowed 4 of the 5 returns. Excessive time taken all round in this case. This is just one example of half a dozen mistakes occurring and a never ending slack attitude to time taken by HMRC.

I urge agents to hold on file their best examples of HMRC mistakes if we find ourselves on the other end of their powers.

I certainly do make mistakes but I do feel I should be allowed a few when I can show them what I am often faced with from them. If they can't set an example...?

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By JulieSaunders
15th Jun 2009 14:26

What about HMRC mistakes?
I totally agree with Ronald Angus, and also regularly come across members of HMRC staff issuing incorrect calculations due to their lack of knowledge of the tax system. This is a particular issue at repayment offices, it seems. Common errors relate to age and married couples' allowances, gift aid, and anything foreign seems to fox them completely! Why is the work of these clearly ill-trained employees not checked before it leaves the building? And what action is taken when mistakes are pointed out by the profession? Anyone can make a mistake, and our system needs to reflect this. However, HMRC commonly seem to take the view that mistakes are only ever made outside of their organisation, whereas those of us on the receiving end of the papers they issue know otherwise.

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By dnicoll
15th Jun 2009 11:33

Trust?
"We shall have to take on trust the fact that HMRC are not intending to use the powers against agents when it is not appropriate to do so "

Sorry Rebecca - given HMRC's history on this, NO CAN DO.

HMRC's whole approach is to hit the easy targets - in this case those of us who they feel can't afford expensive barristers to take them all the way through the courts.

If their proposal is to weed out the bad agents, why is the consultation not aimed at that issue instead of giving them sweeping new powers which are wholly excessive and inappropriate?

In any event the tax return factories will continue to exist - they will just modify their form to whatever shape works under the 'new' system.

All I can see happening from this is a massive rise in PII insurance for everyone concerned.

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By Epaminondas
17th Jun 2009 15:32

AIA
It would help small one man agents like me if HMRC had a better information system. I assume that AIA does not apply to employees who claim capital allowances. For confirmation I searched the HMRC website and the annual manual sent to agents in vain and I then phoned HMRC. No-one was able to give me an answer but I was told a technician would phone me within a rather long period of time.
(perhaps 48 hours bit it might have been longer)

Someone did eventually phone me when I was out without leaving an answer to the query on my answering machine. By then the need for an answer was past but I still don't know it for certain. If AIA is such an important benefit to working people why can't one easily find on the HMRC website or in their manuals to whom and to what exactly the relief applies ?

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By rcbarrettandco
23rd Jun 2009 14:32

One sided
I think I have to agree with the majority of the posts on here that these proposed powers are way over the top, without safeguards and very one-sided.

From my dealings with HMRC their staff have made at least 10 errors to every 1 I have made, probably more and I'm not exaggerating.

Under it's current leadership and pressure from the treasury I absolutely cannot trust HMRC not to wield these powers like a big stick against the smallest and least able to defend themselves.

In my view this consultation document is not fit for purpose and should be torn up, let them start again on a fresh sheet of paper and this time pay us a little respect, after all we do most of their work in collecting taxes for them.

But thinking about mistakes I would draw on my auditing background. If I was HMIT and found an agent had wrongly claimed say AIA on a car, the first thing I would do would be to select a few more of that agent's clients with relatively high capital allowances and ask to see those capital allowance calculations too. It's simple risk based sample auditing and if their centralised risk management function cannot cope with feedback from individual HMRC officers, then they are missing a trick. Surely they don't need any additional legislation to do that?

Surely they already have the power to target more enquiries at agents who have made more mistakes in the past, surely that is, or could be, part of their risk based approach to selecting returns for enquiry? If an agent is consistently making mistakes then a massive increase in the number of his clients being selected for enquiry would soon either put him out of business or teach him the merits of CPD and honesty.

As for the rest of us that do it honestly and get it right 99 times out of 100 give us some respect, and maybe even thank us for getting the majority of taxpayers to pay the right amount of tax at the right time. There is no need to stand over us with a big stick waiting to pounce on the first honest mistake.
Steve

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By eoinriggs
29th Jun 2009 15:22

AIA for employees
Just for info to the previous poster - AIA is available to employees - see HMRC Help Sheet 206.

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