Working with tax agents: Specific proposals
HMRC published this consultation document as part of the Budget 2009 material, and immediately AccountingWEB.co.uk’s Any Answers forum engaged in lively debate. However, the debate centred on “unqualified versus qualified accountants and as a number of contributors pointed out, that is far from the topic under discussion. Here, in advance of the live webchat with Dave Hartnett on the subject, I consider the consultation in more detail in two parts. This article deals with the specific proposals for powers and the associated safeguards.
A risk based approach
All of HMRC’s compliance powers are designed around a risk based approach, so the same line will be taken with the detailed design of powers in relation to agents. The risks will be assessed in relation to an agent’s work through the identification of issues on client returns. The officer will assess the likelihood that an identified risk applies to the agent involvement in the process, and will then need to assess the risk that the agent might display this risk in relation to other cases in his client base. This immediately runs into practical problems with confidentiality and costs if the approach were to result in a compliance check on a selection of clients.
HMRC suggests an alternative of discussing the risk with the agent and thus establishing appropriate remedial action. This might be by the agent voluntarily commissioning an independent report, but the costs of this (borne by the agent) could be significant. If the agent refuses, the powers suggested would allow HMRC to gain access to a selection of client records. This power would carry significant safeguards in addition to rights of appeal to ensure that the power is used appropriately – for more details see para 4.6 on page 20 of the document.
But do members think these safeguards are sufficient? If not, what additional safeguards would you suggest?
Mistakes by tax agents
Mistakes are forgiven by the current penalty system applying to taxpayers. However, the consultation document proposes that where HMRC has identified that tax is at risk due to the tax agent making mistakes HMRC would wish to:
- understand how this has occurred
- ensure that the position was put right for relevant past tax periods
- ensure that the tax agent takes steps to ensure the mistakes are not made in future
In addition, depending on how the risk occurred, HMRC may want to put the tax agent on warning that recurrence may be treated as a failure to take reasonable care. So there is no “slack” in the system where an agent makes a mistake which leads to a return being incorrect.
Where a tax agent has failed to take reasonable care
Where HMRC has identified a tax risk due to the agent having failed to take reasonable care, which may include a pattern of mistakes, HMRC would wish to look at the wider issues for the agent’s client base. HMRC would expect the agent to confirm that he has met specified standards across their entire client base, and this approach could be reinforced in a number of ways. One option would be to extend the provisions of Schedule 24 FA2007 to provide for a penalty to be chargeable on a tax agent, where it can be demonstrated that a taxpayer had taken reasonable care, but the agent had not. Such a penalty could be capable of suspension.
As an alternative, HMRC might consider an enforcement notice requiring the agent to ensure that proper standards of care were taken in future and to rectify specific failings. HMRC would set certain conditions, for example, a requirement to bring knowledge up to date. Failure to comply could lead to a financial penalty or a report to the agent’s professional body.
Where a tax agent has been deliberately non-compliant
Where there is sufficient evidence that the risk arose as a result of deliberate actions by the tax agent HMRC would have to consider its relationship with the practitioner. Options for HMRC could include:
- a requirement to put matters right for the past and the future plus
- financial penalties, and/or
- a report to a representative body, and/or
- an appropriate period of monitoring
- a refusal to deal with the tax agent in future
Any financial penalties (whether resulting from careless or deliberate behaviour) could be fixed penalties, or up to a certain amount, or they could be linked to the tax at risk or the fee income or relevant turnover.
Registration of tax agents
HMRC has considered, and largely rejected the option of forcing all tax agents to register with the authority. However, the consultation does welcome views on whether the term “tax agent” should be defined in law, and if so what this definition might say. Examples given include definitions used in the rest of the world, including the concept of a tax return preparer who prepares returns for “compensation”. It is likely that the role of those acting voluntarily for friends and relatives should be excluded from the current powers review.
AccountingWEB.co.uk will be formulating a response to the consultation during July, in time for the closing date on August 7th. In the meantime, you may like to participate in the webchat with Dave Hartnett and Simon Norris which will be a live interview during which your questions will be posed to them. To pose a question, and to view the webchat on 18 June at 2pm go to our webchat page. We shall be asking members for their views to include in the consultation response.
There is also an article on the general issues and the need for powers in relation to tax agents.