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Working with tax agents: Specific proposals

8th Jun 2009
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HMRC published this consultation document as part of the Budget 2009 material, and immediately’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.

More 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.


Replies (18)

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By AnonymousUser
13th Jun 2009 13:29

.........its me again mithering you.........there is a very interesting article in this weeks Taxation by Robert Maas on the potential problems facing agents............if you can get it please read it........Big Brother is definitely looming. ..looks like we shall very soon have numbers enough for us to form a Caucus..............and it looks like we''ll have to call a meeting somewhere centrally like Lincoln,on th Ai/M1 as you are all spread around the country............but we'll be in touch more positively soon. We are looking inty what structure is best for us , what extraneous support might be available, and the location and strategy behind us to gain maximum political clout. There are 80 000 registered agents up to now so we have a massive market to target........keep reading and if you know others to join us, send 'em along ....have a nice week-end Viv O

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By AnonymousUser
10th Jun 2009 12:07

tax agents unite
.........for those who wish to contact me [email protected] starters.........we need 10/15 as a base to build don't moan about HMRC.....join us so that we can form an Action Group............I've been involved in this type of campaign before in the Thatcher days,so I know my way round the political jungle..........hope to hear from you .......Viv O

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By AnonymousUser
09th Jun 2009 16:40

tax agents unite
.........there are more of you upset with HMRC than these pages will accomodate........come on then guys and gals.....join the action and mail me. Viv O

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By Anonymous
09th Jun 2009 14:32

Why not ..............
also compile a circulated list of incompetent HMRC staff and collectively refuse to deal with them.

I'm sure the list wouldn't include any of the HMRC lurkers out there!

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By patches
09th Jun 2009 12:55

I'm with Jon
About time someone stated the reality of dealing with HMRC on a daily basis. I often feel that they know less than my clients about what is needed - and they are the ones with the power!!

We must stand up and be counted.


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By AnonymousUser
09th Jun 2009 11:24

accountants unite
..........thanks to all who have responded..........there are more than I thought. to get this action group up and running could you all please e-mail me with your e-mails and phone numbers...........then we can see how diverse we are...........the Templars are back ! Viv O
and those of you who feel equally aggrieved at current behaviour of HMRC, whether agent or employee...........have the balls to join us.....there is strength in numberts and moaning in the pub wont solve the problem.

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By BryanS1958
09th Jun 2009 09:28

and another thing.
Count me in Viv.

...............and Jon, you can add to that showing on their website that a repayment has been made and then taking up to six months to issue it (currently with no interest or compensation of course) due to 'security checks' AND giving the agent/taxpayer no way of contacting the department involved in this fiasco.

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By Jon Morley#1
09th Jun 2009 00:55

They have a b****y cheek

Is this the same mob that routinely

1 - says they have no authority to deal with us when in many cases we have been acting for up to 20 years
2 - are occasionally rude and or aggressive on the phone
3 - Issue letters to repayment clients saying no need to submit returns any more
4 - issue coding notices to collect estimted tax on rents and or higher rates with no certainty that such liability actually exists
5 - Issues dozens of P35 penalty notices with fines of, up to, £900 of which all were incorrectly issued
6 - Routinely issues fines for late submission of SA returns where we hold proof of inline submission or hand delivery
7 - Have been known to write or contact clients direct without advising us (or forgetting to do so!)

etc etc

Do we get the choice of not working with them due to their incompetence (or genuine error) - NO

Do we get a chance to penalise them - NO

Do we get to charge them for the loss of time that can't be charged to our clients - NO

Can we sue them if we lose a client due to their error but the client blaming us - NO

They should join Gordon B and get the hell out of our country.

I am a member of ICAEW and i hope that they join with all the other professional and representative bodies and tell super Dave what to do with this idea - however i don't hold out too much hope here either but i would love to be proved wrong.


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Mark Lee 2017
By Mark Lee
08th Jun 2009 18:49

If HMRC can't penalise poor 'tax agents' they can't collect pena
The new penalty denies HMRC the right to charge penalties if the taxpayer can show that they have taken 'reasonable care'. This would include appointing a competent agent.

The legislation specifies that the taxpayer will not be liable to a penalty in relation to the act or omission of the appointed agent provided that the taxpayer took reasonable care toi ensure that there were no errors in the information submitted.

HMRC provide some guidance at CH84540 as to what a taxpayer needs to do to evidence their 'reasonable care'. But the bottom line is that if the agent appears competent (whether qualified or not) then HMRC will not able to levy any penalties on the taxpayer.

It seems reasonable to me that in such cases where penalties would otherwise be chargeable that HMRC needs to have some other sanctions. Indeed I'm surprised the legislation was introduced without such a facility.

Mark Lee
Tax Advice Network

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By The Black Knight
08th Jun 2009 16:58

Accountants Unite
You do realise, the trogs don't like those clever accountants already, but count me in anyway.

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By nkwayne
08th Jun 2009 16:42

Accountants Unite!
Count me in Viv

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By AnonymousUser
08th Jun 2009 16:16

more controlls !!!
right across the board in our mediocre society we now have penalties and fines when things are supposedly not done right.........but they are only ever one way.......HMRC and Cos House never admit to mistakes or errors any more even when they are caught out blatantly lying. How are troglodytes going to police their more evolved colleagues, except once more to use the big stick.....the threat that you may lose your license to practise. Someone else has got it right........we need to get away from all this Big Brother and penalties bullshit, revise our tax system so that it is simpler, and leave the burden of responsibility firmly on the shoulders of the taxpayer. We are their agents not their masters. Those clents attentive to detail cause no one any trouble and they are the majority..........why should a minority of idle buggers screw up the whole thing for everyone, leaving Big Brother ( who is plainly incompetent itself) with an excuse to bring in more of its stupid controlls.
Its time for Accountants with balls to stand up, join forces and pressurise our weak politicians to change our tax system not to place more burdens on agents. Anyone willing to stand up and be counted contact me please. [email protected]

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By nkwayne
08th Jun 2009 14:58

This will not work to the benefit of anyone. Pt 2
My view is that the only action that HMRC would be entitled to take, would be to review their policy on who to accept or not accept as agents with whom they can deal, since that is the fundamental nature of the relationship, and that is the only part over which they should have power. I can see that from the perspective of HMRC there is little point in having an agent between HMRC and the taxpayer unless that assists with (rather than hinders) communication. The default should be that all agents wishing to represent a taxpayer should be able to demonstrate a recognised ability in the area in which they are proposing to represent. I can see no reason why tax agents should not be 'vetted' by HMRC for suitability. A professional qualification or minimum length of time working within the area of representation should be required.

That is not a qualified v non-qualified comment, because frankly I have taken over just as much shoddy work from qualified accountants as I have from the one-man band front bedroom brigade.

So I would be happy for HMRC to have the power to refuse to work with blatantly ineffective or inappropriate agents, which includes those who have a record of incorrect submissions (subject always to right of appeal to independant tribunal BEFORE withdrawal, so that there can be no cases of agents losing their livelihood incorrectly).

But no further please, they are not an appropriate body to invigilate my work, levying fines on agents is just using the soft touch approach.

My recommendation to HMRC is simply to be more effective with the powers you have already got. This 'powers' idea is typical of the attitude that says we're not getting it right, lets implement some new powers, instead of we're not getting it right, lets focus the resources, re-train and upskill the work force and, by the way, simplify the tax system so there is less grey area to trip us all up. Thats the sort of new legislation that really would work!

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By nkwayne
08th Jun 2009 14:57

This will not work to the benefit of anyone. Pt 1
There is a some merit in the theory behind the proposed approaches, but as has so often been the case in recent years, the implementation will be on budgetary lines which have less to do with the stated outcome rather than the obsession with increased take without increased tax rates.

The clue is, as always, in the title/question. I am an agent. I act as a representative of the taxpayer. I am not a principal in this transaction, and in the nature of agency, the consequences of action or inaction errors, or omissions, should fall between the principals.

My agreement is with my client. If I make an error and as a result my client has to pay anything other that what he would have done without the error then I am liable to my client for damages. Standard contractual terms. But if there is tax to pay, the client pays, similarly if there is tax overpaid the client gets the refund.

Consequently I have a distinct and fundamental objection to the proposal for HMRC to interfere in any way with my work. And in any event the need for more powers, (other than to be able to levy fines on agents which I think is the real reason behind all this), is disctincly doubtful.

1) The risk based approach already exists. If an agent is 'dodgy' the local office will know and therefore they already have the opportunity to identify tax return enquiries on that basis. Any errors found can lead to discovery assessements so all tax at risk can be collected. The knock on effect on the existing client base will, in the way of these things, percolate through the local business communities, and lead to good clients moving on.

2) I do not want or value the notion that HMRC will have powers to "mentor" me. Jeez, that would be ironic indeed considering some of the downright wrong informaiton that I have been given in the past by representatives of that esteemed organisation. In fact I do not trust HMRC to get that kind of role right. They will implement it on a budget which is insufficient to people who will probably be under-trained and under-resourced. Good agents will be unfairly tainted, bad agents will run rings round them and continue to get away with whatever scurrilous activities they undertake on behalf of their clients.

3) Repeated failures by lazy or inefficient agents which result in more costs for the taxpayer in enquiry/investigation fees, penalties, fines etc are themselves a 'market force' which tends to indentify and whittle out the bad agents.

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By Anonymous
08th Jun 2009 13:48

Will it work both ways? - I doubt it!!
There are many many posts on this site that relate to us as "tax agents" putting right the errors of HMRC over the years.

Given that I could lose my income if the Revenue decide that I have done wrong - surely we should have the same right of complaint against HMRC and it's officers and presumeably similar powers where an officer is responsible for errors.

Given that I have spent considerable funds on software over the years as they were incapable of even entering a tax return accurately and then sent my clients a letter that made it look like I'd made a mistake; do we get return powers where we are able to know which officer specifically did which action? Or if it's a business wide thing don't we have enough cause for complaint that corporately as agents/taxpayers we don't need to deal with them?

Maybe if Dave Hartnett's continued employment depended on his staff giving good advice and dealing correctly and accurately with everyone's tax we might all have a better system. But when we get call centre operatives with short training talking rubbish and then not telling you their name we have no chance to work together

Sadly this is like so many of this type of proposal - it removes whatever good will there is.

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By The Black Knight
08th Jun 2009 13:46

more paper tigers
It seems to me that we will end with more rules that will not be enforced, HMRC already do not use their powers in a useful way,as they must already have a pretty idea of who the dodgy advisers are. (one only has to look at the accounts filed at companies house that do not comply with the companies act, to give good indicator of lack of knowledge in accounts and taxation matters). HMRC seem unable to spot the seemingly obvious and this would, to my mind, be a fundamental problem that needs addressing first. The only difference would seem to be the ability to raise a penalty on the adviser, making us responsible for problems we may have just failed to spot in amongst the numerous problems that have been fixed on your average problem client.
This is just more spin, which some of us will go to great expense in implementing while others (more profitable) will simply ignore as usual.

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By tuliptownman
18th Jun 2009 23:14

They want to talk - lets talk then
It is clear that these proposals have resulted in a lot of hostility as it smacks of "the kettle calling the pot black" . However being hostile and attacking HMRC's many operational failings does not I think create an evironment of openness on both sides about what in my opinion this consultation is actually seeking to acheive. I have given this a lot of thought and this is reflected in the length of this post

I will restrict my comments to Self Assesstment and Corporation Tax Returns, although the consultation makes it clear that by Return they mean any Claim or document sent to them. Paragraph 1.5 and 1.6 refer to Pre Return checks. The implication of this shifts the emphasis from the current system of Self Assessment whereby HMRC is supposed to undertake Post Return checks to placing that burden on the agent. HMRC have not stated why they want to change the emphasis, but one can surmise that budgetory cutbacks must play a large part of their reasoning. If they don't have the staff to carry out the checks then these powers are one way around it. The size of HMRC's budget is a political issue. However HMRC could have given a bit more background on the reasons for their change of tack.

If we therefore accept the reasons for the change then we need to understand where both sides are coming from. I like many working in the field of tax have an Inland Revenue background. My perceptions about the work undertaken during the preparation of a set of Accounts changed when I joined the private sector. It is clear from the nature of Tax Enquiries that HMRC do not have a general understanding of what is checked to arrive at a set of balanced accounts - nor do they seem to have any understanding of the nature of materiality in an audited set of accounts. It can only be hoped that they will be clear as to what sort of checks they are seeking at the Pre Return checks of a self employed trader or a small Limited Company. Are they seeking to get us to check each and every invoice over a stated level? This is the area where most HMRC enquiry work is undertaken and it is something that they very often do. In many cases they will query a Revenue expense of say £5,000 even in a business with a six figure turnover. Clearly if they seek to impose that sort of check on an Agent then it will completely change the relationship between the Agent and client.

Paragraph 3.16 gives examples of a failure to take reasonable care. They seem extreme examples to me. Are they suggesting that these sort of examples at the levels indicated are common place? They don't say.

Paragraph 3.17 gives a very extreme example of a lack of objectivity. They may have a point here but highly unlikely at this sort of level! I doubt if there would be many who would if challenged try the argument suggested. Again though is this common place? They don't say.

Paragraph 3.18 gives some almost laughable examples examples of what could be described as incompetance. They do infer here that it was a one off example of an agent. Elsewhere they have suggested they don't like these marketed schemes to avoid tax. Its probably fair to say many agenets don't like them when their clients are approached and ask the agent to check. HMRC should have an Agent hotline to discuss these sort of schemes in confidence.

Paragraph 3.19 gives a couple of extreme examples of what could be called being very economical with the truth. Again is it common place?

They acknowledge in Paragraph 4.1 that the examples are very exceptional. They don't say though what about those situations that could be at a much smaller scale. What about something that could result in a tax loss of say £100 and not the high levels suggested by the examples? When I was in HMRC in the days before Self Assessment came in there were unpublished levels of assessment tolerances. Those cases where it was established that an assessment may have been understated or overstated, but as the cost of putting it right was more than the tax it was not worth doing. Surely now is the time to have a published margin of tolerance? A level of potential tax loss or indeed potential tax repayment whereby it is accepted that it is not cost effective to put right - or indeed a margin for error that would determine that there was a risk with the behaviour of an agent. For example if an agent had chosen to review recorded repair costs over a certain level to identify capital items but ignored smaller items that resulted in the AIA threshold being effectively exceeded by capital items being included in repairs. Would that be considered a risk? It is the failure to give more every day examples that has gone some way in getting the reaction that HMRC have got. As suggested earlier HMRC should come up now with specific examples of pre return checks and levels in this area.

What about mistakes and reasonable care? Reasonable care is very open ended by definition. They should define a level of tax loss that a lack of reasonable care can result in. As for mistakes they happen. To err is human. HMRC do seem to accept this BUT explaining HOW a mistake occured? Do HMRC how their mistakes occur? I think it is over the top. Where mistakes are established and declared up front or accepted on challenge then that should be the end of it. The agent is already going to face some searching questions from his client!

The comments in para 4.13 on deliberate non compliance are probably fair. Most would accept that those who are at the extreme end of this should not be in competition with the majority of those who do their utmost to comply with a wide area of legislation.

Registration of Tax Agents appears to be a non starter. HMRC though could ensure that a Tax Agent is defined as someone who belongs to the various Accountancy and Tax bodies that require a demonstration of competance (by examination for new entrants), and are required to complete relevant Tax CPD, and have an appropriate practicing certificate. This will not be an issue for those in the Tax bodies but may be an issue for those in the Accountancy bodies. The argument over "qualifieds and non qualifieds" does not help here. We should accept that everyone who belongs to any body that requires its members to undertake vefiable Tax CPD and has shown a level of competance in tax is qualified to be a Tax Agent. However the question about a Tax Return Preparer is a valid one. What about a Tax Agent who employs someone to actually prepare the Returns? Should the definition of Tax Agent include the employee who prepares the Return? The ML Regs require an employee to report an suspicion to the appropriate ML officer and clears him or her of responsibility if they do so even if no further action is taken when it should be by the ML officer. What about a Preparer who is instructed to do something that they feel is not right but not necessarily an ML issue. Should HMRC extend the definition of Tax Agent to the employed Preparer so that there is an increased element of scrutiny and consideration of factors before the Return is filed? I am not saying they should but it would be a way of evening out the field between those who act responsibility and those who don't and are put under "special measures" could simply sack the poor employee even where the employee was only following orders and had his or her own doubts about the Return. An extreme example I know but as HMRC give extreme examples that get people hot under the collar I thought I'd give one.

In summary the measures need to be considered and HMRC need to be more open about what they want Tax Agents to do. At the moment examples of extreme behaviour appears to hide the real agenda. My own concern is that if the implications of what the consulation document is saying it could have a complete change in the way we do our work and our client relationship. Not only will there be a duty of care to the client, there may be by implication a duty of care to HMRC. Whilst that may ultimately lead to those who want to fiddle the system being exposed, in the short term a lot of innocent people could get caught up in this. The whole question of what is reasonable to claim is very much in the public domain with MP's expenses. Perhaps HMRC should see where that debate goes before imposing these sort of measures, and that perhaps Mr Hartnett whose own impressive career has perhaps been blinkered by coming across some of the worst examples of unscrupulous behaviour, should accept that it is not possible to get absolutely everything right all of the time. If HMRC were open to setting down criteria of tolerances and what the pre Return checks they wished to be applied then it would either take a lot of the heat out of the debate, or would enable the issue to become part of the wider debate as to what is and what is not an acceptable claim from the public purse.

I am sorry to go on for so long but I wanted to address the issues as I see them after 25 years in the Tax industry on both sides of the fence and having seen both sides of the coin. These are my own personal views and are not necessarily endorsed or agreed by any individual or organisation that I may have connections with in any shape or form.

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By jalwebster
22nd Jun 2009 13:46

Two way traffic
As other commentators have already observed this must be a two way traffic. HMRC do not appear to have or accept any accountability for late; inappropriate; inaccurate or even no action taken (or not taken as the case may be) by them. There must be a proper formal structure for complaints and remedial action to flow both ways.

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