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 need for powers in relation to agents, and the design principles that might underpin those powers.
The consultation is part of the “Review of Powers, Deterrents and Safeguards” process, and is in reality a necessary and logical development. The new penalty process for inaccurate returns (Sch 24 FA 2007) does not carry a sanction for an incorrect return which leads to an understatement of tax when the return was prepared by an agent and the taxpayer took reasonable care to avoid an inaccuracy. Where the inaccuracy has resulted from the failure of the agent to take reasonable care, the client will no longer be penalised for his agent’s defaults. So this leaves such cases as a “gap” in the system – no penalty for the taxpayer and at present no sanction for an agent who carelessly submits incorrect information on behalf of a client.
HMRC’s starting point is that some sort of action is needed to deal with tax agents who fail to display the necessary competence or integrity required of their role in the tax system. It is clear that HMRC does appreciate that agents form a pivotal part of the tax administration system, with around 70% of SME businesses being represented by agents, and 60% of all other SA customers’ tax returns being prepared and submitted by agents. There is also some doubt about the term “tax agent” which can include all sorts of representatives, from a friend, colleague or relative who helps an unrepresented taxpayer with his return right through to a professional firm with a whole tax department dealing with a range of tax services. Although some 70% of tax agents are members of professional bodies, HMRC does not require an agent to prove his competence to register as an agent, nor does the authority expect all agents to be professionally qualified
So, let’s start with what the consultation is really about. The introduction to the consultation document states that the topic of the consultation is “How HM Revenue and Customs (HMRC) interacts with tax agents to ensure that clients’ returns and claims are correct when submitted.”
In moving to the design principles which would underpin any powers introduced, the document rehearses the design principles used so far in developing the existing powers, and observes that many of these will be relevant to powers to deal with tax agents. However, there are additional design principles which have been highlighted as important. These include :
- The need to reassure competent tax agents. This reassurance takes two forms – reassuring competent agents that the tax authority does not intend to impede them in their professional work, and secondly that those agents who are incompetent or are acting dishonestly will be adequately dealt with by HMRC.
- Supporting professional standards. Current monitoring of professional standards and integrity varies in depth and scope across the major regulatory bodies. A key aspect of the new powers is that they should support this process. However, imposing a single monitoring structure on all tax agents would cut across the various needs of the diverse professional bodies, and this is a difficult area to standardise.
- Recognise the potential impact of new powers on tax agents’ businesses. HMRC recognises that the use of its powers has the potential to damage the professional reputation of tax agents if used inappropriately. However, where HMRC staff become aware that an agent has acted inappropriately in their representation of a client then there may be a question over the conduct of that individual or firm in relation to some or all of the clients they represent. Short of seeking to review in depth all the affairs of the client portfolio, HMRC might reasonably seek assurances, potentially from an external monitor, that identified errors or misconduct were not systemic across an agent's clients, and
- Taxpayer confidentiality. Tax agents have duties to their clients of confidentiality and protection of personal data, and need to safeguard themselves from possible allegations that they have breached these duties. This would impact on the design of any powers in relation to agents, and confidentiality must therefore be taken into account at the design stage.
These are the underpinning of any new powers under consideration, but do members consider that there are any key design principles that have been overlooked?
Current powers in relation to tax agents
There are no powers which apply across the board to the issues under consideration, and at present the sole agent sanction rests in Section 99 TMA 1970, under which an agent who knowingly submits an incorrect return is liable to a penalty. Information powers in Section 20A similarly do not apply across the taxes, and the request for access to documents is limited to those in the agent’s “possession or power” which is limited both in practical terms and also can be deliberately excluded by accountants who are convicted of dishonesty resigning as partner in a firm and therefore excluding HMRC from access to client papers. Proving an offence under Section 99 is difficult without access to the necessary client papers, so the current powers have significant limitations.
There is also a current option to report agents to their professional body for disciplinary action, but this power in itself is not particularly useful in a number of cases, as agents at fault may not be a member of any body, and the various bodies have their own differing criteria for action.
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.
The second article in this series looks at the specific proposals for new powers in relation to agents.