CIOT: All tax advisers should be qualified
The government is proposing a new regulator of tax advisers or a requirement that advisers should all be members of a recognised professional body. The CIOT prefer the latter approach but the transition needs to be handled carefully.
These proposals are included in HMRC’s call for evidence on raising standards in the tax advice market which attempts to address a range of problems across the tax market, from promoters of egregious tax avoidance, to advisers who simply provide bad value to their clients through poor service standards.
The CIOT has responded in depth to the government’s paper with three main conclusions:
- The problem of the remaining recalcitrant tax scheme promoters needs a specific solution and is not dependent on whether tax ‘advice’ is being provided.
- There needs to be consistency of professional standards (including training, professional indemnity insurance and standards of redress) across the whole tax market and not just applied to those who are currently members of professional bodies.
- Hidden tax advice embedded in tax compliance software, such as for MTD, needs to be brought within the scope of regulation.
Rebecca Cave asks CIOT tax policy director John Cullinane about the second conclusion: that professional standards should be imposed consistently across the tax market.
Q: Are most of the behavioural problems encountered in the tax advice market caused by advisers who are not members of a professional body?
We understand from HMRC that advisers who are not by members of professional bodies represent 30% per cent of tax agents, but those advisers are responsible for most of the behavioural issues HMRC encounter.
Q: If 30% of tax agents are not affiliated to a professional body. How many individual tax advisers does this percentage represent?
We know very little about the population of advisers outside professional bodies. HMRC holds the most comprehensive data set on tax agents. It would be immensely helpful to public debate on this topic if as much of the data as possible, subject to legal constraints, was published.
Q: In 2014 an HMRC report: Tax Agent Segmentation Research - Exploring agents’ digital needs and attitudes estimated there were 43,000 paid agent firms in the UK, so 30% would be at least 13,000 individuals and possibly many more. How would you bring all these advisers into the professional bodies?
There is the risk of excessive disruption to the tax system if all agents and advisers who are not members of a recognised professional body are prevented from working in tax overnight. We suggest a transitional period to allow existing unaffiliated tax agents to adapt.
An early requirement might be for all tax advisers to have professional indemnity insurance – as professional body members already do – which seems a very basic level of protection for the customer.
Q: What about people who can’t afford to pay a qualified tax adviser?
Significant numbers of people are not used to using tax advisers on a paid basis and indeed do not have large incomes, but are nevertheless are too high-earning to be eligible for help from the tax charities. Although this is not a problem of unprofessional behaviour, it is a problem in the market and needs to be considered in designing solutions.
Q: Will the requirement to use qualified tax advisers push people to seek advice from offshore organisations who may not be regulated by a professional body?
Offshore members of UK professional bodies who advise on UK taxation are bound by ethical rules. But this is unlikely to be the main part of the population operating offshore. There is a need for this area to be reviewed.
Q: Is there an alternative to asking tax advisers to become full or affiliated members of a professional body?
Yes, HMRC is also considering requiring anyone who wants to provide tax advice by way of business to register with a new government regulator before they could operate in the market.
Q: How would this new regulator work, and which tax advisers would it cover?
Advisers would have to satisfy a ‘fit and proper person’ test in order to register with the regulator. We understand that this test would include proof of relevant qualifications or experience of professional practice, and also not having been subject to specific penalties, for example, for promoting or enabling tax avoidance.
Advisers who were admitted to the register could be subject to regular reviews of their continuing fitness and propriety, with appropriate enforcement action taken against those that breach standards.
One problem with this approach is that it would not, on the terms in which it is explained by HMRC, apply to promoters of tax avoidance who avoid giving ‘advice’ and merely provide avoidance structures.
Q: Would such a new regulator actually solve the problem of unequal standards being applied across the tax market?
I believe the standards that would be imposed are, in general, lower than those already required of professional body membership. In short, it will ignore what has been achieved in recent years by the professional bodies working together to create the PCRT, and with HMRC to raise standards. In some respects, the government regulator might serve to undermine those standards because those interested in cutting corners would be able to buy a veneer of respectability through registration without conforming to higher professional standards.
Q: A new regulator also sounds like yet another layer of expense for tax agents who already have to comply with anti-money laundering regulations and PCTR.
I agree. A new government regulator risks being costly and ineffective. There will be registration and supervision costs alongside professional body membership, all of which will likely be passed on to the customer.
Q: Is it appropriate for the state to regulate tax advisers with one hand and also exercise a coercive power to require its citizens to pay tax?
I do think there is a potential conflict of interest there. You could manage it a bit better if HMRC were not itself the regulator. It would be better still to act through the professional bodies – the law could place requirements on those bodies to uphold high standards, without embroiling state agencies directly in collecting taxes from people on the one hand and directly regulating the advisers that people turn to on the other.