HMRC asks for evidence on tax advice standards
Just after the Budget HMRC issued a call for evidence on standards in the tax advice market. With just two months to respond, Philip Fisher highlights the main issues.
To accompany the publication on 19 March 2020 of its Tackling promoters of mass-marketed tax avoidance schemes policy paper, HMRC issued a call for evidence on standards in the tax advice market. The period for comments was short, with a closing date of 28 May 2020.
Financial Secretary to the Treasury Jesse Norman struck an emollient tone in his foreward to the document, but some advisers would balk at his comments: “Many tax advisers are technically competent and adhere to high professional standards, and are a very useful source of advice and support to taxpayers. But as the loan charge review highlighted, the market for tax advice is not working as well as it should be. Some advisers are incompetent, some unprofessional, a few actively corrupt.”
The loan charge is a controversial example, having drawn accusations that HMRC’s actions represented retrospective legislation. The minister sated that “many of the taxpayers involved claimed that they had acted on advice from their tax agents, and now find themselves with no effective remedy against that bad advice.”
What’s the point?
HMRC is seeking evidence “on the case for intervention and on potential steps that could be taken to raise standards in both the tax advice and wider tax services market and give taxpayers confidence in the quality of the advice they receive”.
Having recognised that some people giving advice on tax matters might be professionally qualified but others (including some of those with qualifications) could also be lacking basic skills, the government is consulting on a range of potential approaches to tackle poor performance in the tax tax services marketplace.
Schemes that gave rise to the new loan charge have particularly raised HMRC’s hackles. Some of these schemes were undoubtedly introduced by tax advisers with professional qualifications who are obliged to operate under the terms of the various statements on Professional Conduct in Relation to Taxation.
The call for evidence has been instituted to explore the following areas:
- defining tax advice and tax services
- the value added by good tax advisers
- the impact of poor practice
- consumer protection
- the impact of government interventions in the market
- domestic and international examples of regulation
- approaches to raising standards.
The outcomes sought are:
- market transparency, so that taxpayers have the information they need to choose an adviser who meets their need, and are able to steer clear of unsuitable providers
- that customers who want to engage a tax adviser are able to get reliable advice from an appropriately competent professional who maintains high ethical standards
- market access is preserved so that customers can continue to get reliable advice should they wish to
- to enhance tax compliance.
In association with this call for evidence, another will be published on the future approach to Tackling Disguised Remuneration Tax Avoidance Schemes.
Good and bad advisers
HMRC recognises that it benefits as much from the efforts of good advisers as taxpayers who receive the advice but with 72,000 agents representing at least 12m “customers” the quality of advice and assistance is not uniform.
“There are some advisers who do not provide a good quality service to their clients,” the document noted. “This may be because they lack competency or have not kept up with technical changes, are dishonest, or do not hold relevant specialist expertise. Some tax advisers do not adhere to the high ethical standards that their professional bodies require of them, especially when providing advice on models such as disguised remuneration or other avoidance vehicles.”
The call for evidence offered examples of advisers who:
- take a large cut of the money due on expense claims, sometimes over 40%, and then provide no help if HMRC questions the claims
- charge high fees to sell avoidance schemes but demand that the client signs a contract confirming they will not sue if there are problems with HMRC – and then disappear
- advertise avoidance schemes using the HMRC logo, claiming that they did not constitute tax avoidance.
The document also covers the ways in which HMRC attempts to support and monitor tax advisers amd the sanctions it can apply in extreme cases. These include:
- refusing to deal with an adviser at all
- imposing a penalty of up to £50,000 on an agent who engages in dishonest behaviour
- making a public interest disclosure to a professional body with the intention of sparking a disciplinary process
- legislation for dealing with promoters of tax avoidance schemes including conduct and monitoring notices as well as naming and shaming
- use of existing criminal offences.
The government is interested in knowing the pros and cons if certain international models were implemented in the UK.
To this end, it cites Australia where all paid tax practitioners must register with the Tax Practitioners Board, have qualifications, PI cover and satisfy a fit and proper person test.
In Germany, and with regional differences the Czech Republic, tax advisers must be members of regional tax adviser chambers and hold professional qualifications.
In Norway accountants and firms must be authorised by the Financial Supervisory Authority and, to do so, hold a degree, have recent relevant experience and submit proof of at least 77 hours of CPE over three calendar years.
In Portugal all certified accountants belong to a single professional body and the tax authority refuses to deal with any agent who has been subject to suspension of three years or more or expelled.
Areas to explore
Several options are posited for the way forward.
- Option A: Better use of HMRC’s or government’s current powers
- Option B: Improve rights of recourse for consumers
- Option C: Improving transparency – helping consumers to make better choices
- Option D: Penalties for tax advisers
- Option E: Maximising the regulatory/supervisory role of current professional bodies
- Option F: External regulation (i.e. register with government regulator).
Most of these options are self-explanatory but the last one could include
- a fit and proper person test to register
- possessing relevant qualifications or length of professional practice
- having professional indemnity insurance
- being registered for anti-money laundering supervision
- not having been subject to a penalty for promoting or enabling tax avoidance
- up to date with their own tax affairs (this could be challenging!)
- up to date with responsibilities as a company director i.e. was not an undischarged bankrupt or a disqualified director
- not having been expelled by a professional body for misconduct
- regular reviews.
Readers who have an interest in this matter are strongly urged to respond to the consultation and answer the 31 questions asked in the paper.
Many accountants might regard this process as positive, since it could result in the outlawing of unqualified, incompetent and unethical rivals. On the other hand, others may be fearful that it will constrain their own activities and lead to a vast amount of additional red tape.