Raising Standards in the Tax Advice Market

Following the call for evidence earlier this year, HMRC have now published a summary of responses and next steps.

As discussed in our August 2020 blog “Tax compliance and advice – regulatory considerations”, HMRC recognise that the majority of advisors add value, both for their clients and for compliance. However, there are concerns around other advisors who might not have the required expertise and/or do not adhere to the high standards expected.

A large proportion of tax agents (estimated at 70%) are members of professional bodies that contribute towards and require their members to comply with Professional Conduct in Relation to Taxation (PCRT). However, without restrictions on use of the name “tax advisor” or restrictions on setting up as a “tax agent” with HMRC, any individual or business can operate as a tax professional and for those not subject to PCRT, HMRC set out a Standard for Agents.

In his foreword to the call for evidence responses document, the Rt Hon Jesse Norman, Financial Secretary to the Treasury, sets out that responses received to the call for evidence have confirmed that the market for tax advice is not working as well as it should be. Some advisers are incompetent, and some actively bend or break the rules.

A wide range of possible interventions were discussed, as set out at points 1-6 in our August blog.

In the responses document, HMRC explained that there were some areas within the call for evidence where respondents’ views were similar and, naturally, some areas where they were more mixed.

There was general consensus on:

• Any interventions should be proportionate, risk based, and only made when necessary.
• The fact that the line between tax advice and tax services is not easily drawn. The scope of any proposed intervention in the tax advice and tax services market, or legislation in relation to tax advice, would have to be considered very carefully. The role of tax software was felt to need particular consideration.
• Awareness of HMRC’s Standard for Agents is low.
• Good practice centres around competence, behaviours and certification. Up to date knowledge and adoption of ethical principles is particularly important.
• A belief that most of the problems lie within the circa 30% of unaffiliated tax advisors and, as such, a one size fits all solution may not be appropriate.
• A need for greater consumer protection, while maintaining the principle that the taxpayer is responsible for their own tax affairs. As professional body membership already provides a degree of taxpayer protection, this need for greater protection is again mainly for taxpayers using unaffiliated tax advisors.
• HMRC should use its existing powers more effectively, rather than seeking new ones.

There was no consensus around the need for a new external regulator for tax services other than, should a regulatory body be created, it must be independent of HMRC.

Next Steps

Considering the evidence collected, HMRC now plans to:

1. Improve awareness of the HMRC Standard for Agents with target audiences (unaffiliated advisors and advisors who do not transact directly with HMRC*)
2. Conduct and publish the results of an internal review of the powers that HMRC already has that help to enforce the Standard
3. Consult on introducing a requirement for all tax advisors to hold professional indemnity insurance. This consultation will carefully consider:
   1. A definition of “tax advice” and the activities within scope
   2. Impacts and burdens
   3. Options for enforcement
   4. Operability of the policy
4. Continue to work in partnership with adviser professional bodies to “understand the role they play in supervising and supporting their members and raising standards in the profession”
5. Tackle high costs to consumers of claiming tax refunds

* In the original call for evidence, HMRC gave the example of those that provide advice but do not transact directly with HMRC as:

“31. Whereas an employment agency guiding a contractor to work through a particular company structure not only does not have a direct touch point with HMRC but also may not see themselves as providing tax advice, instead just making arrangements about how individuals are paid. Similarly, the individuals may not see that they are receiving tax advice.”

As we monitor the progression of these next steps, it may be necessary to consider the impact on in-house payroll teams and others caught by the (as yet undetermined) definition of “tax advice”.