Tax compliance and advice – regulatory considerations

2020 hasn’t just been about pandemic driven changes to working environments and styles. In this blog we look at the perhaps overlooked developments around compliance in taxation.

Almost every Mercia client provide tax services – helping clients with their returns and providing timely advice. Most practitioners are attending regular CPD courses to ensure that their work and advise is of a superb standard (mentioned with a quiet plug of the Mercia Live Autumn Programme!).

The environment in which those tax services is provided also needs consideration.

Professional Conduct in Relation to Taxation (PCRT)

PCRT is jointly prepared by seven professional bodies (AAT, ACCA, ATT, CIOT, ICAEW, ICAS, STEP) and sets out the fundamental principles and standards for tax planning that all members are expected to follow.

Tax agents who are not a member of one of these professional bodies are instead subject to HMRC’s Standard for Agents.

There have been two key developments around PCRT this year;

• The ICAEW’s Quality Assurance Department (QAD) has notified members that PCRT is an area of focus for them in 2020. COVID-19 has slowed the impact of this initiative, but we are aware of a top 4 firm having a remote PCRT focussed review this summer and have seen it also filtering into other firm’s Practice Assurance visits. ICAEW firms should be aware that QAD inspectors will want to understand how the firm has incorporated the requirements of PCRT into its policies and procedures.

Tip: Consider when you are next expecting a QAD Practice Assurance visit for your firm. How can you demonstrate awareness and implementation of PCRT for your practice?

We are currently developing a new e-learning module on PCRT that will help in making your teams aware of the requirements and guidance contained in PCRT. 

We have also published a blog about common findings from our tax file reviews and this includes commentary about the presence of PCRT in the day-to-day life of a tax advisor, please click here to read more. 

• The ICAEW has published additional guidance in support of PCRT, especially targeted to firms providing Research and Development tax credit services (whether the firm is producing the claims or working with a third party).

Tip – This is short straight-forward guidance and all those working with Research and Development claims should be aware of its contents. It will also be covered in the e-learning module mentioned above and in our new course Research and Development – A Complete Practical Approach, running from 8 October this year.

HMRC’s Call for Evidence on Raising Standards in the Tax Advice Market

HMRC have been running roundtable discussions (of which Mercia took part) and asking for evidence around how to raise the standards in the tax advice market.

This follows the 11 March 2020 budget during which the government announced that it would be launching a consultation as part of its response to the independent review into the loan charge. While it was the controversial loan charge that prompted this renewed evidence gathering and  planning for the future, it is clear that the output could be much wider and affect tax advisors operating in all work areas.

HMRC recognise that the majority of good 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 their professional bodies expect of them.

Of course, it must be recognised that not all tax agents (or parties that offer tax advice) are members of professional bodies. Anyone can set up as a tax adviser. And while they must be supervised for anti-money laundering purposes, there is no market-wide competence requirement or code of ethics except the HMRC Standard for Agents mentioned above.

A number of “areas to explore” are outlined in the call for evidence including:

1. Better use of HMRC’s or government’s current powers
2. Improve rights of recourse for consumers (nothing that advisors in the unsupervised sector are not required to hold professional indemnity insurance)
3. Improving transparency – helping consumers to make better choices (and understand the difference between agents who are members of professional bodies and those who are not).
4. Penalties for tax advisors
5. Maximising the regulatory/supervisory role of current professional bodies
6. External regulation

The government recognises that this is a complex market and any intervention will need to be based on good evidence and a thorough understanding of the potential impacts.

Responses to the call for evidence have been submitted by professional bodies, other working groups and advisors themselves.

We now await news of the next steps but it is initially looking as though E, C and B have the strongest support for future development.

We’ll be talking about these aspects and more in the Mercia Compliance Update Conference 2020 on 26 November 2020.