Key points

  • The consultation is proposing the wrong solution to a problem which is partly due to HMRC’s failure to respond to issues which it is in the best place to police.

Consumer protection

  • HMRC “spotlights” are only read by tax nerds. HMRC needs to be better.
  • HMRC’s issue is with a very small minority of businesses who, regardless of what you propose, will continue to make money bu preying upon the greedy and vulnerable.
  • Membership bodies give individuals a framework within which they can fulfil those ambitions.

Our response

Raising standards in the tax advice market – strengthening the regulatory framework and improving registration

The vast majority of tax advisers in the UK work for firms regulated by professional bodies, keep up to date and are technically competent. They are also members of professional bodies.

The proposals in the consultation are trying to build a case for regulation for regulation’s sake, with no ascertainable purpose or benefit to anyone, not even HMRC. As the consultation document states, those who give tax advice or co-ordinate its provision (i.e. those within the broadest scope of your proposed net in Question 19, are already required to be registered, on pain of criminal penalties, under the anti-money laundering (AML) legislation and those who interact with HMRC’s systems are also required to be registered with an Agent Services Account.

The registration already exists. HMRC’s problem is dealing with those who do not obey existing laws or who purport to find a war around them. Additional regulation will not change the behaviour of those people.

The vast growth in complexity and volume of UK tax laws has led to increased levels of specialism which needs constant continuing professional development (CPD) to keep up to date.
There is no fundamental problem with the tax adviser market. What there is are

  • Pedallers of schemes which are scams, e.g. umbrella schemes
  • Unscrupulous repayment claim providers (not all of these businesses are unscrupulous) (let’s call these two groups “bad actors”)
  • Coupled with HMRC’s unwillingness to go outside the tax sphere to other agencies and departments for help and
  • The failure of HMRC to follow the examples of other tax authorities, notably the Australian Tax Office (ATO) to warn those who might be taken in by those referred to above of the obvious signs they might be making a poor choice. HMRC “spotlights” are only read by tax nerds. HMRC needs to do better.

The outcome of these factors is that first consumers are adversely affected and second, HMRC create more work for themselves by failing to deal swiftly with bad actors. HMRC is the body with the timely data on the actions of bad actors, yet fail to close them down or alert the public or business.

The bad actors are rarely members of professional bodies and requiring them to be members would not change their behaviours. Members of professional bodies are members because they want to enhance their skills, their reputation and help clients

In our experience, the standard and competence of tax adviser far exceeds that of the HMRC staff with whom we deal, including one recent example of a caseworker who was trying to apply law 9 years out of date and whose analysis consisted of a one page HMRC summary of some, but not all, exceptions to the now repealed rule he was seeking to apply. On four occasions in recent years we have caught HMRC staff making up new rules to prove their case.

Consumer protection

Technical competence, skills etc are effectively policed by users of tax services and insurance companies. Clients will go elsewhere, talk to other clients etc., and insurers will start to refuse to pay out or even insure those who consistently give bad advice.

As we said in our response to your consultation in 2021, a requirement to have professional indemnity insurance (PII) should be, and is the answer. Our main caveat to that is the ever shrinking availability of this product and its cost (in our case 10% of turnover including insurance premium tax).

Consumers should be alerted to bad actors. Obvious red flags should be highlighted by HMRC, possibly on every email, document and form it produces. Red flags should include

  • Being asked to pay a substantial upfront fee
  • Being asked to not tell HMRC what you are doing
  • Being asked to assign your right to repayment (no longer legally possible but people will still ask)
  • Being encouraged not to take “independent” advice
  • Not having PI cover
  • The old maxim that “if it sounds too good to be true, it probably is too good to be true”
  • You were cold called
  • Usual fraud checks e.g. the firm’s name is XYZ Limited but you are asked to sign up to, or pay, John Smith.

This should be done in conjunction with consumer protection bodies and local authority trading standards.

Bad actors

See our responses to your questions.

We believe this consultation is ill conceived. It treats the profession as a uniform whole, and that a solution must be found. Whereas, 99.99% of the tax profession works well; HMRC’s issue is with a very small minority of businesses who, regardless of what you propose, will continue to be undeterred by AML requirements, insurance requirements and will continue to make money by preying upon the greedy and vulnerable.

They do not need better training; they need to be put out of business.

Your questions

Question 1: Do you agree the limitations in the partial framework across the tax advice market contribute to issues observed? Select all that apply:

  • no requirements of technical competence to practice
  • no general deterrents for dishonest practitioners operating in the market
  • disjointed monitoring of tax practitioners
  • variations in the action taken against substandard and unscrupulous tax practitioners
  • clients being unable to easily assess the competence of a tax practitioner
  • other, please specify

Please give reasons for your answer.

No.

The bad actors you complain about are technically very competent. They know the rules very well but claim to have a work around your rules. As for the profession as a whole, an incompetent practitioner will be found out, lose clients and become uninsurable.

There are many deterrents to prevent dishonesty. First, the criminal law; second a whole host of regimes, ranging from disclosure of tax avoidance scheme (DOTAS), to increased penalties etc.

DOTAS is an excellent example of failure. The honest and competent comply at great cost to themselves or change their business models. For example, because the person responsible for the implementation of SDLT multiple dwellings relief was unaware of DOTAS, we had the farcical situation of advisers having to make DOTAS returns every time MDR was used for a period of 12 months until MDR was added to the list of reliefs for which disclosure was not required under DOTAS. Additional cost and compliance, having to explain to clients that it was right to claim the relief even though the law required its use to be disclosed as a tax avoidance scheme, and for what end? The DOTAS regime is a failure. Most professionals do not come across it because they do not engage in the activity, and those that do include those who do not and will not comply.1

We are now seeing cases in court where DOTAS has not been complied with. And unsurprisingly the businesses concerned have no money to pay the penalties which the Tribunals have held were due. HMRC, too little and much too late.

HMRC must stop trying to pass the buck, or privatise their risk onto the professions. The professions do not have HMRC’s powers of enforcement, and nor do they want them. We saw this with VAT Missing Trader Fraud where HMRC’s attempts were rightfully declared unlawful.2

None of this has anything to do with alleged “disjointed” monitoring of tax advisers. Indeed, given the Professional Conduct Relating to Tax (PCRT) put together by the professions and specifically endorsed by HMRC, and held as applicable to all tax advisers whether in a professional bodies or not3, it is clear that there is nothing disjointed at all.

Variations in action, yes HMRC should be consistent.

Finally, most clients who use tax advisers are in business in one form or another. If they are not, then they are probably on PAYE. Some might be gullible, the vast majority are not fools.

Question 2: Are there other components of a regulatory framework that would support the delivery of these objectives?

To answer this one must look at the problem presented, i.e. lack of clarity of required standards, transparency and enforcement.

  • Firms should, and invariably do, use contracts which give clarity. They are also, or should, transparent on fees. Enforcement begs to question, by whom, and for whose benefit? For clients, they enforce improvements by
  • refusing to pay for poor service, or services not needed or asked for
  • going elsewhere and ultimately
  • by litigation.

Accordingly, save for the issue of bad actors, the problem is rare and massively overstated.

You then set out the objectives to which question 2 refers. These are

  • proportionate
  • additional monitoring and enforcement
  • remove the substandard and unscrupulous
  • engender consumer confidence.

Taking the first two objectives, in an ideal world, every tax adviser would have a random audit of files by an independent monitor. This is time consuming and expensive. Smaller firms simply cannot afford the time and the expense. Imagine every member of the Revenue Bar (which already benefits from AML exemptions) having to do this.

If such monitoring were to be introduced, we would suggest restricting it to those who pay the Economic Crime Levy, as they will already have such processes in place4.

Question 3: Is there anything else that the government should consider?

Yes, see above. Make sure HMRC can act faster when dealing with bad actors.
Inform the public on the signs of a bad actor. Learn from the ATO.

Question 4: Do you think the government should mandate registration for tax practitioners who wish to interact with HMRC?

yes

no

maybe

don’t know

If no, please give reasons for your answer.

First, all tax practitioners, and those who arrange or co-ordinate tax advice are required to be registered under the AML Regulations whether they engage with HMRC or not.

In the Consultation Document you state

“HMRC already registers tax practitioners for access to its online services, but requirements can vary between services and is not required for all non-digital agent services. Having a consistent way of registering tax practitioners would allow HMRC to improve its knowledge of tax practitioners it engages with and to build up a complete record of their behaviour across HMRC’s systems. The second is to strengthen the wider regulatory framework to raise standards in the tax advice market”.

If one is talking about accessing HMRC’s systems on behalf of clients, i.e an Agent Services Account, then definitely, and as you say you already do this.

Your aims are

  1. to improve its knowledge of tax practitioners it engages with and to build up a complete record of their behaviour across HMRC’s systems and
  2. to raise standards in the tax advice market

How would having a tax practitioner register with you give you any indication of their behaviours? It does not, and unless you propose listening in on all of their conversations and reading all of their emails, they would not.

And how would being registered with HMRC raise standards in the tax advice market? Are you proposing honest high level interaction with tax advisers? If so, this would seem to be well outside HMRC’s statutory remit.

Tax adviser consult counsel, we invest in knowledge systems, we purchase expensive books, either online or physical, by esteemed authors. Large firms have dedicated teams of training and education professionals.

The technical and professional standards employed by the vast majority of tax professionals are far higher than HMRC could ever provide.

If HMRC intends to raise the technical awareness of bad actors, then there is no need. They are very aware of HMRC’s position. They choose not to follow it. Registration will not change that.

Otherwise, clients should be free to choose the adviser they wish to consult. So our answer is no, unless they are accessing or inputting data to HMRC’s systems.

This question highlights a key point in this consultation which we will pick up in response to Question 19.
The Consultation conflates all tax professionals with anyone inputting or having some involvement with tax returns or compliance. There are many people and firms, e.g. barristers, who advise on tax as a full time occupation, and would never dream of filing tax returns or assisting in their preparation.

Question 5: What are your views on the intention to apply the requirement to all tax practitioners who interact in any way with HMRC in a professional capacity?

See question 4.

Question 6: HMRC currently applies several checks at the point of registration including: whether the tax practitioner has outstanding debt and/or returns with HMRC, and the status of their AML supervision. Are there additional checks that the government should consider for tax practitioners at the point of registration with HMRC?

We would suggest checks with the Insolvency service to see if they have been insolvent and with the DBS to see if they have convictions for dishonesty. Unscrupulous advisers are unlikely to admit to fraud convictions on their AML applications.

Question 7: Are there specific criteria or checks HMRC should apply if:

an individual, who has previously registered a company with HMRC as a tax practitioner, attempts to register a new company?

a tax practitioner operating as a sole trader becomes incorporated?

No and No. And given the proposed changes to filing accounts etc at Companies House and MTD, we anticipate a move away from incorporated entities to unincorporated entities purely because of cost. Regulatory compliance already costs this firm 2.7% of its turnover. Add to that VAT (one sixth), plus PII (10%), and we are already at 30% of turnover purely on HMRC and regulatory costs.

Question 8: Which approach do you think would best meet the objectives set out in chapter 4?

approach 1: mandatory membership of a recognised professional body

approach 2: joint HMRC-industry enforcement

approach 3: regulation by a government body

Please give reasons for your answer.

This question appears to be saying, “regardless of your answers to Question 4, do you prefer to be shot or hanged?” The answer is none of the above. For the reasons see our introduction and our replies to questions 1, 2, 3 and 4.

Question 9: What are your views of the merits and problems of the 3 potential approaches described in this chapter?

See above.

Question 10: Are there any other approaches to raising standards the government should consider?

Yes, see our sections headed “Consumer Protection” and “Bad actors”. HMRC should also improve its own technical standards which have declined, initially since the 2005 merger of HM Customs & Excise and Inland Revenue, but have fallen more dramatically as cost cutting and the move to online systems has increased.

HMRC cannot expect taxpayers to comply with the world’s longest and probably most complex tax system when it does not train its own staff well enough and does not invest in the systems.

Question 11: Do you think membership with a professional body raises and maintains standards of tax practitioners?

yes

no

maybe

don’t know

Please give reasons for your answer

At present, membership of a professional body is voluntary. Accordingly, those bodies offer many benefits to members to encourage them to stay. These include technical support, continuing education etc. Those who are members of professional bodies are almost exclusively those committed to their profession, their clients and being competent, efficient and effective in what they do. A desire to help people is paramount, indeed in many cases without charging for it properly (the bane of many practice manager’s life).

Our answer is Yes, but not in the way which You think.

Membership of a professional body provides a framework and support for those who want to maintain and achieve high standards. Those standards are achieved through the desire of the individual to achieve them. Anyone who aspires to be a member will be extremely likely to have the requisite behaviours.

Individuals have high ambitions for themselves. Membership bodies give them the framework within which they can fulfil those ambitions.

However, from the context given, we believe that You, the author believes, that being a member of a professional body somehow forces a person to achieve higher standards. We do not believe this to be true. Further, we have seen no evidence (in 40 years) that membership in itself has this effect.

Question 12: What is your view of the capacity and capability of professional bodies to undertake greater supervision of tax practitioners?

We have no current knowledge but we suspect in all cases it is limited. Supervision requires resource and this resource has to be funded. The funds would, logically come from all members, and for some might mean that they can no longer afford membership which would be a retrograde step.

Not all tax advisers are partners in Big 4 firms. A number are sole practitioners, expert in their chosen area of practice.

Question 13: What more could the professional bodies do to uphold and raise standards for their members?

This question is both offensive and ridiculous. The people with whom HMRC have an issue, are very rarely members of professional bodies, and if they are, are often swiftly dealt with.

Your bad actors are NOT members of any professional body and forcing them to join a professional body will NOT change their behaviour. Instead it would shift the burden of policing bad actors away from those with statutory powers and resource of £6.8bn annual budget, i.e. HMRC, to the professions.

Question 14: What additional costs may professional bodies face if strengthening their supervisory processes and/or taking on new members?

See above.

Question 15: What is the best way to ensure current and new professional bodies maintain high standards?

Again in the context of the consultation, the premise is that a bad actor, will no longer be a bad actor because (i) they are now a member of a professional body and (ii) they will need to self certify that they are compliant. Bad actors will simply lie unless monitored and monitoring is expensive.

The consultation is proposing the wrong solution to a problem which is partly of HMRC’s own failure to respond to issues which it is in the best place to police.

Professional bodies maintain extremely high standards for the reasons given.

Question 16: What role could the professional bodies play in supporting the clients of their members?

Professional bodies already provide access to mediation, disciplinary tribunals, education and more.

Their role is to help members become and continue to be the best professionals that they can, as individuals and firms, be.

They are neither designed, nor structured, to support the clients of their members. Further their clients range from multinational enterprises, to charities, private individuals to one man businesses. That is a very broad range of people to cater for.

Question 17: Should the government consider strengthening customer support options beyond the current complaints processes offered by professional bodies?

yes

no

maybe

don’t know

Please give reasons for your answer.

We believe that consumers and small businesses, to focus on two small but key elements of the client base of tax professionals, need more support, access and data from HMRC and better information on what signs to look out for. See our section on Consumer Protection above.

HMRC also needs to do a lot better in providing better quality data and support for taxpayers, especially small businesses and consumers.

The refusal by HMRC to engage on the telephone was indicative of HMRC’s attitude, which can be summed up as “Your problem, not ours, but we will penalise you if you do not produce what we want, when we want it.”

Question 18: What role should HMRC/the government play under approach 1: mandatory membership of a recognised professional body?

Mandatory membership presumes that a professional body would accept anyone who meets HMRC’s standards. This is not the case, even if all exams are passed. This firm has direct experience of this, in that we are regarded as a fit and proper person by HMRC, but are confident that no professional body would permit us to join, unless they were required by law to do so.

Question 19: Do you agree that the requirement should only apply to those who interact with HMRC?

yes

no

maybe

don’t know

Please give reasons for your answer.

Question 19 refers back to Figure 2. This firm is not in any of the categories in Figure 2, either as in scope of out of scope. This firm is in scope of the AML legislation.

So, bizarrely, HMRC, which has AML supervisory powers, is creating a subset of those subject to AML as those who should be “regulated” / monitored / whose standards need to be raised.

The subsequent paragraph does include this firm; but not figure 2.

In answer to Question 19, if by “interact” you mean have access for business purposes to HMRC’ online systems, then yes that there should be some element of monitoring compliance with standards.

We do not agree that approach 1 is the appropriate way forward.

As an aside, software developers design software. If their software does not do what tax professionals need it to do, they will find out very quickly and if they do not update their product, tax professionals will be forced to buy a competitor product of become less efficient. Remarkably, we are aware of firm’s who prepare tax returns but are still heavily paper based.

Question 20: Do you agree that the requirement should only apply to controlling or principals of firms?

yes

no

maybe

don’t know

Please give reasons for your answer.

This makes sense. Why would you want the office cleaner, the IT department, the security guard, summer students, marketing teams, temporary admin staff etc., to be professionally qualified in a tax related body?

This question does raise concerns of how HMRC think tax practices are run.

Should you wish to discuss any of the above with our principal, then he is available at a day rate of £4,500 plus VAT.

References

  1. See for example COUNTRYWIDE PARTNERS LIMITED (formerly known as IPS COUNTRYWIDE LIMITED) v HMRC [2024] UKFTT 00323 (TC)
  2. Commissioners of Customs & Excise v Federation of Technological Industries & Ors Case 384/04 CJEU
  3. See Mehjoo v Harben Barker [2013 EWHC 1500  at first instance.
  4. https://www.gov.uk/government/publications/prepare-for-the-economic-crime-levy/get-ready-for-the-economic-crime-levy

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