Emma Rawson updates the Making Tax Digital Tracker for Bloomsbury Professional Online.
Read this article from Emma as she looks at an important consultation announced as part of the Spring Budget.
On Spring Budget day HMRC issued a consultation on raising standards in the tax advice market. This consultation could have been easily overlooked amongst some of the more headlining grabbing announcements, but it is of vital importance to everyone working in tax.
The Government has long been concerned that some tax agents provide substandard advice and services to their clients. This affects not only the clients themselves, but the Exchequer and wider public trust in the tax system. In contrast to many countries, there is no statutory regulation of the tax advice market in the UK – something which often comes as a surprise to the public. As a result, there is limited redress to tackle these ‘bad’ agents.
The consultation proposes three potential methods to address these issues and strengthen the tax regulatory framework:
Although no decision has yet been taken, Option 1 is clearly the government’s favourite. Option 2 is not favoured, mainly due to concerns that HMRC could end up acting as both judge and jury – being responsible for both checking compliance and setting and enforcing standards for tax practitioners. The consultation proposes that Option 3 is the ‘fall back’ if Option 1 does not go ahead, whilst expressing concern that introducing a new regulator would be expensive and complex.
It therefore seems that, unless strong objections are raised during the consultation, we could well see tax practitioners being required to become a member of a professional body. However, the consultation is quite clear that this alone will not be enough to address the government’s concerns. Some sobering research published as an annex to the consultation indicates that HMRC see affiliated agents as also not being up to scratch – for example stating that 22% of corporation tax returns filed by affiliated agents are non-compliant. It therefore seems that, if we do go down the route of Option 1, professional bodies and their members will be expected to do more to raise standards.
Whichever route is taken, greater regulation will affect everyone working in tax – whether they are currently a member of a professional body or not.
If professional body membership becomes mandatory, there is the obvious challenge of what happens to those who are currently unaffiliated. A tax agent may be highly experienced and capable without holding a professional body qualification or membership. How are these individuals to be brought into the fold? It might be galling for someone who has worked in tax for decades and built a successful business to be told they must now go to the time and expense of seeking a professional body qualification if they wish to continue to trade. On the other hand, some existing professional body members might feel aggrieved if unqualified agents are simply admitted without going through the same rigorous qualifications they did.
Those existing members of professional bodies will also be likely to see changes if Option 1 is pursued. In particular, will their existing supervision be enough?
As the consultation notes, not all professional bodies are the same, with differing requirements of members and approaches to supervision. It’s envisaged that there will be some list of ‘approved professional bodies’, but which bodies will make the cut is not yet known.
For those professional bodies that are ‘approved’, the government will expect much more from them and their members when it comes to ensuring and enforcing higher standards. This could include, for example, undertaking visits to practices to ensure their ongoing adherence to the required standards.
There are a number of areas the consultation explores which need careful consideration. In particular, who will (and won’t) be in scope?
The consultation proposes that regulation would only be required for those who interact with HMRC in a professional capacity. Whilst this may seem sensible, it would still leave a whole swathe of the tax advice market who do not directly file returns or submit claims for clients (for example some R&D specialists) outside the regulation net. It’s also suggested that tax software developers will be out of scope, despite the increasing use of nudges and prompts and the future potential for technological developments such as AI.
Beyond this, the consultation proposes that the requirement should apply at a firm, rather than individual level. Whist this is undoubtedly simpler, it does raise the question of how we can guarantee that all of the individuals in a firm will be operating to the required level.
Finally, how quickly should any change be made? Whichever option is chosen, it will take time to implement. Under Option 1, time would be needed to bring unaffiliated agents into professional bodies, whereas Option 3 would require a brand new government body to be set up. The consultation estimates a lead time of three to five years, but even that feels optimistic given the scale of the change being proposed.
Whilst the thorny issue of regulation has been discussed for several years now, this latest consultation includes a much more concrete set of proposals than we’ve seen in the past. It therefore looks like some kind of change is on the cards. Having said that, HMRC are very much in listening mode, and no final decisions have yet been taken.
The consultation is open until 29 May. Given the potentially fundamental nature of the changes proposed, I would very much encourage everyone working in tax to ensure that their voices are heard.
Responses to this consultation and enquiries can be emailed to [email protected] or by post to:
J. De Brito
'Raising standards in the tax advice market' consultation
Agent Policy Team
HMRC
14 Westfield Avenue
Stratford
London
E20 1HZ
