Budget 2024: plan to regulate ‘incompetent’ tax advisers

Budget 2024: plan to regulate ‘incompetent’ tax advisers

Mar 11, 2024

The government is planning to crack down on rogue tax agents with plans to strengthen the regulatory framework and even create an independent regulator

The objective is to drive out ‘a minority of practitioners who are incompetent, unprofessional or unscrupulous who continue to operate, harming their clients and the public finances’, said Nigel Huddleston MP, financial secretary to the Treasury.

‘The government has taken recent action to tackle the most egregious behaviour in the market, particularly from promoters of tax avoidance and repayment agents, and has shifted power away from repayment agents back towards the taxpayer. But more needs to be done.’

Although levels of non-compliance are generally higher among taxpayers represented by an unaffiliated tax practitioner than those represented by a professional body member, there are still ‘unacceptable levels of non-compliance among taxpayers using agents who are members of professional bodies’, the Treasury said.

‘The government’s conclusion is that professional body membership improves compliance, but on its own is probably insufficient.’

HMRC has launched a consultation on wide-ranging measures to clamp down on rogue tax advisers, who provide tax advice to clients without any professional qualifications, for example. This would include mandatory registration, strengthening the regulatory framework to establish minimum standards for tax practitioners, improved monitoring and effective enforcement action against tax practitioners.

There are approximately 85,000 tax advice firms in the UK, but ‘almost anyone can start providing tax advice and services to clients and can do so with limited or no oversight if they are not a member of a professional body’, HMRC said.

‘The lack of consistent market oversight results in persistent substandard tax advice and services leading to higher levels of tax non-compliance. In turn, these failures undermine people’s trust in the tax system and result in increased costs for clients and HMRC.’

The idea of regulating tax advisers last gained traction in 2015 when the Treasury drew up plans to impose tough rules on the tax and accountancy profession. In the end the government backed down as the various institutes tightened up the Professional Code of Conduct in relation to Taxation (PCRT).

A tighter framework was also outlined by the Conservatives in their 2017 party manifesto and this led to a consultation on raising standards in the tax market. The outcome of this was a call for tax practitioners to hold professional indemnity insurance.

The latest consultation takes regulation to a new level, setting out the government’s intention to raise standards in the tax advice market through a tougher regulatory framework.

It sets out three possible approaches to strengthening the framework: mandatory membership of a recognised professional body, joint HMRC/industry enforcement, or regulation by a separate statutory government body.

Under the first option, which is preferred by government, tax practitioners would be required to hold membership of a recognised professional body to provide paid-for tax advice and services.

This approach ‘minimises extra costs and burdens to tax practitioners meeting expected standards, provides incentives for substandard tax practitioners to raise their standards and provides opportunities to detect unscrupulous behaviour and take necessary compliance action,’ HMRC said in the consultation. ‘This should provide taxpayers with greater assurance that they will receive quality tax advice.’

However, this raises concerns about whether institutes would want to sign up members who did not hold their professional qualifications, which could undermine the value of professional membership, and would require ‘enhanced supervision of their members’ standards including risk-based checks of practices’.

The joint enforcement model would mean that non-institute members would have to be supervised by HMRC, while professional body members would be subject to the supervisory requirements of their professional body.

Option three would see the creation of a new independent regulator to set, monitor and raise standards across the market, and supervise tax practitioners.

On the regulatory front, interestingly one of the motivations for introducing a new regulatory regime was to close the tax gap. This is described in the consultation as: ‘This could lead to a reduction in the impacts of poor tax advice and services on clients, a reduction in the tax gap and improve HMRC efficiency by reducing work needed to correct errors.’

The consultation also explores ways to strengthen the controls on access to HMRC’s services for tax practitioners.

This would require tax advisers to register with HMRC if they want to interact with HMRC on a client’s behalf. The government will also explore making it quicker and easier for tax advisers to register with HMRC.

One of the options is to introduce a requirement for paid tax practitioners to be a member of a recognised professional body that supervises their professional standards. However, it still has to decide which groups of tax practitioners should be in scope or excluded from the mandatory registration requirements. For example, would barristers and lawyers, insolvency practitioners, for example, have to register with an accountancy body to provide tax advice as they are already regulated?

Huddleston said: ‘The government welcomes views on whether mandating membership of a recognised professional body that supervises tax practitioner standards, for either the whole tax advice market or some tax practitioners, represents effective, proportionate, and reasonable action to raise standards.’

Glyn Fullelove, tax expert at Croner-i and former president of the Chartered Institute of Taxation (CIOT), said: ‘A key question is whether the new regulatory regime would apply to all those offering tax advice or just to practitioners interacting with HMRC.

‘The consultation indicates that the government is leaning towards the latter approach. This may be an area of significant debate, as some ‘bad actors’ in the tax system have avoided direct interaction with HMRC, remaining in the background whilst taxpayers or other intermediaries interact with HMRC.

‘Some professionals who are already regulated such as barristers, solicitors and financial advisers would also be out of scope in any event. The validity and extent of such exemptions may be a contentious area.’

The consultation is extensive and includes 30 specific questions. It is open until 29 May 2024.

Glenn Collins, head of technical and strategic engagement, ACCA UK, said: ‘While the move would be broadly welcomed by ACCA members it is imperative that this is done in a cost effective manner. Such a move should increase the quality of tax advice which taxpayers receive and provide greater assurance to HMRC.

‘However, HMRC will have to be clear and careful on how it defines professional body so those with clear accountability, and public benefit remit backed by clear and transparent standards are included. We will carefully support and advise HMRC to ensure the greatest possible competition and choice in the tax advice market for taxpayers while ensuring an appropriate degree of regulation and protection for taxpayers.’