April 2022 - Levy and Levy

HMRC have now followed up on their 2020 ‘Call for evidence into raising standards in the tax advice market’ with a new review: https://www.gov.uk/government/publications/raising-standards-in-the-tax-advice-market-hmrcs-review-of-powers-to-uphold-its-standard-for-agents/raising-standards-in-the-tax-advice-market-hmrcs-review-of-powers-to-uphold-its-standard-for-agents

HMRC begin by making the very pointed statement that:

‘HMRC recognises the importance of good and responsible tax agents in a fair and healthy tax system, although there is no statutory requirement for HMRC to work with a specific tax agent, even where a client authorises one’ (our emphasis).

HMRC go on to say:

‘The majority of tax agents are competent, with high standards. They help customers access reliable tax advice and ensure that they pay the right amount of tax at the right time….There are some tax agents, however, who do not provide a good quality service to their clients. This may be because they lack competency, have not kept up with technical changes, or do not have relevant specialist expertise. A small number are extreme boundary pushers (our emphasis) dishonest or fraudulent…..

HMRC seeks to work with tax agents to maintain high standards by helping them get things right from the start.’

HMRC set out their formidable arsenal of weapons which they deploy against ‘poor agent behaviour’ including:

Suspending agent codes to limit agent access to Self-Assessment (SA) and Corporation Tax (COTAX) functions;
Refusing to deal with tax agents in ‘extreme and exceptional circumstances’ including ‘serious abuse of the tax system;’
Publishing Details of Deliberate Defaulters;
Issuing financial penalties of up to £50,000 and conduct penalties against ‘dishonest tax agents’ under Sch 38 FA 2012;
Disclosure of misconduct to the tax agent’s professional body under s. 20(3) CRC Act 2005;
Penalty under Sch 24 (1A) FA 2007 for deliberately giving a taxpayer false information with the intention of the taxpayer giving HMRC a document containing an error;
Conduct notices and Defeat Notices under the POTAS (Promoters of Tax Avoidance Schemes) legislation in FA 2014;
Penalties under the Enablers Legislation under Sch 16 FA (No. 2) Act 2017;
Criminal prosecution.

HMRC then deal with a number of ‘Principles’ on which they expect compliance from all tax agents. Of particular note are the principles of:

Lawfulness;
Advising on tax planning arrangements; and
Professional judgement and appropriate documentation.

HMRC say:

‘Tax planning should be based on a realistic assessment of the facts and a credible view of the law….Agents should advise their clients where there is a material uncertainty in the law. The risk and costs of challenge by HMRC, and any resultant court case, should be made clear to clients…

Agents must not create, encourage or promote tax planning arrangements or structures that set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation….Agents must not create, encourage or promote tax planning arrangements or structures that are highly artificial or highly contrived and seek to exploit shortcomings in the relevant legislation.’

Agents should keep timely notes of the rationale for judgements exercised in seeking to keep to these requirements.’

Conclusion

The concern which we express is, of course, just how far this is all going to go. Most tax advisers are comfortable with the idea that artificial arrangements of the sort that have been litigated ad nauseam through the Courts over the last few years, (for example mass marketed film partnership arrangements) should no longer feature as part of any advice given to a client. ‘Bespoke’ tax planning, on the other hand, is an area where there are likely to be some significant differences of views between advisers and HMRC, and we suggest these differences may well become more stark as time progresses and HMRC continues to ‘ramp up’ its campaign on ‘unacceptable’ tax planning.

Archive for month: April, 2022