‘Poorly targeted’ proposals risk eroding tax system trust, ICAEW warns

The operation of the tax advice and compliance market in the UK could be adversely affected if the government goes ahead with plans to tackle the small number of tax advisers who facilitate non-compliance, by introducing measures that could potentially catch all reputable tax advisers, the ICAEW has warned.

In its response to the government’s consultation on enhancing HMRC’s ability to tackle tax advisers facilitating non-compliance, the Institute warned that the government’s plans could “increase costs for taxpayers, have an adverse impact on taxpayer compliance and act as a barrier to growth”.

ICAEW said that the bar must be set at an “appropriate level” that does not impact on the good work undertaken by reputable tax agents who help taxpayers and support compliance.

Given HMRC’s endorsement of PCRT and the alignment of the HMRC standard for agents with this, ICAEW has asked HMRC to agree that a tax adviser or agent who complies with these standards should never be subject to these new powers.

ICAEW added it welcomed the measures to broaden the disclosure of HMRC’s concerns about tax advisers to professional bodies. This would support its role as an improvement regulator to provide targeted support, and deliver appropriate interventions to its members, which would be in the public interest.

However, it was concerned that the proposed measures did not match the intended target outlined by the government. The measures take the dishonest conduct rules for tax advisers as the starting point, but these rules were created for a different reason and changing them would result in draconian provisions applying to behaviours that fall well short of dishonest conduct.

Any legislation should contain appropriate safeguards, guardrails and sanctions that are proportionate and easy to apply, the Institute said.

Additionally, the consultation offered little to value and support the role of most tax agents who are doing a good job – whether professionally qualified or otherwise – by making it clear that they are not the intended target of these provisions.

The Institute said the consultation provided no compelling evidence that the bar for the dishonest conduct provisions, framed in 2012, was set too high. Instead, it said that amending the processes and increasing the sanctions for dishonest conduct should be “explored further”.

If these proposals go ahead, the Institute said the bar would be set too low, with the result that a “quasi-regulatory environment” with HMRC acting as the de facto regulator would be in place, but with “none of the safeguards needed to protect most ordinary compliant tax agents seeking to ensure that their clients pay the right amount of tax”.

Iain Wright, ICAEW chief policy and communications officer, said: “If these proposals go ahead and are not properly targeted, they could lead to significantly increased costs for taxpayers seeking advice, which may have an adverse impact on taxpayer compliance. We are also concerned the proposals may reduce the amount of quality professional advice given to taxpayers, thereby reducing overall quality and slowing down transactions and decision-making across the economy – potentially hindering growth.

“Such implications are disproportionate outcomes compared with HMRC’s stated aim of only tackling the behaviours of a small minority of agents who actively facilitate non-compliance and would be contrary to the public interest.”