“Modernising Powers, Deterrents and Safeguards – Working with Tax Agents”
1. The Society of Trust and Estate Practitioners (STEP) is the worldwide professional body for
practitioners in the fields of trusts and estates, executorship, administration and related
issues. STEP aims to promote the highest professional standards through education and
training leading to widely recognised and respected professional qualifications. STEP also
works to demonstrate the value of good stewardship and planning across future generations
to governments, professionals, financial institutions and the public. STEP internationally has
over 14,000 members, with almost 6,000 members in the UK. Over 4000 students worldwide
are currently studying for STEP qualifications and in the UK STEP supports an extensive
regional network providing training and professional development.
2. STEP welcomes the opportunity to respond to HMRC’s Consultation: “Modernising Powers,
Deterrents and Safeguards – Working with Tax Agents”. Many of our UK members are actively
involved in preparing HMRC returns for their clients as part of their trust and estate practices.
3. We give our responses below to the specific questions raised, but we would like initially to
make some broad comments about the issues raised in the consultation paper. We welcome
the recognition the paper gives to the fact that “tax agents play a crucial role in helping HMRC
to tackle risks to the tax base and execute basic transactions”. A principal business activity of
STEP members is to advise their clients on being tax compliant. STEP condemns tax evasion.
STEP’s Code of Professional Conduct requires that a member “shall at all times observe the
requirements of the law of the jurisdiction in which he practices and shall not aid his clients or
third parties in the breach thereof nor acquiesce in the knowledge of any such breach”.
4. STEP also supports any developments that raise professional standards among tax advisers and
revenue officials. It is important that the public can have the fullest confidence that advisers
and HMRC officials alike will be both technically competent and operate to high professional
standards. Provided it is based on fair and transparent assessments, with appropriate
safeguards, STEP therefore would endorse any work by HMRC to weed out the disreputable or
the incompetent from all areas of the tax industry. We believe that the primary objective of
such work should be to protect the public interest. Other mechanisms are more appropriate to
protect the tax base.
5. We regret that the paper does not give due weight to the problems created by the complexity
of our tax laws making it difficult for both tax advisers and their clients to file accurate returns.
These problems are compounded when tax laws are legislated containing an element of
retroactivity, as has happened on several occasions recently. STEP is committed to working for
a positive and transparent legal and tax environment as it affects family assets and holding
structures. We believe more open and flexible consultations with professionals before tax laws
were drafted would have avoided many of the practical problems encountered in recent years.
Responses to specific questions
Chapter 2
Question 1: Have we identified the correct design principles? In applying these principles, are
there any other matters that we need to take account of?
6. We welcome HMRC’s recognition that “in its interactions with tax agents HMRC needs to
ensure that it has minimal impact on those doing a competent job in assisting their clients in
submitting tax returns”. We are disappointed, however, the design principles do not explicitly
recognise that, in representing their clients’ interests, professional advisers may challenge
HMRC’s interpretation of the tax statutes for perfectly legitimate reasons. Such challenges,
whether successful or not, should not in themselves be taken as indicative of either poor
professional standards or incompetence. As recent tribunal rulings have confirmed, the fact
that HMRC disagree with an agent’s opinion does not mean the agent is guilty of negligent
conduct.
Chapter 4
Question 1: What is the most effective way of assessing the presence of a particular risk across a
tax agent’s client base?
7. We believe that the risk assessment methodology laid out in the paper fails to recognise that
across the tax system some advisers may be operating in areas where the clients they advise
have affairs that are much more complex than the average. Some advisers also specialise in
aspects of the tax system that are much more complex than others – some of the issues that
arise within CGT and IHT may be obvious examples here. Implicit in the paper’s methodological
approach is the assumption that an above average rate of “problems” represents a failure by
the tax agent and the presumption that some form of sanction against the adviser can correct
this. Such an approach may instead result in advisers refusing to take on clients with complex
affairs or advisers becoming reluctant to give advice in areas of particularly complex tax law.
Diminished availability of high quality tax advice in such areas would be a perverse result for
policies with the stated aim of improving the quality of tax returns.
8. At the very least, a more segmented approach is required, judging an adviser’s performance
relative to those handling similar work for similar clients. Ultimately, as the paper itself
acknowledges, “an ability to demonstrate that there was reason to believe that the risk had
been created, carelessly or deliberately, by the tax agent’s actions” is required. The fact that
the paper goes on to acknowledge that such a demonstration of the causality behind the risk
might in practice be very difficult does not alter the fact that such a test is an essential
component of any fair system.
Question 2: How can HMRC and professional bodies best work to ensure risks are resolved for
the future?
9. STEP welcomes the moves HMRC have recently made to build more open dialogue with the
professional bodies and to help practitioners via, for example, the release of the CGT toolkit.
STEP also looks forward to participating in work on the planned IHT toolkit. It would be useful
for all sides if HMRC expanded its programme here and met more regularly with all the
relevant professional bodies. Such meetings would serve as a forum both for HMRC to
highlight areas of concern and for the professional bodies to give early warning of potential
areas of difficulty, allowing a constructive dialogue on how to resolve issues.
10. Where HMRC has written to professional bodies following such meetings to clarify its position
or give guidance on a particular matter, it would be helpful if this could be published on
HMRC’s website. Such communication might be particularly useful in delivering improved
practice in small, local practitioners. While such local practitioners may not belong to any of
the major professional bodies they have an important role to play in servicing some sectors of
the economy.
Question 3: What safeguards would be needed?
11. If significant sanctions are to flow from any action taken by HMRC against a tax agent, it is
essential that the process gives the tax agent a full opportunity to answer the charges against
him and a right of independent appeal. We would also repeat the points we made in response
to Question 1 above regarding the need to establish that errors are indeed either deliberate or
result from repeated and systemic lack of due care.
Question 4: What guidance should HMRC produce for setting the standard of pre-return
assurance work and therefore provide comfort to practitioners that adherence to a certain level
of assurance would amount to a defence against either compliance checks or other actions?
12. It would be helpful if HMRC mounted a national information campaign with seminars, training
material and practical examples of the procedures it expects practitioners to put in place. As
noted earlier, it is important that practitioners with small, local practices should be able to
access these training resources easily.
Question 5: What methods would be appropriate for ensuring that a tax agent’s past failings are
remedied, and good standards are adhered to in the future?
13. We believe it is important to avoid any retrospection in any new procedures that are
introduced. While it is reasonable to seek some form of remedy for failings in the past that
were the result of clearly unacceptable behaviour at the time they were committed, it would
be unreasonable to impose sanctions for past failings to meet standards of pre-submission
compliance checks that HMRC is only now articulating. In terms of ensuring that good
standards are adhered to in the future, a focus on ensuring that that key management
functions are fulfilled by appropriately qualified individuals with clear responsibility for good
standards has clear merits. It is an approach many will be familiar with from money laundering
regulation.
Question 6: Are there cases where it would be appropriate to charge behaviourally based
penalties to tax agents?
14. Where it is clear that a tax agent, not the client, has engaged in unacceptable behaviour we
believe it is right that there should be penalties against the tax agent. It is important that the
necessary burden of proof before taking such action should be high and that the reasons for
deeming the behaviour unacceptable are transparent. Any such action against an individual or
organisation by HMRC is likely to damage seriously the professional reputation of the tax
agent. Such reputational damage may well impose a much more serious punishment than any
financial penalty levied by HMRC. We would reiterate that such penalties are only appropriate
where it clearly established that errors are either deliberate or result from repeated and
systemic lack of due care. There must be a right of independent appeal concerning any
decision to impose a penalty.
Question 7: If financial penalties are appropriate, on what basis should they be calculated: fixed,
up to a certain amount, or linked to the tax at risk, fee income or relevant turnover?
15. Penalties should be proportionate to the degree of intent, the seriousness of the error and the
scale of any likely financial gains flowing to the tax agent from unacceptable behaviour. In
many cases, however, the reputational damage to any tax agent subject to sanctions is likely to
be a severe enough penalty to negate the need for more direct financial penalties.
Question 8: Is there merit in seeking the power to disclose to professional bodies cases where
HMRC are satisfied that there has been persistent careless or incompetent behaviour?
16. The main reasons for wider disclosure by HMRC should always be the “public interest” and
“public protection” rather than simply attempting to preserve tax revenues or attempting to
impose additional penalties to those levied by HMRC on an individual agent. Subject also to
the caveats we have outlined above in our responses to Questions 1 & 3, i.e. that a more
robust risk assessment methodology has been developed and that the tax agent in question
has had a full opportunity to answer the case against him alongside the right of independent
appeal, it seems appropriate to protect the public by making public the findings of any
investigation where an agent has been found guilty of particularly serious misconduct. In such
cases the relevant professional bodies may wish to make their own investigations and impose
their own sanctions. In many instances, however, it may be appropriate to focus on ensuring
that an agent’s employer has adequate training and checking systems in place, as with money
laundering regulation. As we note in our response to Question 1, Annex C, in some other
jurisdictions there is much clearer emphasis on ensuring that any business has adequate
systems and appropriately qualified individuals in key positions. We would also note that
paragraph 4.18 talks exclusively of “accountancy practices”. In reality a wide range of other
professions and organisations are involved in giving professional tax advice.
Question 9: What safeguards would be needed?
17. It is important to ensure that those who are members of professional bodies are not subject to
greater penalties for equivalent behaviour than those who are not members of such bodies.
Given the potential damage to reputation, publication and referral to a professional body
should require a very high burden of proof and should be considered in only the most serious
cases where there has been intent to deceive or reckless carelessness of the sort which would
put the public at risk.
Question 10: Could there be a wider role for professional bodies working with HMRC to ensure
that a tax agent’s past failings are remedied, and good standards are adhered to in the future?
18. Professional bodies are not resourced to monitor closely and continuously the work of
members (or non-members). In addition, as the paper acknowledges, the role of the
professional bodies is rightly focused on maintaining professional standards and protecting the
public, not collecting tax revenues.
Chapter 5
Question 1: Is a form of registration for tax agents needed in the UK?
19. It is not possible to give a clear answer here without specifying in more detail what form of
registration scheme is envisaged. A purely bureaucratic exercise (sometimes called a “dog
licence” registration scheme) would seem likely to achieve little. We note, for example, that
the IRS scheme in the US has been sharply criticised by the Treasury Inspector General for Tax
Administration. A broadly based but more demanding registration scheme may nevertheless
be difficult in practical terms. Not only do many tax agents currently not belong to any
professional body, but as Paragraph 1.2 of the consultation notes, tax agents range across a
wide range of professions and, by implication, a wide range of professional bodies. It is also
worth noting that the introduction of a registration scheme by HMRC would leave many tax
advisers in a position where they were effectively regulated not only by HMRC, but also by a
variety of differing and uncoordinated regulators ranging from the FSA to the professional selfregulatory bodies such as the Solicitors Regulation Authority and the accountancy bodies. Such
a multiplicity of regulation would inevitably add to costs.
Question 2: What benefits for tax agents and taxpayers could a registration system deliver?
20. Both taxpayers and reputable tax agents would benefit from a registration scheme that would
give taxpayers confidence that they were dealing with individuals who are appropriately
qualified and can be expected to show due diligence. It would be important, however, that
such benefits were not outweighed by excessive administration costs of any registration
process. Any registration scheme that materially restricted the amount of advice available to
the public or raised its price beyond the reach of individuals and small businesses would not be
in the public interest.
21. To be effective, it would also be essential that any registration scheme allowed the public to
make an assessment as to whether a tax agent was appropriately qualified for the specific
types of tax issues with which they needed assistance.
Question 3: Would there be benefit in defining “tax agent” in legislation? Should such a
definition distinguish: those who do not offer their services for reward, or those that are
members of a professional body, and should different provisions apply to them?
22. For the great majority of the public, with relatively straightforward tax affairs, the costs
associated with putting tax agents on a statutory basis seem likely to outweigh the benefits.
We would be particularly concerned about the impact on the availability of free or limited cost
advice on tax issues from organisations and individuals (including friends and family) who help
the elderly or the vulnerable.
Question 4: How wide should the definition of tax agent be: should it embrace lawyers, valuers,
shipping agents, payroll bureaux, and others? If so, for which functions and in respect of which
tax regimes?
23. The tax system touches upon such a wide range of activities and professions that it serves little
purpose to try and define “tax agent” in terms of business activity such as “accountant” or
“lawyer”. It is preferable to define tax agents in terms of their professional competence to deal
with specific issues regardless of the sort of organisation they are based in.
Question 5: What additional issues need to be considered in respect of tax agents who are not
based in the UK?
24. Given that some UK taxpayers have extensive affairs overseas or may be based for large parts
of the year outside the UK it is entirely appropriate that they should be able to use tax agents
based in other jurisdictions. Such tax agents should demonstrate the same professional
competence in relevant UK tax matters as equivalent UK based tax agents.
Annex C
Question 1: Are there any other international models that we should consider?
25. The two principal international models (the US and Australia) outlined in the discussion paper
are both schemes operated by the tax authorities. As noted earlier, the US Treasury Inspector
General has sharply criticised the US scheme. Another weakness of such models is they fail to
recognise that tax advice is often just one part of a range of financial and legal services that
professional advisory businesses supply to their clients. In just focusing on the tax advice
component (and within that placing a strong emphasis on tax collection), such models fail to
look at the wider public policy objectives of protecting the public and encouraging high
standards across the broad range of related professional services offered to the public – often
as part of a single service “offering”. An alternative approach, such as that used in Jersey, is to
set up a wide ranging regulator (in the case of Jersey, the Jersey Financial Services
Commission) with the power to look across the totality of any organisation offering financial
services and related professional advice, ensuring both high standards of behaviour,
appropriate technical qualifications for all key management positions and full accountability in
terms of both fulfilling legal requirements and also protecting the consumer. In all such
schemes, however, it important to ensure that compliance costs remain proportional to the
benefit and do not price advice out of the reach of those who might benefit from it.