Over recent years and months, there has been an increasing appetite in the Government for improving standards and regulation in the tax advice market.
The UK tax code is the longest in the world, and a lot of the reason for this is the creative ways in which certain tax professionals seek to exploit loopholes in the law to save their clients money, leading the Government to have to introduce more and more complex rules to counter these schemes.
In recent years the arguments against these kind of planning schemes has gained a much higher profile and much more emphasis has been placed on the “moral” implications of entering into such schemes which are against the spirit of the law.
The professional bodies such as the Chartered Institute of Taxation (CIOT) has for many years had its code of Professional Ethics for its members, and all members are expected to abide by the principles in “Professional Conduct in Relation to Taxation” (PCRT), however there remain many individuals and businesses in the UK market who are not affiliated to a professional body and therefore are not bound by these rules. The PCRT guidance has been very recently updated, indeed HMRC were identified as a key stakeholder in that process and took part in its formulation.
Further, these businesses do not tend to hold professional indemnity insurance, meaning that when HMRC comes knocking on the door of their unfortunate customers, they mysteriously disappear leaving their customers to have to fight their way through the resulting HMRC challenge and penalties that can result.
Other advisers are not tax specialists but attempt to advise their clients despite a lack of knowledge or experience, rather than deliberately setting out to abuse the system. These advisers are also perceived as a threat.
One of the documents published on Tax Day looks further at this aspect, and a key issue is a desire to require all tax advisers to hold PI insurance. In support of that, there is also a need to define what a tax adviser is, to ensure that it becomes illegal to offer such advice without PI insurance. The Government considers that this will help taxpayers to have trust that there is a method of recourse should things go wrong, as well as giving the adviser added credibility by holding it.
Of course, the downside of such a requirement would be the additional cost, particularly for those individuals with only a small amount of fee income, where the cost of obtaining PI insurance can be disproportionately high. Unless the insurance market can cater effectively for the smaller business end of the tax market, there is a risk that a lot of these may decide to cease trading.
The consultation is therefore seeking views on making PI insurance mandatory, how to define what constitutes tax advice, and appropriate sanctions for non-compliance.
This serves as a timely reminder for all tax payers to be aware of who they are asking for tax advice, and to check they are a reputable firm both with the experience to advise them, and with the backup of PI insurance to ensure they are covered in the unlikely circumstance that something does go wrong.
More details on the consultations and proposals from ‘Tax Day’ will be published in our news feed over the coming days, or you can email us at Tax@randall-payne.co.uk and we can arrange a call back to discuss anything in more detail.