HMRC consults on the tax advice market
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This month’s technical corner article comes from Emily Deane TEP, STEP Technical Counsel.
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HMRC published a consultation on 23 March which seeks views on its proposals to introduce a requirement for tax advisers to hold professional indemnity insurance (PII), including minimum levels of cover, and how the policy can be enforced and implemented. The consultation also seeks views on the relevant definition of tax advice to help with its future policy work in this area.
The consultation document explains that the tax advice market is currently not regulated with a minority of tax agents operating unprofessionally and incompetently, putting clients at risk, and leaving them without effective recourse should something go wrong.
Points for discussions in the consultation include:
1. In order to identify who should hold PII, it will be necessary to define what constitutes ‘tax advice’. For example, would a narrow definition such as ‘tax return compliance’ be acceptable or is a broader definition required such as ‘encompassing all tax work undertaken in the UK or related to UK taxation’. Should an existing definition, such as within the AML regulations, be adopted?
2. If a mandatory PII scheme is going to be implemented – how will it be effectively enforced? A mandatory PII requirement could impact tens of thousands of advisers who may not currently hold professional indemnity insurance and how will HMRC confirm that PII has been obtained? It could introduce methods of checking for proof of PII or proof of membership of a professional or regulatory body which also requires PII as a condition of membership.
3. Consideration will need to be given to potential sanctions such as the appeals and review process and whether breaches would constitute a civil or criminal offence.
4. HMRC will need to consider the balance of protection of consumers with affordability and set minimum standards of cover, excess levels, run off etc. The insurance sector will need to be consulted on these more nuanced details.
5. There are concerns that introducing PII requirements for those who are not currently insured, and carry more risk if unqualified or working in areas of high risk, could result in premiums going up across the whole tax advice market. Can HMRC ensure that costs will remain accessible?
6. There will need to be a contractual relationship between the taxpayer and the adviser since any claim by a taxpayer is only likely to succeed if there is a contractual relationship in place for which they have suffered loss.
HMRC has been hosting discussions with stakeholders on these proposals and STEP will be submitting its own response to this consultation and jointly with the Professional Conduct in Relation to Taxation (PCRT) working group by the deadline of 15 June.