Host

Stephen Relf, Technical Manager, Tax, ICAEW

Guests

Lindsey Wicks, Senior Technical Manager, Tax Policy, ICAEW

Katherine Ford, Tax Manager, ICAEW

Producer

Ed Adams

Transcript

Stephen Relf: Hello and welcome to The Tax Track, the podcast series from ICAEW where we explore the latest developments in the world of tax. In July, the Government published draft legislation that makes significant changes to the tax system from as early as April 2026 including mandatory agent registration with HMRC and reforms to inheritance tax. In this episode, we’ll explore, ICAEW’s response to the draft legislation.

Lindsey Wicks: There’s no significant deterrent effect on those bad actors. They’ve already got big financial penalties, but it doesn’t seem to stop them.

SR: For some a more pressing concern may be filing income tax returns for 24/25.

Katherine Ford: HMRC is going to open more enquiries into tax returns, looking at private use adjustments, so it’s firmly on their radar.

SR: I’m Stephen Relph, a technical manager for tax at ICAEW. Today, I’m joined by two colleagues from the Institute’s tax team. Regular listeners will recognise Lindsey Wicks, Senior Technical Manager for Tax Policy, and Katherine Ford, Technical Manager for Personal Taxes. Welcome Lindsey and Katherine.

Let’s start with a consultation on draft legislation for Finance Bill 2025/26 and in particular the measures directly affecting agents. So they are mandatory agent registration with HMRC, new powers for HMRC to tackle agents facilitating noncompliance and criminalisation of failure to make a DOTAS disclosure – so that is disclosure of tax avoidance schemes. ICAEW has now responded to the consultations. Lindsey, I believe it has significant concerns with the draft legislation. Is that correct?

LW: It is, but I should set out by saying that ICAEW does support the overall policy objectives, and that is improving standards in the tax advice market and also driving out the bad actors. But we are concerned that the legislation as drafted misses that target, and instead it imposes significant extra burdens and costs on the compliant majority. But it’s not just the tax advisers themselves that are potentially affected. There is a wider impact, we think, and that is, it could make advice unaffordable or inaccessible for taxpayers, and that would undermine tax compliance and potentially widen the tax gap. Some of the measures could harm the perception of the UK, and I’ll explain that a little bit more as we go on. And as we know, the professional business services sector is one of the key sectors in the government’s industrial strategy, and actually it weakens that sector.

SR: Now, we did talk about the measures in some detail in an earlier episode, Lindsey, but perhaps you could give us a quick overview of them now.

LW: So the agent registration is mandatory from April 2026. There’ll be a new agent registration system, and that’s backed by a £36m investment – I think that’s more likely from April 2027. There are currently 19 different systems covering 29 different HMRC services. Not all of those services are currently on the agent services account, the ASA, but we do understand that agents with ASA access won’t need to re-register. But it’s unclear if they’ve got legacy codes for other agent services, and whether they’ll need to link those codes to their ASA code – and, indeed, how HMRC can police access to those legacy systems as well. If you are in scope to apply for registration, the tax adviser has got to meet three eligibility conditions, conditions A to C, but condition A actually contains a lot of sub-conditions as well that have got to be taken into account.

SR: So it sounds like there are quite a lot of known unknowns to do with agent registration, and I’m guessing we have specific concerns with the legislation itself as well?

LW: We do support the concept of registration, but with the caveat that it’s got to meet the needs of firms of all different sizes. By limiting registration to those that interact with HMRC systems, [it] is flawed, because we know that a lot of those bad actors stand back. They give the advice and they let people get on with filing their tax returns.

I mentioned those eligibility conditions, and some of them are quite problematic. In particular, there is the condition that the tax adviser and each senior manager within that tax adviser does not have any outstanding tax returns or amounts of tax due. Now that is a slightly familiar concept because within professional conduct in relation to taxation, PCRT and HMRC’s standard for agents, there is a requirement to be up to date with your own tax affairs. But that only applies if you’re actually working in tax. But this potentially goes in a multidisciplinary firm to all partners within the firm or principals within the firm, and trying to police that or manage that within – you know, some firms have got close to 1,000 principals – that is a massive task.

Another one of the conditions – so, condition B – is that you’re complying with HMRC standards for agents. Now, this feels like quasi regulation, because as soon as you start monitoring and enforcing against the standard – that’s what a regulator does, and it does feel, as we’ve said before, HMRC has got a conflict of interest within that role. There’s also issues. Obviously, if you get your agent access suspended, that’s business-critical and also critical for the taxpayers that you’re acting for. And there’s a real lack of timeframes within the legislation for HMRC to act upon information that you give to try and resolve issues, and enough safeguards. There’s also lack of clarity on the senior manager definition. So I mentioned that each senior manager has got to have their tax affairs up to date, but it’s not really clear who is a senior manager. And the timing, April 2026, it obviously coincides with the introduction of Making Tax Digital for income tax. So a lot of agents are really concerned. You know, there could be disruption to their agent registration and their ability to act for taxpayers at that critical time.

SR: From that there is an awful lot potentially wrong with this, and it almost sounds like it could be unworkable. Are we asking the Government to think again then?

LW: We are. You know, we want to work with the Government to get the drafting of this right, but equally, it does feel like we need time to do that. And, you know, there’s never a good time to introduce a big change, but this is a big change alongside the introduction of Making Tax Digital for income tax. So we have also suggested that this should be deferred till April 2027, at the earliest.

SR: So that’s agent registration. I think perhaps more worrying for me is the new powers around agents facilitating noncompliance. Could you quickly run us through those as well?

LW: Yeah, so we’ve currently got the dishonest conduct rules, and the plan here is to take those rules and lower the bar to tackle deliberate conduct, but also to change the order in which action can be taken against agents. So they’re going to change the order so that a file access notice can be issued before a conduct notice. And the idea is to speed up the process. But in doing that, there’s some safeguards being cut out. And the other big change is that penalties will be based on potential lost revenue. The minimum penalty will be £7,500 with a maximum of £1m.

SR: So I’m guessing, with that in mind, then we again have some real concerns with the draft legislation?

LW: We do, and the first one is around the drafting of what is deliberate conduct. What the legislation currently says is that a person engages in deliberate conduct if, in the course of acting as a tax agent, the person deliberately does or omits to do something with a view to bringing about a loss of tax revenue. Now that is very wide – every action an agent takes is arguably deliberate. So filing a tax return is a deliberate act. If that tax return contains an error that brings about a loss of tax revenue, then it’s potentially in scope. If there’s an argument about differences in legal interpretation, that’s in scope. So it’s about deliberate conduct, not misconduct.

And calculation of penalties by reference to potential lost revenue means that taxpayers with large liabilities might not be able to get advice – people don’t want to take on the risk; a firm’s own penalties and fines are not something that it can insure against. So if you’ve got a potential lost revenue, deliberate conduct, and if you’re giving lots of advice, then the chances of getting those multiple penalties that are uncapped can escalate quite quickly, as currently drafted. Then you can see that some taxpayers, some big companies, high-net-worth individuals, just won’t be able to have people take on that risk and give the advice.

And then the other change, I mentioned the change of order with the file access notice. The other change here is that you only need a reason to suspect deliberate conduct. So that’s a low bar, and deliberate conduct is in itself a low bar, and ICAEW members have an ethical duty to preserve confidentiality. And actually in terms of a file access notice – if you think about it internationally, the perception of the UK tax system – if an agent can make an error on one taxpayer, and that means that another taxpayer’s files can be accessed by HMRC, that seems quite aggressive of a tax authority.So our concern is it could harm the perception of the UK tax system and make people not want to invest in the UK.

SR: So with that in mind, then what are we asking of the Government?

LW: We’ve asked for the legislation to be reframed to make sure that the actions for deliberate conduct must amount to misconduct. We’ve asked that agents can take all reasonable steps to preserve confidentiality of their client papers. And on penalties, we’ve asked for proportionate fixed sums, or that penalties are linked to fees and not lost revenue.

SR: So the final one for agents, then, is the new powers around promoters. Could you quickly talk us through those?

LW: Yeah, there’s lots of changes here. First of all, there’s a lot more powers around being able to issue information notices to different parties to get behind who is promoting tax avoidance. There’s also a change for legal professionals, and that is the removal of the restriction to publish details about legal professionals behind tax avoidance schemes. And then in terms of the DOTAS disclosure of tax avoidance scheme rules, there are changes to the offences and penalties, and the key one here is the introduction of a strict liability criminal offence for non-disclosure of a scheme. There are also promoter action notices, and these will require businesses to cease providing products or services to promoters that are connected to the promotion of tax avoidance. And then the final one is universal stop regulation. So we’ve currently got stop notices that apply to individual promoters to tell them to stop promoting schemes, but these would be regulations that would apply universally.

SR: This measure is quite easily overlooked, given that it relates to promoters, but clearly it’s going to have a wider impact than that. I’m assuming we have quite a few concerns with the way the legislation is drafted?

LW: Yes. So the legislation followed very quickly after we had the consultation, and that was acknowledged in HMRC’s consultation outcome. In our earlier representation, we’d highlighted that the DOTAS rules are unsuitable for criminal sanctions. DOTAS rules – the hallmarks are deliberately vague because they’re trying to encourage disclosures. And a lot of the time, people are relying on guidance, for example, for the financial products hallmark. There’s a lot of standard planning that happens in the M and A merger and acquisition space that is effectively scoped out by guidance. But do people want to be relying on that guidance if they’ve got a criminal sanction hanging over their head? And there’s no significant deterrent effect on those bad actors; they’ve already got big financial penalties potentially in play if they don’t disclose but it doesn’t seem to stop them.

SR: We all have an interest, though, don’t we, in driving out the bad actors? Are we working with Government to improve it so that it does what we want it to do?

LW: We’ve made suggestions, and others have made suggestions for potentially narrowing the scope of the criminal offence so that it does apply more to the mass marketed tax avoidance. And for universal stock regulations. We’ve also suggested that the bar for issuing though should be higher than reasonable opinion.

SR: When can we expect to find out if the Government have taken our suggestions on board?

LW: So the Finance Bill will follow after the Budget on 26 of November, and hopefully we will get to a better place before we get that legislation, probably early December.

SR: That’s great. Thank you, Lindsey, and I’m sure you’ll be back at some point on the podcast to discuss the shape it’s going to take. Well, the Finance Bill isn’t just about agents and, Katherine, I know you’ve been very busy looking at the draft legislation on inheritance tax. What’s changing there?

KF: We have two major changes, actually ,coming in for inheritance tax, both of which went out for consultation earlier in the year. So first up, from April 2026 we’ve got changes to agricultural property relief – APR – and business property relief – BPR. They will have a combined cap or an allowance, if you want to call it that, of £1m that can qualify for relief at 100%; and if you have eligible assets that are worth more than that £1m, then your excess over £1m only gets relief at 50%; previously, the reliefs were unlimited. And for an individual, the £1m cap will refresh every seven years. So anybody with trusts that experience exit and 10-year charges, they will also be affected if they are holding APR and BPRs.

SR: So this sounds like a huge change for many family businesses. Is that correct?

KF: It is. You know, people have been planning their affairs for 30 to 40 years on the basis that they would get unlimited relief. You might have seen the changes referred to as the tractor tax in some areas, particularly because farmers have had much more of a collective voice and have been protesting publicly about the changes. In terms of the numbers, BPR is actually the bigger problem. Historically, BPR claims have been about double the amount of APR claims. So there is a much bigger problem there, but there’s been less publicity about it. So all trading businesses and farms that are worth over £1m will be affected – we’re talking sole traders, partnerships, shareholders of trading companies. And when the asset values of businesses are taken into account, all you need is some land and some premises and a fairly profitable business – £1m actually doesn’t go very far at all, so owners really should be seeking advice on how they’re going to navigate these changes.

SR: Yeah, you make a really good point there about publicity – ecause I think an awful lot of publicity, quite rightly, has focused on the farming community, but that wider impact on businesses as a whole has probably been missed. So you mentioned the £1m allowance or cap. Is that going to work in the same way as the existing nil rate band and the residents nil rate band?

KF: Sadly, not. As it stands if, on the death of the first spouse, you have any part of the £1m allowance that’s not been used, that excess isn’t transferable to the surviving spouse. We do feel that this is quite a backward step, because the Government promoted the transferability of the nil rate band and the residence nil rate band as simplification measures when they were introduced. So it seems very odd to introduce a relief that then isn’t transferable.

SR: Is this it for APR/BPR, or are any other changes being made?

KF: There is an option for assets that are eligible for APR/BPR, where you can pay the IHT in 10 annual instalments, and those will be interest free. So that will help some people. We also have another change: if you have clients holding AIM-listed shares, historically they got 100%. The rate of BPR on those goes down to 50% from 6 April 2026 but anything at 50% doesn’t use up your £1m allowance. And HMRC have confirmed to us that assets held in a pension fund won’t be eligible for APR or BPR, so in cases where a pension fund, say, holds a company’s trading premises, there’s going to need to be a bit of a rethink on that.

SR: So I imagine there’s an awful lot of concerned people out there who may be thinking of taking action now. Is there anything they should bear in mind?

KF: Certainly, things like wills should be reviewed to see where assets are going to end up. You know, can you take advantage of a spouse exemption? You really need to have a succession plan in place. For example, do your children want to take over the business? And consider if there’s any other planning that can be undertaken in the meantime. If you can’t do any planning to help reduce your IHT liability, then you need to think about, how are you going to pay for any inheritance tax that’s due? We have asked the Government to try and put some measures in place that will ease the funding of the inheritance tax as well.

SR: Now, at the time this was announced, I think there was also mention of some significant changes around pensions. Is that correct?

KF: That is correct. From April 2027, so the year after, HMRC are looking to tax unused pension pots and death benefits and make those liable to inheritance tax as well. As it stands at the moment, the personal representatives of the estate and pension scheme administrators are going to need to liaise with each other about the pension values and about how the nil rate band is going to be apportioned between everybody, and problems are particularly going to arise where your estate beneficiaries are different to your pension beneficiaries. You know, we have blended families. We have forgotten pension pots – I think there’s around two or three million forgotten pension pots in the UK – so the statements of wishes won’t have been updated, and it’s going to be quite a logistical problem. I think we don’t disagree with the policy in principle, but it’s the way it’s being implemented that is causing problems, particularly the change that was announced on L Day, which is that personal representatives are now going to be solely liable for paying the inheritance tax – and that potentially is on funds in a pension that they don’t even control. HMRC are trying to put in a right of recovery so the personal representatives can recover funds from a pension beneficiary. But it won’t take much for a pension beneficiary simply to not cooperate, and then you have a problem, and you potentially have the estate beneficiaries bearing all of the inheritance tax, and that’s not really fair.

SR: So how is this going to work in practice?

KF: We’re still waiting on the full details of the information sharing process, because that’s going to be done by statutory instrument, but it is going to make it harder for the tax to be paid on time.

SR: And I guess, again, all eyes are on the Budget for an update?

KF: Exactly. So we will have to see if any changes come out of the Budget, or when we get the draft Finance Bill legislation a couple of weeks after.

SR: It’s clearly shaping up to be an interesting Budget this year.

KF: It’s certainly going to be busy.

SR: So far we’ve looked ahead to April 2026 and beyond. But for many agents, the focus now will be on completing tax returns for 24/25. Now Katherine, the tax return season is always challenging for agents. Does anything stand out in particular for you this year?

KF: I think there’s a few points to be aware of on the capital gains tax pages. So firstly, we had the in-year rate change to CGT rates, so any disposals on or after 30 October 2024 potentially will be at a higher rate. And the change was made after the software had been set up by software developers, so a manual adjustment is needed on the tax returns for this. HMRC have provided a CGT adjustment calculator, so it’s important to try and pick that up when you’re doing clients’ tax returns and be very clear on what the date of disposal is.

We also have new boxes this year, which is boxes 13.1 to 13.8, for declaring transactions in crypto assets. Now it’s important to remember crypto assets are not cash – that’s one of the common mistakes that people make. If an individual is dealing in cryptocurrency, it’s highly unlikely that they will be trading; it’s more likely that it will come under CGT rules. So acquisitions and disposals are treated in a similar way to shares. So if you remember the old share pooling rules that you did in your exams, those basically, essentially, apply to crypto assets as well. And remember that if you’re converting crypto assets from one type to another, then you have a disposal for CGT of the original type and an acquisition of the new one. There’s no form of rollover relief or anything like that. So it’s important to make sure all the transactions are reported, because we also have the crypto asset reporting framework coming in from 1January, where HMRC will get information from crypto platforms.

SR: So quite a few challenges there to do with capital gains tax. But I also understand that there’s going to be renewed focus on trading income – calculation of trading income; is that correct?

KF: So we already know that HMRC is going to open more enquiries into 24/25 tax returns, looking at private use adjustments. They ran a campaign in 2024 that generated an extra £27m, so it’s firmly on their radar for this year. And in brief, it’s important that a business owner or landlords are only deducting business-related expenses. So where you have an expense that has both business and private elements – so for example, the use of your car – the portion must be reasonable and must be supported by proper records showing how the split was arrived at. So that’s your typical mileage records to show how much is business use. And the method of apportionment that you use has to be applied consistently from one year to the next. That’s really important as well. You can’t just chop and change depending on what suits you. So the sort of things to look out for is your travel and subsistence, your motoring expenses, including any associated capital allowances claims –if you’re not on the cash basis, your use of home entertaining costs and proprietors training costs. So those are probably some key areas to look out for.

SR: An added complication as well is that for a lot of those expense categories that you mentioned there, the client’s very likely to provide estimated figures rather than actual figures. That presents problems too?

KF: Yeah, and I think it’s important that people understand the distinction between estimated figures and provisional figures. They’re actually not the same thing, but they do often get muddled up. So an estimated figure is your best guess at a figure where you can’t find the receipt, you can’t find a bank transaction for it; the figures are seen as a final figure, but it’s a best guess. Now, a provisional figure is an interim figure that you intend to finalise at some point in the future and will amend the return at that point. So for example, you might be waiting on partnership accounts to be signed off, and what you then have to do is you have to tick box 20 on page eight of the tax return to say that your return contains provisional figures, and then you have to put a white-space note in to say why you’re using provisional figures and when you expect the figures to be finalised.

SR: And I think that’s back in the news at the moment as well, isn’t it? Lindsey, I believe the HMRC recently published guidance on making sure that returns are correct and complete, and how to provide additional information and explanations. Is this something for agents to be particularly aware of when completing returns this time around?

LW: The bit of guidance is Guidelines for Compliance, or GFC number 13. It’s not your run-of-the-mill transactions on your tax return that this is aimed at, it’s more where there’s a transaction that gives rise to a novel or uncertain position. The guidance does set out some actions to make sure that the taxpayer’s comfortable to complete the correct and complete declaration on their tax return. So it gives some examples that you might want to go to HMRC to get a non-statutory clearance. The other one is that you might want to go to somebody to get professional tax advice, but in doing so, you need to set out the full facts, etc. There is a section in there that is aimed more at agents. So it reminds agents about their obligations under HMRC’s standard for agents and professional conduct in relation to taxation, PCRT. And going back to that white-space point again – so if, if having done all of those things you still have a novel or uncertain position, the recommendation is to use that heading ‘novel or uncertain position’ in the white space. Or if it’s a type of return where there isn’t a white space, then to use that in a letter accompanying that return.

SR: So finally, on tax returns, whether or not a sole trader or landlord is within Making Tax Digital from April next year is determined by reference to 24/25 tax returns. With that in mind, then, is there anything the agent should be doing with regard to MTD when they complete those returns?

LW: Well, yeah, I mean, this is the ideal opportunity to identify your clients that are going to be mandated from April 2026. Some software products are creating reports that you can run to identify clients that are likely to be mandated from next April. So it’s worth checking with your software provider whether that facility is available. If not, then ICAEW does have a spreadsheet tool that’s been provided by Rebecca Benneyworth, and that’s available in Tax Guide 01/25 so that uses the relevant boxes from the 24/25 self assessment return to identify taxpayers that are likely to be mandated from next April.

SR: Thanks, Lindsey. So we’ve talked a lot in the past about MTD, and I think there is probably an awful lot more to say in the run up to April, but we will have to keep that for a future episode as that is all we have time for today. Many thanks, Lindsey and Katherine, for your contributions, and thank you for listening.

All of the topics we’ve discussed today are covered in more depth in the articles linked in the show notes. If you found this useful, then don’t forget to subscribe so that you never miss an episode. You can rate and share the podcast too. We’ll be back next month with the next Tax Track. In the meantime, why not check out the sister podcasts from ICAEW? Accountancy Insights provides business, finance and accountancy analysis, while each episode of Behind the Numbers offers a deep dive into a selected topic. And there’s also the Student [Insights] podcast aimed at young professionals.

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We’ll be returning to the issues discussed today, from agent registration to CGT challenges in the tax return, in future articles in TAXline and TAXwire, so please do look out for them. Thank you for listening.