ICAEW responds to HMRC’s call for evidence on raising standards in the tax advice market

13 July: To raise standards in the tax advice market HMRC should work with professional bodies and promote the value of using a qualified adviser, rather than consider new regulation, says ICAEW.

In its response to HMRC’s call for evidence on raising standards in the tax advice market, ICAEW’s Tax Faculty concludes that if the unscrupulous promoters of schemes could be stopped from operating, then there is no reasoned case for regulation of the rest of the tax services market.

It concludes that the best approach is for HMRC to work with the professional bodies behind the PCRT standard (Professional Conduct in Relation to Tax) to improve standards, alongside taking steps to stop unscrupulous promoters of tax avoidance schemes and highlighting the importance of using a professionally qualified adviser that taxpayers can trust.

HMRC’s call for evidence was published on 19 March 2020 and followed Sir Amyas Morse’s independent report of 20 December 2019 on the contractor loan charge. In his report, Sir Amyas recommended that the government must improve the market in tax advice and tackle the people who continue to promote the use of loan schemes. He concluded that the government should also publish a new strategy addressing how it will establish a more effective system of oversight, possibly including formal regulation, of tax advisers.

ICAEW recognises that, due to the diversity of the tax advice market, there is no one-size-fits-all approach. In its response to HMRC, published as ICAEW REP 45/20, the Faculty identifies three particular areas of the tax services market that need to be considered, namely:

The standards of ICAEW members and those bodies that sign up to the PCRT.
The promoters of tax schemes, such as those identified in the Morse Report.
‘Unaffiliated’ advisers – those who are not members of a PCRT body.

In discussions with HMRC it has been suggested that about 30% of the tax services market is provided by unaffiliated providers, but they account for about 70% of the problems seen by HMRC. ICAEW believes that HMRC needs much better data on the unaffiliated sector and its relative performance before any decisions are taken about how standards could be improved.

Many unaffiliated agents will be doing a good job and helping to improve compliance, and there is a danger that shutting this segment out of the market might reduce compliance if taxpayers decided to do it themselves. However, steps could be taken to improve standards in this sector, for example through compulsory professional indemnity insurance and the need to submit to practice reviews.

In relation promoters of tax schemes, ICAEW believes that they are operating outside of any professional rules and behaviours and these activities need to be stopped at source. These activities damage the integrity of the UK tax system and, by extension, the reputation of professional advisers.

ICAEW reaffirms in its response that it is happy to work with HMRC to try and stop such promoters, but as it appears many of them operate offshore and not under any oversight, this is a challenge. If such people are found to be ICAEW members then they should be reported to ICAEW for investigation.

Finally, ICAEW believes that ICAEW members operate to high standards in accordance with our ethical codes and the PCRT. In its response, the Faculty suggests that HMRC should work more closely with the PCRT bodies to identify areas that need to be improved and how this might be done through existing ethical codes and framework.

ICAEW concludes that HMRC is on the right track in addressing problems in the tax services market and wants to support that approach. As the UK recovers from the COVID-19 crisis, the Faculty does not think that this is the time to throw the regulation of the tax profession up in the air, increasing costs and burdens in the short term with no clear benefits to consumers, government, or HMRC.

In short, ICAEW believes the best approach is for HMRC to work together with professional bodies, such as the PCRT bodies, to improve standards and promote the value of using a professionally qualified adviser that taxpayers can trust.