Into the void - registering as a tax agent in the UK

After more than 20 years working for the Big Four with financial services companies, when the coronavirus pandemic struck Chris McCandless decided it was time for a change. He wanted to use his skills to support start-ups and smaller businesses and embarked on setting up his own tax and accountancy business, Mounthurst Tax and Accounting.

In the flurry of initial activity, registering as a tax agent wasn’t a top priority he admits. “If I had known how complicated the process was, it would have been one of the first things on my to-do list,” says McCandless. “I'd made some assumptions, incorrectly as it turns out, that it would be relatively easy.”

One of the first issues that McCandless discovered was a lack of shared experience among the profession when it comes to registering as a tax agent, making it difficult to gain an understanding of the process and its foibles.

“Almost no one has historic experience of setting up to be a tax agent, because at every existing firm it was done long ago,” he explains. “It's only people who are setting up from scratch who are going through it and they, by definition, are doing it for the first time. It makes it quite hard to get a measure from anyone as to how long it takes.”

This lack of “common knowledge” is then exacerbated no documented end-to-end process from HMRC, says McCandless. “There is probably an HMRC factsheet on how to do each particular step, but nowhere does there exist a map of

becoming a tax agent explaining what you'll have to go through and roughly how long each part of the sequence lasts.

“At times it felt like I got through a checkpoint and thought 'I'm done!', but in reality the process generated another authentication code which would take a further seven days to arrive in the post.”

Until the full HMRC registration is completed it is impossible for a tax practitioner to file tax returns for their client. For those starting out, they need to be prepared for a process that will take several months before they can start trading. They cannot, as used to be the case, start filing forms simply with a client’s signature. In this digital age there's a much more involved and complex process.

The application process

For those wanting to register as a tax agent, the first things they need to do actually have nothing to do with HMRC. Anyone wanting to become a tax agent must first have an anti-money-laundering supervisor, such as ICAEW. Firms registered with ICAEW will need to comply with practice regulations including the need to take out professional indemnity insurance.

“This was the first real shock,” says McCandless. “The realisation that the thing you need to sort out most is your indemnity insurance. And now you’re paying for insurance, but you have no intention of trading for a while as this is all part of your pre setup.”

For firms without an alternative, HMRC can act as an anti-money laundering supervisor. Once approved by an anti-money laundering supervisor, or HMRC, the individual can now apply to become a tax agent. This is a paper-only process and the application is sent to an HMRC address with a BX postcode, meaning the applicant does not know which of HMRC’s office will be handling the application.

“You put all of the paperwork in the post and HMRC promises to turn it around within 28 days. There is no phone number, no email address, no way for you to check on progress,” says McCandless.

After 20 days of hearing nothing, McCandless began to look online for others’ experiences and found forum posts detailing long waits and no feedback. He decided to resubmit his application, but this time send it as a registered signed-for delivery so he could be confident that his application had been received. Again this was not a simple process, taking time to find on HMRC’s website an address to which he could send his application via a courier.

McCandless heard back from HMRC around 40 days after his first submission, although whether this was in response to his first application or second remains unclear. “Ideally this would all be done electronically,” he says. “You could login and check the status of your application whether it was submitted, processed or approved. There could also be a feedback mechanism to tell you what was all going on.”

As it stands, however, there is no such feedback loop or status notification, with potential agents forced to wait until they hear from HMRC in the post.

Registering for services

If an agent application is successful, the applicant will receive an authentication code which allows them to log into their HMRC online account. It as this point when it becomes apparent that newly approved tax agents must register for HMRC services for each tax regime individually, explains McCandless.

“When you get the magical number in the post, you frantically log in to your online HMRC account. It's the first time, of course, that you've ever logged in as an agent because you couldn't do this before,” remembers McCandless.

“Corporation tax was the first thing I wanted to sort. You click on a few buttons to register and then you’re told that it will generate a code which will be sent to you in the post in seven days’ time. It is so frustrating as you’ve just waited so long for the first code in the post to prove you live where you live and now you enter a second stage of waiting.”

After starting registration for corporation tax and self assessment services, which McCandless describes as “vaguely consistent”, he then moved on to VAT and payroll services. “These are done very differently,” he says.

“For PAYE you go onto a separate website that generates you an agent code, then go back to your original online account and type in that code. It was at this point that I got lots of error messages.”

After several attempts to copy across the information, McCandless spoke to an HMRC agent via webchat who confirmed the problem was likely to be a space in his postcode. Removing this did fix the issue.

Next McCandless faced VAT which is currently complicated by Making Tax Digital (MTD) with some clients within the regime and others outside. “There’s the traditional HMRC online services account and then you have a new agent services account, which is primarily for MTD,” explains McCandless. “You can set these accounts up in, in parallel. However, I discovered that something starts to go wrong on the setting up of the agent services account if you haven’t completed your online services account. There is just a full 'computer says no' moment.”

McCandless guessed what the issue was and completed the set up of his online services account and then was able to click the button to transfer his non-existent clients to the new system and everything worked. “The issue was what I thought it was, but again nothing explains what the problem is and how to fix it,” he says.

Improving the process

A paper-based application, multiple processes for different taxes, a lack of end-to-end documentation and no feedback mechanism are the key issues with the current tax agent registration process, according to McCandless.

“To improve, it needs to be digitalised end-to-end, be consistent across all taxes and avoid sending documents in in the post,” he argues. “Currently the process is different for different taxes, involves lots of paper and you've got this quaint code concept – so many codes have to be generated and sent to you in the post.”

Improved transparency and should also be incorporated into the process to enable agents to understand the status of their application, says McCandless.

“Status updates on applications shouldn’t be a complicated thing to sort out, but I suspect it's not a priority at the moment,” he says. “The agent services account implemented for MTD looks like a much better and more digital approach. While the end state looks much healthier, we’re still going to be in a paper-digital hybrid world for the next five to 10 years.”

In the meantime, McCandless advises that any practitioner looking to set up as a tax agent reaches out to a peer who has set themselves up recently and to think of it as a three-month process. “Once it’s done, it’s the easiest thing and it fades into the rear-view mirror very quickly, but you need to plan for it early,” he says

More support

• HMRC guidance on registering as a tax agent