March Budget – will the Chancellor announce the next steps on improving the tax advice market?
By Susan Cattell, Head of Tax Technical Advisory
9 March 2023
Susan Cattell asks whether the Chancellor will announce the next steps in the work to improve standards in the tax advice market in the Budget – and publish the expected consultation on regulation.
Improving standards in the tax advice market
The 2019 Independent Loan Charge Review recommended that the government should improve the market in tax advice and consider establishing “a more effective system of oversight, which may include formal regulation, for tax advisers”. Since then the government has conducted three consultations, to which we have responded:
- 2020 - Call for evidence: Raising standards in the tax advice market
- 2021 - Consultation: Raising standards in the tax advice market: professional indemnity insurance and defining tax advice
- 2022 – Consultation: Raising standards in tax advice, protecting customers claiming tax repayments
Outcomes and actions
Repayment agents
The consultation put forward proposals to protect taxpayers claiming repayments, by addressing problems identified with some repayment agents. The outcome was published in January 2023 and confirmed that the main proposals would be implemented, with further work also being undertaken in some areas. The most significant change will be the introduction of legislation prohibiting the use of assignments of income tax repayments. Repayment agents will also be required to register with HMRC and HMRC will undertake further work on ensuring that taxpayers have consented to claims made on their behalf.
HMRC’s standard for agents
The standard for agents sets out the behaviour HMRC expects from tax agents and tax advisers – and gives an overview of the way HMRC will tackle the minority of agents who do not meet the standard. It was first published in 2016 and applies to all agents.
At the same time as the outcome of the 2022 consultation was published, HMRC also published an updated version of the standard for agents. The new version includes detailed transparency requirements (including a requirement to agree terms of engagement with a client in writing before starting to act) and brings it into closer alignment with Professional Conduct in Relation to Taxation (PCRT).
Possible statutory regulation
After the 2021 consultation, the government decided not to proceed with the proposal for mandatory professional indemnity insurance for tax advisers. However, responses to the consultation (and the earlier call for evidence), along with research into the approach to regulation in comparable industries, prompted the government to announce that it would consider the case for moving further towards statutory regulation. There was a consensus that action was needed to raise standards, but differing views on the form that action would take.
The government set out three criteria that any future method of raising standards must satisfy:
a) Clarity on the standards required: The minimum standard must be set out clearly, with understood routes to be able to achieve it. For example, requirements that are related to the individual, such as fit and proper tests, codes of conduct, and conditions about the way the individual or firm goes about their business. This could include, for example, standards about transparency of pricing. The standard should not be optional.
b) Ensure transparency: Transparency is necessary so that taxpayers are able to make informed choices about choosing an adviser, and they understand the standards that apply to advisers.
c) Effective enforcement: The standard needs to be enforced, with effective monitoring and clear consequences where standards are breached.
A consultation on options that would meet these criteria was anticipated in 2022. The consultation was also expected to test a potential legislative definition of tax advice – as this would be essential to any intervention in the tax advice market.
What would ICAS like to see in the Budget?
We welcomed the announcement of the new measures to protect consumers using tax repayment agents and the publication of the updated HMRC standard for agents. We would now like to see the publication of the promised consultation on options for regulation and the definition of tax advice. In the long term, we believe the only fully effective way to protect consumers (both those claiming repayments but also those using tax agents for other reasons), is to introduce a requirement that anyone acting as a tax agent should be qualified and should belong to one of the main professional bodies that subscribe to and enforce PCRT.
Let us know your views
We welcome members’ input on consultations or other tax-related matters – email tax@icas.com to share your insights and feedback. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.