The measure

HMRC have published a Consultation Document 'Working with Tax Agents: The Next Stage'. It is part of the long-running programme 'Modernising Powers, Deterrents and Safeguards'. It follows up the April 2009 document 'Working with Tax Agents'.

Overall HMRC's approach is to: ensure that it has effective powers to police tax agents reasonably and proportionately; ensure that safeguards are sufficient and accessible; take account of the principles underlying recent changes in tax administration law such as the new penalty regime; consider greater disclosure by HMRC to professional bodies; and work with unaffiliated tax agents to ensure they maintain high standards.

The aim of the consultation is to work more closely with agents to identify how to improve the way HMRC works with tax agents. This includes providing support for professional standards and understanding how HMRC and agents can best deal with risks in the tax system.

The consultation document does not involve further consideration of some ideas referred in the April 2009 Consultation Document. In particular, it is not intended to make changes to the law relating to tax avoidance, nor to the way HMRC address it. HMRC does not propose taking forward registration or regulation of tax agents. HMRC does not intend to routinely question agents in respect of individual errors or to seek to penalise tax agents in respect of them.

This consultation makes further proposals about tax agents who help to submit deliberately incorrect returns. If evidence suggests that a tax agent has been involved in deliberate wrongdoing HMRC will always treat the matter as one of extreme seriousness. The document considers the adequacy of the powers available to HMRC in this context. HMRC do not wish to treat all such cases criminally. They also wish to use cost-effective civil investigation of fraud, if appropriate, for which it needs an effective civil regime. The inference is that HMRC do not consider current law to be effective for civil investigation of fraud. HMRC proposes to enable it to access the working papers of tax agents who have been involved in deliberate wrongdoing which leads or is intended to lead to a loss of tax. This would broadly implement a 1983 Keith Committee proposal. Working papers would be widely defined. HMRC also proposes to make a tax agent who has been involved in deliberate wrongdoing liable to a sanction which acts as an effective deterrent.

HMRC is also seeking views on publishing the names of tax agents penalised for deliberate wrongdoing in their capacity as an agent.

HMRC also considers it should examine agents whose clients' tax returns reveal persistent errors, or a lack of care or technical competence. HMRC would first approach the agent. This approach had evidently worked well following a 2000 initiative referred to in Budget 2000 press release Rev10. This Consultation Document also discusses how disclosure to an agent's professional body of persistent errors, or a lack of care or technical competence would enable the body to help the member. No additional legislation is needed for this. HMRC recognise consultation on this may take longer than consultation on most of the other areas considered.

The document also considers agents who submit a high volume of incorrect claims or returns that have little or no merit, and proposes a specific remedy. HMRC recognises that this requires it to distinguish the problem cases from the majority of claims.

In summary this proposal is that once HMRC has established through normal compliance checks that repayment claims etc are likely to be incorrect, HMRC can require the agent to verify information for all of its clients, or provide further information in respect of all those claims. HMRC can issue the notice only if the information is reasonably required for the purposes of checking the tax position of persons for whom the agent has submitted repayment claims etc. No notice can be given without the approval of the First-tier Tribunal. HMRC may withhold repayment, or choose to make payment only to the taxpayer, until the information has been provided and the repayment claims agreed.

Any of the existing or new powers would not be used against agents who were simply defending or advancing their clients' interests; there would be strong safeguards to prevent this.

HMRC believes that any new legislation would not differentiate in principle between tax agents who are affiliated to a professional body and those who are not. However, membership of professional bodies gives HMRC reassurance that robust procedures will be in place, and monitored independently.

HMRC accepts that in some areas it must improve its performance. In particular, in response to the earlier Consultation Document concerns were expressed about the training and expertise of HMRC officers, and the way that HMRC errors created extra and unnecessary work for agents.

Who will be affected?

All tax agents who submit incorrect returns deliberately, or who submit many incorrect returns, could be affected.

When?

The consultation period for this document ends on 3 March 2010. Consultation in some areas seems likely to continue for some time beyond.