Tax penalties are charged according to a tariff but this is modified to take into account the taxpayer’s behaviour. When it is agreed that the taxpayer has taken 'reasonable care', no penalty will be charged. This is a brief summary to consider if you are picking a tax agent.
This is a freeview ‘At a glance’ guide to reasonable care: how do you pick a tax agent?
What is reasonable care?
Reasonable care means that the taxpayer has taken whatever steps are appropriate in terms of their ability and competence to ensure that their tax returns are correct. If you are a director, this may impose Additional obligations on you as you also have to sign off company accounts and returns.
A taxpayer must sign off their tax return on the basis that the information it contains is correct to the best of their knowledge and belief.
- This means that if they do not understand something, they are expected to take advice.
- If they take advice, they must also check that their tax agent is competent to give that advice.
- They must check their agent’s work or advice to the best of their ability and competence.
How do you check a tax agent’s work?
HMRC expect taxpayers to judge whether their tax agent is competent. There is no actual test for competence, but the assumption is that you should try to obtain advice from someone who is appropriately qualified and experienced.
In practice, this requirement means that you will be unlikely to be taking reasonable care if you take advice from 'the man down the pub' (unless they are a qualified adviser of course).
You are unsure whether you can claim for the cost of work clothing for tax purposes. If you take reasonable care you might:
1. Phone your accountant or tax adviser for advice.
2. Phone HMRC for advice (remembering to take notes of the call).
3. Reach for a tax guide book and follow the advice given.
4. Search the internet and then review the answers to ensure that the one you obtain comes from a reliable source.
If you were not taking reasonable care you might:
1. Take a guess and put a figure on your tax return.
2. Ask a friend / 'man down the pub' or other non-tax qualified individuals what they think about it.
3. Search the internet and assume that the first website to come up on the search is correct. (Top tip: many websites come top of the list because they pay to be there).
How do you check if a tax agent is sufficiently competent to give advice?
Many tax agents are members of recognised professional bodies. Many others are qualified by experience. In most cases, you will not realise that someone is incompetent until it is too late.
If you are unsure whether to use an adviser or not, try telephoning HMRC’s National Advice Line and ask them what their current guidance is on this topic.
Advice given by HMRC (informally) on how you can tell if a tax agent is competent is as follows:
"You must trust your own judgement."
"Go with an adviser you believe in and trust."
“Do not trust an adviser if you become suspicious about them, or cannot contact them.”
“Check their qualifications and that kind of thing.”
HMRC has also produced 'How to choose a tax agent' which includes further guidance on what you need to look out for when choosing an agent, this includes:
- Checking their website to see what tax services they offer.
- Reading their terms and conditions so you fully understand the fees you will pay, the service you are signing up for, and when you are expected to make payment.
- Finding out about their reputation and history (for example, search for online reviews or their Facebook page).
- Making sure they have the right experience to help you and can provide all the services you need, for example, payroll, audit or investment.
- Checking that they are registered for Online Access with HMRC so they can do your tax digitally.
- Confirming they are aware of and meeting HMRC’s agent standards.
Qualified tax advisers
The leading tax qualifications in the UK are:
- CTA: Chartered Institute of Taxation
- ATT: Association of Taxation Technicians
Many accountants are also qualified to give tax advice. The leading bodies are:
- FCA or ACA: Institute of Chartered Accountants (England and Wales) (ICAEW)
- FCCA or ACCA: Association of Chartered Certified Accountants (ACCA)
There are also accounting institutes in Scotland (such as the Institute of Chartered Accountants of Scotland) (ICAS) and Ireland (Chartered Accountants Ireland, for example) as well as many other national and international bodies which include solicitors, bookkeepers and other types of accountants.
Most professional bodies operate their own disciplinary schemes and have requirements for members to complete on-going learning and professional development to ensure that they are up to date. In addition, they are usually required to hold adequate professional indemnity insurance to provide protection should something go wrong.
A note of caution
Many qualifications can merely be purchased, or made up and require no professional standard to be attained. It may not be immediately apparent that this is the case and the only way to find out is to read through the organisation's website, or promotional literature. Many of the professional institute websites have a 'find a member' search option which allows you to check if someone claiming to be a member actually is one. Failing that, apply to the body and see if you can pay to join.
A lack of letters after a person's name does not mean that they are not competent to act for you. They may be qualified by experience, or increasingly as has been witnessed in recent years, members of some accounting bodies decide that there is no point in keeping up membership with their professional body for grounds as simple as cost-saving.
Further information see choosing an accountant (external link to CCAB)