Tackling poor agent behaviour

Following a series of consultations in March 2022 HMRC published a corporate report Raising standards in the tax advice market - HMRC’s review of powers to uphold its Standard for Agents, this sets out its key principles and activities that aim to tackle poor agent behaviour.

HMRC has taken into account the principles set out in its Powers and Safeguards Review, published in February 2021, to ensure that HMRC’s powers are proportionate and are used fairly, carefully and consistently.

The following tables show which elements of the HMRC agent standard are addressed by the powers and policies covered in chapters 2, 3 and 4. Three key observations are:

• HMRC has some strong options, specific to certain situations, which can be brought to bear against non-compliance with most of the standards in the right circumstances
• existing formal powers have been designed to address specific situations and therefore lack general application to uphold every aspect of the standard. There is no universal option for tackling any breach of the agent standard
• intermediate responses, for tackling behaviours that do not trigger the high thresholds for using (for example) S.20(3) CRCA 2005 or Schedule 38 FA 2012, are limited in number and in scope

Principle: Integrity

Principle: Professional competence and due care

Principle: Professional behaviour

Principle: Lawful

Principle: Disclosure and Transparency

Principle: Advising on tax planning arrangements

Principle: Professional judgment and appropriate documentation

HMRC review has allowed a number of general conclusions to be made about HMRC’s overall approach to tackling poor agent behaviours:

1. HMRC’s overall approach for tackling poor agent behaviours is still evolving

HMRC seeks to strengthen trust in the tax system and create a level playing field by addressing poor agent behaviours as quickly and efficiently as possible. The engagement initiatives showcased in Chapter 2 demonstrate how effective these approaches can be, and in the minority of cases where engagement is not successful there are stronger policies and powers that HMRC can draw upon.

HMRC continually explores new solutions in response to shifting trends in poor tax agent behaviour and is developing and refreshing strategies and policies to evolve its overall response as part of its fundamental responsibilities and obligations.

2. The impact of HMRC’s activity to tackle poor tax agent behaviour will be strengthened by greater co-ordination and integration of best practice

The way in which HMRC tackles poor tax agent behaviours and upholds agent standards was not designed as a single framework but has developed over time in response to specific problems.

Because different approaches have been taken in different HMRC business areas, HMRC is rich in experience and insight about the effectiveness that such approaches can have but there is not always consistency in approach across all areas when poor agent behaviour is encountered. By using existing governance arrangements and working groups to ensure this insight is shared and embedded across HMRC, the impact of the resource HMRC has available to tackle poor agent behaviours in line with its risk-based approach can be optimised, and areas for further exploration or development identified.

3. Public information about HMRC’s policies and processes relating to tax agents and how poor tax agent behaviours are tackled is spread across many different locations and is not as joined up as it could be

There is a significant amount of information, published both internally and externally, about how HMRC deals with poor agent behaviours. Work is under way to refresh and align this information, and explore how to bring greater publicity to HMRC’s work on agent standards.

There are several strategies that are related to tax agents, such as the HMRC promoters strategy and HMRC digital strategy, but there is no one-stop hub that brings a comprehensive overview of the different elements into one place, to make the whole picture in relation to agents clear.

In addition, this review has demonstrated the differences in responses available when tackling the actions of tax agents who are not a member of a professional body compared to those who are professional body members.

Breaches of the agent standard can only be reported by non-HMRC sources if the person making the report knows what the standards are, who they apply to and how to report them. The poor behaviour of affiliated agents can be reported by the client directly to the relevant professional body to be investigated. However, HMRC does not have a clear way for poor tax agent standards and behaviours to be reported, meaning that unaffiliated tax agents may not be held to the same level of scrutiny as those affiliated to professional bodies.

When a tax agent is not a member of a professional body the option of making a Public Interest Disclosure is not available. This has the effect of making the standards of unaffiliated agents subject to less scrutiny than affiliated agents. Taken together with HMRC’s enforcement coverage (as above tables), this means the bar for upholding professional standards through effective enforcement is lower for unaffiliated agents than it is for those affiliated to professional bodies; the playing field is therefore not as level as it should be.

Furthermore, recent research published in Understanding the characteristics of unaffiliated tax agents revealed that awareness of HMRC’s agent standard is low among tax agents not affiliated to a professional body. Only 18% of respondents referred to the agent standard by name, with a further 11% referencing HMRC guidance without mentioning standards. 21% of respondents said that they do not follow any professional standard, with a further 7% uncertain.

In November 2021, HMRC published its:

• summary of responses to its March 2021 call for evidence into the tax administration framework, which closed in July 2021. One of the themes of the responses was that ‘agents have a key role to play in the tax system and their role should be supported’. A proposed key objective for the tax administration framework was therefore to: ‘help build trust in a tax system that is recognised as fair and even-handed’. Respondents said that this should include making sure that: ‘HMRC’s powers are proportionate and will be used fairly, carefully and consistently’.
• summary of responses to its July 2021 consultation on the definition of tax advice and whether to introduce mandatory professional indemnity insurance for tax advisers. HMRC announced there would be a further consultation exploring options for improving the regulatory framework in the tax advice market, and a definition of tax advice, in 2022, as well as a consultation on tackling the high cost of claiming tax refunds.

Mindful of the findings of the tax administration framework consultation, and notwithstanding the outcome of the tax advice market regulatory framework consultation, HMRC will take steps to further strengthen its approach to upholding agent standards. This work will move forward in 2022. These steps are:

1. Publish HMRC’s approach to tax agents in a single policy statement, including how to report breaches of the HMRC agent standard

This will:

• bring information about HMRC’s agent policies together in one place for the first time
• make HMRC’s response to tax agents clearer and easier to understand for tax agents, their clients and HMRC officers
• support procedural fairness and transparency and level the playing field between affiliated and unaffiliated agents, strengthening trust in the tax system

2. Update and promote the agent standard

This will include:

• clarity about who the Standard applies to, in line with the outcomes of the consultation on the proposed definition of tax advice in 2022
• specific amendments to address problematic issues and trends that HMRC sees, such as transparency around contingent fees and inappropriate use of HMRC’s online services
• exploring whether the Standard needs to be given stronger status
• relaunching the Standard, making sure that the principles and changes are communicated efficiently and effectively, and reaching as many tax agents as possible.

3. Continue to ensure consistency across HMRC in its overall approach to agents

This will be done by:

• using existing internal governance groups to share best practice and assure agent compliance across HMRC
• completing work that began in 2021 to update staff guidance and training so that good tax agents are supported but poor agent behaviours that fall short of the Standard are addressed effectively
• continuing to maximise the potential of data and information as HMRC becomes increasingly digital, reinforcing the risk assessments and analysis that inform HMRC’s approaches to tackling poor agent behaviours

4. Focus HMRC’s efforts to uphold its agent standard on the worst agent behaviours

To achieve this, HMRC will:

• build and evaluate its knowledge and evidence base to understand the impact of poor agent behaviours, identifying where the worst problem areas are
• measure the impact of HMRC’s interaction with tax agents, to demonstrate the effectiveness of our approaches to raising agent standards
• use this analysis in reviews of existing powers or processes to help identify changes that allow swift, effective and timely action to be taken where necessary, with appropriate safeguards - this approach will support the role of good agents within HMRC’s Tax Administration Framework and compliment the objectives of the Tax Administration Strategy
• inform future assessments about whether change is necessary – for example, whether any new powers may be needed to ensure all requirements of the agent standard can be upheld
• support the outcomes of the consultation into options for regulation and oversight of tax agents
• target activity to the worst areas to make greater use of existing powers to tackle poor agent behaviour

Who is a Tax Adviser?

Who or what is a tax adviser? Does it matter

A tax adviser can be a individual or a firm.

Research undertaken in 2021 indicated that professionals prefer the definition provided by The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) regs 2017 (as amended by the Money Laundering and Transfer of Funds (Amendment) Regulations 2019, as follows:

Auditors and others

11. In these Regulations—

(d) “tax adviser” means a firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services.

A tax adviser is also referred to as a 'tax agent" by HM Revenue & Customs.

A tax agent, is also defined in the Dishonest tax agent penalty legislation (schedule 38 of Finance Act 2012) as follows:

(1)     A “tax agent” is an individual who, in the course of business, assists other persons (“clients”) with their tax affairs. 

(2)     Individuals can be tax agents even if they (or the organisations for which they work) are appointed—(a)     indirectly, or (b)     at the request of someone other than the client. 

(3)     Assistance with a client's tax affairs includes— (a)     advising a client in relation to tax, and (b)     acting or purporting to act as agent on behalf of a client in relation to tax. 

(4)     Assistance with a client's tax affairs also includes assistance with any document that is likely to be relied on by HMRC to determine a client's tax position. 

(5)     Assistance given for non-tax purposes counts as assistance with a client's tax affairs if it is given in the knowledge that it will be, or is likely to be, used by a client in connection with the client's tax affairs. 

Small print & Links

Raising standards timeline

Tax Agents: Raising standards in the tax market
November 2021: HMRC has published a Summary of responses ‘Raising standards in the tax market: professional indemnity insurance and defining tax advice’. HMRC has no plans to introduce compulsory PII but new measures must ...

Consultation: Raising standards in the tax advice market
March 2021: HMRC have published a consultation on the requirement for anyone providing tax advice to hold professional indemnity insurance. The consultation will also consider the definition of tax advice. 

Raising standards in the tax market: next steps
November 2020: HMRC published ‘Raising standards in the tax advice market, Summary of responses and next steps’ in November 2020. It aims to raise standards, work with the professional tax bodies and root out advisers who are incompetent and those who actively bend or break the rules.

Call for evidence: Raising standards in the tax avoidance market
July 2020: HMRC opened a new call for evidence ‘Raising standards in the tax avoidance market’ which seeks suggestions on how to raise and maintain high standards of competence and behaviour in the tax advisory market.

Professional Conduct in Relation to Taxation 
At a glance' guide to the requirements of the Professional Conduct in Relation to Taxation (PCRT) adopted by the main professional accounting and tax bodies.

Tax Penalties for accountants, advisers and tax agents
What tax-related penalties can apply to accountants, advisers and agents?