HM Revenue & Customs (HMRC) have published a new discussion document on "Working with Tax Agents: Dishonest Conduct.

These latest proposals are to penalise dishonest tax agents civilly and facilitate access to working papers in order to determine the extent of any dishonesty. In theory, civil procedure is much cheaper than criminal proceedings as the standard of proof is lower.

This new document is published in tandem with the Responses to last Autumn's controversial Working with Tax Agents consultation.

The main changes between the new approach and the old are as follows:

Area of concern Change made
Including all tax agents

Including only agents in the course of business

Penalising "deliberate wrong doing” Penalising “dishonest conduct”
Schedule 24 type approach does not work Move away from basing the legislation too closely on Schedule 24/36 precedents. More tailored to dishonest agents.
Concern that loss of tax definition

caught “legitimate” tax loss like ISAs

Clear that only “illegitimate” loss of tax

is caught

That advice in the course of a radio programme would be caught

Advice to the general public would not be caught

Individual or firm to be penalised? Clear that it is the individual that will be penalised rather than the firm
Single tribunal hearing to establish wrongdoing and authorise a notice

Finding of dishonest conduct and file access notice split into separate stages

No appeal for agent as notice preauthorised by tribunal

New appeal right for agent

No appeal for third party New appeal for third party on ground of onerousness

Without notice (“ex parte”) hearings where the agent is not entitled to be present

No without notice (“ex parte”) hearings – agents can attend all hearings

Scope of notice is too wide

New restriction on access to documents over 20 years old unless still relevant

Tax geared penalty

 “Not exceeding” type of penalty

The previous consultation came in for extremely heavy criticism because it proposed Kafka-esque powers for HMRC. Agents objected to its widely drafted proposed legislation and queried why it was that HMRC required new powers when it had failed to identify more than a handful of wrongdoers and did not make adequate use of its existing powers. The new discussion document takes a far more measured approach, and importantly this time contains proportionate safeguards.

Key items on which HMRC seeks views, on:

  • A revised definition of tax agent
  • A high test for dishonest conduct
  • A revised definition for loss of tax
  • A not exceeding type penalty (no level proposed as yet)

Costs or benefits?

One factor which may interest observers are the proposed costs of the proposed new system. Given that these should only affect "a small minority" of tax agents, according to HMRC, the operational inpact to HMRC is anticipated to be £300,000 to £800,000 (so that's £800,000 then) for HMRC changing its systems and £2 million to £3 million to resource specialist teams over a five year period.

The cost of impact on agents is not estimated by HMRC, but broadly, one might expect to spend two to three hours of chargable time in CPD to take on board new measures. If time is charged at on average, say £100 to £150 per hour, then if we say that there are some 300,000 accountants and advisers who are giving, from time to time the type of business tax advice that might be caught by these measures then the operational impact cost on the accounting and tax profession could well be some £112 million...


HMRC: Working with Tax Agents: Dishonest Conduct

HMRC: Responses to earlier consultation