HMRC’s Dave Hartnett has admitted that his information on tax agent behaviour is “fragmented”. Between the 1990s and 2005 HMRC identified only eight qualified tax agents who were guilty of fraud - approximately 0.0000615% of the agent population.
Yet despite the fact that so few agents were affected HMRC ignored its findings and ploughed ahead with its “Working with Tax Agents” proposals. Justification of the introduction of a new penalty system for tax agents ran as follows, “… in some cases the behaviour or performance of a tax agent falls short of what might be expected. HMRC is aware that this is the case in only a small fraction of the tax agent community…”
Critics of the Agent consultation (including the Chartered Institute of Taxation and Association of Taxation Technicians) were quick to observe that HMRC had failed to provide any evidence about the numbers of agents affected. This point became an immediate concern when HMRC produced draft legislation in March 2010 as it then became apparent that HMRC had its sights on penalising a far greater population than rogue tax agents, in fact, it intended to penalise anyone who gave any tax advice, free or not.
Now, according to Accountancy magazine, the truth is revealed: not a “small, but more like a miniscule proportion of rogue agents are at work.”
It says, “the figures are revealed in a recent letter from HMRC permanent secretary Dave Hartnett to Francesca Lagerberg, head of tax at Grant Thornton and member of the ICAEW Tax Faculty’s technical committee.
He said that the department’s most reliable data came from an exercise it carried out in 2005 for direct tax to identify tax losses in civil cases where it had access to working papers. This showed a tax loss totaling over £20m in 16 cases. It then added data from two criminal enquiries into unqualified accountants who were acting as agents, which were concluded in 2009, and another ongoing case, involving a qualified agent. These involved a further £8m.
Hartnett concludes: ‘Of the 11 cases where we have information on their status, eight are qualified and three are unqualified.’ There is no definitive data on the remaining cases.”
Critics of HMRC’s proposals may now well also call into question the reliability of HMRC’s impact assessment which was released in conjunction with the original proposals.