HMRC have published 'Enhancing HMRC's ability to tackle tax advisers facilitating non-compliance — Summary of responses', which found most respondents agreed that HMRC’s powers to tackle non-compliance could be more effective and supported enhancing existing powers.
Overview
This was the second consultation looking at standards and non-compliance in the tax advice market. The first, in October 2024, HMRC sought views on ‘Raising standards in the tax advice market – strengthening the regulatory framework and improving registration’.
The latest consultation sought views on how to enhance HMRC’s powers and sanctions that would allow more effective and stronger action against professional tax advisers who facilitate non-compliance in their clients’ tax affairs. 116 written responses were received, primarily from professional and representative bodies, tax advisers, charities, businesses and legal firms.
Government response
The government accepts that the drafted proposed changes will only cover those who deliberately facilitate tax non-compliance. They do not target tax advisers who make genuine, one-off, accidental errors or differences of legal interpretation.
The government still wants to explore ways to tackle incompetence and unreasonable errors among tax advisers, which includes incentivising advisers to take reasonable care to avoid facilitating tax non-compliance. It is seeking views on this as part of the consultation on the draft legislation, as well as views on alternative ways to tackle non-compliance facilitated by tax advisers.
The government will:
- Amend the investigation powers HMRC currently has, allowing HMRC to request information to assess the actions of a tax adviser where HMRC reasonably suspects the tax adviser has facilitated an inaccuracy in a taxpayer’s return or document.
- Allow file access notices to be issued without tribunal approval, which will expedite the process to prevent unscrupulous tax advisers from continuing to provide inaccurate advice or information.
- Introduce alternative safeguards to approve file access notices, including a right to appeal to the tribunal.
- Amend the penalties legislation so that penalties will be calculated based on the potential lost revenue. This will reflect the harm to the tax system that has been caused by the tax adviser facilitating non-compliance.
- Introduce a multiplier to increase the penalty percentage for repeated actions.
- Introduce legislation to allow for the publication of the details of tax advisers who are found to facilitate non-compliance.
Useful guides on this topic
Raising standards in the tax advice market: Consultation response
HMRC have published a response to their consultation ‘Raising standards in the tax advice market – strengthening the regulatory framework and improving registration’. This outlines potential approaches to strengthen the current regulatory system and tackle non-compliance in the tax advice market, including mandatory membership of a recognised professional body.
Consultation on tackling tax advisers facilitating non-compliance
HMRC have launched a consultation on 'Enhancing HMRC's ability to tackle tax advisers facilitating non-compliance'. Views are sought on whether HMRC’s current powers are effective in dealing with non-compliance facilitated by tax advisers.
Setting up as a tax agent
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Topical tips: Avoiding negligence claims
An accusation of negligence can be extremely stressful for a firm and its advisers. The best strategy is to manage risks in this area, but in order to manage risks, you need to identify them.
Tax agents: HMRC standards for agents
Our guide to HMRC's 'Standard for agents', HMRC's approach to tackling bad agent behaviour, and providing a definition of a tax adviser.
External links
Consultation outcome: Enhancing HMRC's ability to tackle tax advisers facilitating non-compliance — Summary of responses
Summary of responses
The original questions for the consultation can be Found here.
Enhanced powers
Most respondents agreed HMRC’s powers to tackle non-compliance could be more effective and supported enhancing existing powers.
- They supported increasing HMRC’s information powers to obtain evidence of non-compliance earlier than currently allowed.
- They supported further disclosures to professional bodies when unprofessional conduct is recognised.
- There were strong responses that any enhanced powers should only be used when there is clear evidence of poor conduct.
- Legislation and definitions should be clearly defined to protect tax advisers from unnecessary investigation.
- Many thought there should be a balance between penalising large-scale abuse of the tax system and cases where genuine technical or administrative non-compliance errors are made despite an adviser taking reasonable care.
Scope of the proposals
Most respondents agreed that those who advise on UK taxation through a business should be in scope of any new changes, regardless of whether they are based in the UK or overseas.
A few respondents commented that the definition needs to apply to all tax advisers, regardless of how a person identifies their work, and these could include:
- Software developers and providers.
- Legal professionals.
- Advice via social media.
- Anyone providing tax advice.
- Property agents.
- Charities.
- Family and friends.
- Auditors.
- Investment platforms.
Investigations
Most respondents agreed that it should be easier for HMRC to obtain information from tax advisers where there is reasonable suspicion of facilitation of inaccuracies.
- Participants also emphasised the need to ensure that HMRC only requests information when it can justify doing so by meeting clearly defined tests to use the power. There were concerns over the:
- Erosion of existing safeguards, and whether revised safeguards would be sufficient to prevent HMRC overreach.
- Ambiguity of definitions, in particular, whether minor errors or legitimate differences in interpretation would be severe.
- Respondents were divided on whether ‘reasonable suspicion’ is the appropriate threshold for issuing conduct and information notices.
- Looking at the proposed changes to the powers to gather information from tax advisers, most respondents supported the changes, noting that compliant advisers should have no difficulty providing information.
- There were concerns that changes could increase compliance pressures and they stressed the need for well-defined terms and robust safeguards.
- There was a need for changes to safeguards required for Schedule 38 to be used more effectively. Most respondents supported removing the requirement for a tribunal approval to obtain a file access notice, citing improved efficiency and suggesting that removing tribunal approval could help HMRC act more swiftly in time-sensitive cases.
- Overall, there was a preference for maintaining third-party oversight, such as tribunal involvement or independent review mechanisms.
- Some respondents identified some potential unintended consequences from the proposed changes, such as increased compliance costs, reputational harm, and disproportionate impacts on compliant advisers.
- There was discussion on alternative ways HMRC could gather information related to tax advisers who cause harm to the tax system. Additional methods proposed included:
- Using data analytics, AI, and social media monitoring.
- Structured whistleblowing channels and direct taxpayer feedback.
- Closer collaboration with professional bodies, clearer rules for adviser accountability, and improved reporting tools.
Financial penalties
Most respondents agreed that penalties were needed to tackle tax advisers who facilitate non-compliance that causes harm to the tax system.
- It became clear that many respondents expressed ignorance of the current penalties regime, and this lack of awareness was also cited as a reason that it was not an effective deterrent.
- The vast majority of respondents supported either:
- Option A: a penalty based on the potential lost revenue.
- Option B: a penalty based on the tax adviser’s fees.
- Most respondents agreed that the penalty should escalate in stages, based on additional instances of facilitation of non-compliance.
- Most respondents recognised that the £50,000 maximum of the existing penalties was not high enough to be an effective deterrent and thought that there should be no maximum penalty amount.
- Where a minimum penalty was suggested, it was generally in line with the existing penalty minimum of £5,000.
- The majority of respondents supported extending the powers so that penalties could be charged on tax adviser business entities, especially since the entity usually set the work culture.
- Many respondents suggested other factors that HMRC should consider when calculating penalties, including:
- The lifestyle, assets and net worth of the business owner or tax adviser.
- The ability of a tax adviser to pay any penalties charged.
- Whether the business or tax adviser is a member of a professional body.
- Whether the business or tax adviser has been subject to any previous sanction, including penalties.
Public interest disclosures to professional bodies
Most respondents supported HMRC making further non-Public Interest Disclosures (non-PID) to professional bodies but needed further discussion to determine the parameters for reporting and consequences of reporting.
- Most professional bodies welcomed the opportunity to receive intelligence that would assist them to support members and raise standards by delivering appropriate CPD and take action to prevent errors from escalating, rather than acting in a purely punitive capacity.
Publication powers
There were proposals to introduce legislation giving HMRC a broad power of publication for sanctions imposed on tax advisers.
- Most respondents said it was in the public interest for HMRC to publish more information about its activity, such as the details of tax advisers subject to a formal sanction by, or a restriction on their dealings with, HMRC.
- The importance of the right level of publicity and visibility was also mentioned. To maximise the effectiveness of the power, it was suggested that HMRC used a range of channels to reach different audiences. This would include not only lists on GOV.UK, but also utilising social and wider media more broadly.
- The consensus was that most, but not all, sanctions should be included. The vast majority supported publication where there was clear evidence of fraud, dishonest behaviour or repeat offences.
- Some respondents had concerns about the levels of governance and independence around signing off publication and questioned whether HMRC would be removed enough from the process to be independent.
The consultation discussed options to enhance HMRC’s powers and sanctions to take more effective and stronger action against professional tax advisers who facilitate non-compliance in their clients’ tax affairs.