HMRC consultation on regulating tax advisers: Let us know your views
HMRC has issued a consultation ‘Raising Standards in the tax advice market – strengthening the regulatory framework and improving registration’, setting out the case for improving the market and proposing three possible options for introducing regulation.
The consultation outlines three potential regulatory models: Mandatory membership of a recognised professional body, joint HMRC–industry enforcement, and regulation by a separate statutory government body. The consultation also explores approaches to strengthening the controls on access to HMRC’s services for tax practitioners.
ICAS will be preparing a detailed response on behalf of ICAS members; we welcome your views to inform the response.
Background
The government and HMRC have been running a work programme on improving standards in the tax profession since 2020, following recommendations from the Independent Loan Charge Review. There have already been three important consultations:
- 2020 - Call for evidence: Raising standards in the tax advice market
- 2021 - Consultation: Raising standards in the tax advice market: professional indemnity insurance and defining tax advice
- 2022 - Consultation: Raising standards in tax advice, protecting customers claiming tax repayments
ICAS has responded to the consultations and has actively contributed to discussions about the programme and possible options. ICAS is also one of the professional bodies responsible for issuing Professional Conduct in Relation to Taxation (PCRT), which sets out the fundamental principles and standards of behaviours that all members, affiliates and students must follow.
The government remains of the view that standards in the tax advice market need to be raised and the consultation seeks views on:
- Potential approaches to raising standards.
- Whether the government should pursue introducing a requirement for paid tax practitioners to be a member of a recognised professional body that supervises their professional standards.
- How professional bodies and the government can work together to raise standards of tax practitioners.
- Which practitioners should be in scope or excluded from the proposed options for regulation.
- A first step of mandating registration with HMRC for tax practitioners who wish to interact with HMRC on behalf of their clients, and the requirements that HMRC should impose to enable registration.
The proposals
Mandatory registration of agents with HMRC
As a first step, the government wants to improve the way that tax practitioners register with HMRC and intends to mandate registration for all tax practitioners who wish to interact with HMRC. This would include checking that each tax practitioner is compliant with requirements to register for anti-money laundering supervision and is up to date with their tax affairs, with subsequent periodic confirmation checks.
The three potential regulatory models
The consultation paper discusses three proposed regulatory models, although the discussion concentrates on the first option. The three models are as follows:
1. Mandatory professional body membership
In this model the professional bodies would be expected to monitor and enforce the standards of their members and raise those standards where necessary. Tax practitioners would be required to hold membership of a recognised professional body to provide paid-for tax advice and services.
2. Joint HMRC-industry enforcement (a ‘hybrid model’)
HMRC and industry would monitor and raise standards in the tax advice market. Unaffiliated tax practitioners would have to be supervised by HMRC and professional body members would be subject to the supervisory requirements of their professional body.
3. Regulation by a government body
The government body would set, monitor, enforce and raise standards in the market. A new independent regulator or an existing regulator with an expanded remit would supervise tax practitioners.
Raising standards
The consultation paper includes the findings of research into non-compliance (see Annex C), which has led the government to conclude that professional body membership improves compliance but on its own is insufficient. If the first model is to be adopted, it is anticipated that a robust inspection regime and measures to improve standards of competence would need to be introduced by the professional bodies. It is likely that a model more akin to the statutory regimes for audit or insolvency would need to be put in place for tax.
Issues to be considered
The proposals raise a number of issues that require careful consideration:
- Will tax regulation apply to tax agents who directly interact with HMRC or to all tax advisers and if it is the latter what is the definition of ‘tax adviser’ or ‘tax advice’?
- Will the regulatory model be based on individuals or firms (firms being HMRC’s preferred approach)?
- Is it appropriate that the proposals suggest excluding those who are already subject to statutory regulation, such as solicitors, auditors, barristers and financial advisers?
- What will happen to the 35% of tax agents who are not affiliated to any professional body – is it likely that the professional bodies will be expected to bring them into an Affiliate type model?
- What would be the definition of a professional body that would be able to regulate tax advisers?
There are significant pros and cons to each of the models, which will need to be assessed. For instance, the first model could be the easiest to adopt, if professional bodies are willing to implement it, but it may leave issues around those who are currently non-affiliated. If the third model is to be implemented, extensive statutory changes would be needed, and there are likely to be significant risks and costs associated with the creation of a single regulatory body. The second model produces a potential conflict of interest, with the government putting in place the tax system, but also regulating it; nor does a hybrid body lend itself to simplicity.
ICAS has wide ranging experience in operating regulatory regimes and there are similarities with recent proposals to reform AML supervision and regulation of insolvency. We will draw on our experience in preparing a response to this consultation.
Let us know your views
We welcome input from members to shape the ICAS response to the consultation. Please email tax@icas.com to give your views. The consultation closes on 29 May, so we would welcome initial thoughts now, and any further thoughts by 15 May.
