Dishonest Conduct by an agent – First Tier Tribunal case

Sep 03, 2018

A recent First Tier Tribunal case examined the first disputed case of HMRC using its powers under Schedule 38 Finance Act 2012 to apply civil sanctions against a tax agent for dishonest conduct when acting for a client.

The agent in question admitted to HMRC that he had created false purchase invoices on his own computer for claims of business expenditure that his client had not actually incurred. He had done this at his own suggestion, in order to help out his client by reducing his tax burden.

The dishonest conduct by agents civil legislation took effect from 1 April 2013 and enables HMRC to take steps against dishonest conduct by tax agents.

Dishonest conduct is defined as doing something dishonest with a view to bringing about a loss of tax revenue, whether or not that loss actually occurred. These powers are one form of potential alternative to criminal prosecution for dishonest conduct by tax agents.

Schedule 38 provides for HMRC to pursue such conduct in three stages:

1) the issuing of a conduct notice, which if appealed and confirmed by the Tribunal;

2) enables HMRC to apply to the Tribunal to obtain the tax agent’s files; and

3) charge a civil penalty of up of to £50,000 and publish certain details of those dishonest tax agents in certain circumstances.

The case involved was an appeal against stage 1. The FTT dismissed the agent’s appeal in full.