Introduction

The Northern Ireland Tax Committee of Chartered Accountants Ireland is pleased to have the opportunity to comment on the above consultation launched on 23 March 2021. Our response to the first formal consultation of this project “Call for evidence: raising standards in the tax advice market” is available on our website.

Information about Chartered Accountants Ireland and the Northern Ireland Tax Committee is provided on the previous page.

We would be happy to discuss any aspect of this submission and participate in any further consultations/initiatives in this area as this project develops.

The Institute and this Committee both recognise this consultation as being part of one of the most important projects relevant to agents in recent years and, as such, has sought feedback from our wide membership base in compiling this submission.

Despite reaching out to our members, it is clear that a longer period to respond to this consultation would have been helpful. The comments herein are therefore made in the context of the timescale to respond, which was not afforded a longer period for responses similar to other consultations launched during the still ongoing COVID-19 pandemic, such as the first consultation in this area.

However, we are aware that the current consultation is part of a wider stakeholder consultation piece and we welcome the continued engagement with HMRC in respect of this important project.

Mandatory professional indemnity insurance

This Institute is conditionally supportive of a mandatory professional indemnity insurance (“PII”) requirement for all tax advisers.

Although it may be true that compulsory PII might not make any difference to the behaviour of rogue promoters, if compulsory PII was combined with options A-C as proposed in the first consultation (most of which we are broadly supportive of), this would mean forced tightening (and thereby raising) of standards and procedures.

If rogue promoters continued to behave in the same way, the existence of compulsory PII would provide additional protection for the consumer when things go wrong. For rogue promoters who go underground, consumer protection measures would therefore be a vital element in arming taxpayers with the knowledge and information needed to make a more informed decision when choosing a tax adviser.

At present, taxpayers who engage the services of a practising member of Chartered Accountants Ireland are automatically able to access rights of recourse/redress when something goes wrong. The combination of the requirement to have PII to obtain and renew Practising Certificates, the regulatory functions of this Institute, and the ability to make a complaint to this Institute’s Professional Standards Department combined with HMRC’s powers under the provisions of Section 20(3) of the Commissioners for Revenue and Customs Act 2005 automatically provide the rights of recourse and redress which are so important in consumer protection.

Members of this Institute must also, once admitted to membership, fulfil various criteria in respect of continuing professional development, regulatory requirements and professional conduct, including meeting the conditions laid out in various bye-laws and regulations. More on each of these is available in our response to the first consultation in this project and in particular in the Appendix thereto (submission to Steven Taylor, February 2019).

At the time of writing, almost 800 individual members of Chartered Accountants Ireland hold a Practising Certificate in Northern Ireland, England, Scotland and Wales.

Costs

All members of this Institute in public practice (defined as providing accountancy services, which includes tax advice, personally and directly to persons other than his or her employer) must have a Practising Certificate. Anyone holding a Practising Certificate must comply with Chapter 7 of the Institute’s Public Practice Regulations and ensure that the appropriate level of PII is in place for the work which they carry out on behalf of their clients. The level of cover and other requirements are set out in the Public Practice Regulations, linked earlier.

Any member holding a Practising Certificate without appropriate PII or anyone who does not hold a Practising Certificate but who is in public practice is in breach of the Regulations is subject to regulatory or disciplinary action.

Practising Certificate holders are also required to confirm that they are covered by PII on their Practising Certificate Renewal/Application Form. Documentary evidence of PII and the level of cover must also be provided both with their Annual Return and with the original Practising Certificate application.

This requirement to have appropriate PII cover in place for practising members, the rigorous processes and procedures in place for obtaining and retaining membership of this Institute, and the ability of HMRC and clients to make complaints/referrals to Professional Standards are all important safeguards providing a combination of consumer protection and redress where one of our members falls short of the high standards expected of them.

Therefore, in theory, the implementation of mandatory PII should not result in additional costs for our members who already hold it. It should ultimately have the most impact on unaffiliated tax advisers who do not already hold PII.

By definition, the cost of PII will therefore more than likely be not just an additional cost, but higher for them, and rightly so due to the additional risks they present, because they are not a qualified member of a Professional Body with a Practising Certificate/Licence.

However, our members are concerned that mandating PII for unaffiliated tax advisers could impact on the cost and availability of cover for affiliated tax advisers who already hold PII.

Unfortunately, insurers may seek to mitigate the impact of the higher risk arising from providing PII to unaffiliated tax advisers, which is inevitably likely to result in more claims by taxpayers, by spreading the cost over the entire market. This would be very unfair to members of Professional Bodies who are already required to hold PII and would ultimately be counterintuitive to the ultimate objective that higher PII for the unaffiliated should, in the long run, encourage them to become affiliated and obtain and retain membership of a Professional Body holding a Practising Certificate/Licence, which would automatically drive up standards and shrink the unaffiliated market.

Recent anecdotal evidence from our members also tells us that those renewing PII already find it more challenging and time consuming to renew cover than they have previously.

The advice of our Practice Consulting team to our members is that firms have an obligation to make a fair representation of the risks when taking out/renewing cover. In order to safeguard the indemnity available for a claim should it arise, it is essential that firms/members are open and transparent with their insurer/prospective insurer when taking out/renewing cover as to:

• the activities they undertake;
• their claims history and any potential claims (or grounds to suspect a claim - 'circumstances'); and
• their disciplinary/regulatory history.

It is not clear if the current challenges in renewing PII are because of a 'hardening' of the market or price correction, but what we do know is that insurers are reviewing more critically the risks they are willing to accept and the price they will set cover for.

This in itself seems to suggest that the PII market for tax advisers is already priced on the basis of the assessed risk. However, this is something only the PII market can say with any certainty.

What is clear is that the Government has a vital role to play in its discussions with the PII market for accountancy in making it very clear that higher PII for the affiliated by virtue of the spreading risk from the unaffiliated across the entire market will be wholly unacceptable.

An independent Tax Advisers PII Adjudicator should therefore be established at the outset to monitor the behaviour of the market and adjudicate on the cost of cover for the affiliated sector.

Minimum level of cover

The consultation document sets out examples of professional and regulatory body PII requirements of various Professional Bodies at Annexe B.

The PII requirements of Chartered Accountants Ireland, though publicly available, have not been included. As mentioned above and in our response to the first consultation, these can be found in Chapter 7 of the Institute’s Public Practice Regulations and are almost identical in every respect to the PII requirements of ICAEW members, except the run-off cover differs slightly. The requirements of this Institute are also appropriately referenced in Euro, for members in the Republic of Ireland.

On examining the PII requirements of the other bodies in Annexe B, the requirements imposed by ICAEW and Chartered Accountants Ireland in respect of both the level of cover and excess required are set at the highest level of any of the Professional Bodies.

Although some of the other Professional Bodies’ PII requirements are lower, HMRC should adopt a minimum level of cover based on the PII requirements of Chartered Accountants Ireland. This is because there is a very compelling argument that unaffiliated advisers should have the highest level of cover possible given they are not qualified and are not practising members of a Professional Body required to meet continuing professional development, regulatory requirements and professional conduct, including meeting the conditions laid out in various bye-laws and regulations such as those which must be satisfied by all members of Chartered Accountants Ireland, in public practice or not.

There may also be an even more convincing case that the level of cover required for unaffiliated tax advisers should be higher than that of the highest of the Professional Bodies to compensate for their unaffiliated nature.

In addition, PII is their clients only recourse to redress when things go wrong as they are not subject to regulatory scrutiny, nor can HMRC report them to their Professional Body. In support of this, HMRC itself has previously stated that two-thirds of complaints about tax advisers relate to those in the unregulated 30 percent of the tax advisers sector. This in itself clearly demonstrates the higher risks from unaffiliated advisers.

There is also a concern that mandatory PII could result in reputational damage to affiliated agents if unaffiliated members are able to obtain cover at a level lower than that required at the highest level of the Professional Bodies as many may wrongly claim that this somehow equalises them with affiliated tax advisers, such as practising members of Chartered Accountants Ireland, when it does not.

To set the PII at a level lower than the highest currently required by Chartered Accountants Ireland could also result in Institute “shopping” whereby unaffiliated agents considering becoming affiliated would shop around and choose the Professional Body which meets the lowest minimum level required both in terms of minimum PII requirement and regulatory function. This would provide an unfair competitive advantage should the PII requirement for the unaffiliated be set at a level lower than the current highest level required by the Professional Bodies.

Overall, the PII cover for an unaffiliated tax adviser should therefore be more than that required currently at the highest level by practising members of Chartered Accountants Ireland.

At what level should PII be required

The consultation document asks whether the firm, its principal, or individual tax advisers should be required to hold PII. As set out earlier, Chartered Accountants Ireland requires all members holding a Practising Certificate to comply with Chapter 7 of the Public Practice Regulations and ensure they are covered by their firm's PII policy.

To require PII at an individual level would create a complex, unnecessary two-tier system. To avoid this and any confusion between the PII requirements of the relevant Professional Body and the Government, PII should be maintained at firm level with a requirement for all members to ensure they are covered by their firms PII policy.

Enforcement

Transparency, checking that advisers have insurance, and the consequences of operating without insurance will all be important aspects of mandatory PII. There is absolutely no point in requiring mandatory PII if consumers and HMRC are not able to check if it is in place and if HMRC is unable to act where it is not. By deduction, this would not be an effective consumer protection mechanism and would have no impact on raising standards.

However, the proposals for providing transparency for consumers, in particular, will also be wholly ineffective unless consumers know there is a PII requirement and know where/how to check for it. We discuss the need for additional consumer protection measures later in this submission.

Transparency

The proposals to require PII and the level of cover to be displayed on premises, online on the relevant webpage and/or enclosed with letters of engagement each appear to be workable, sensible ways to satisfy transparency and provide peace of mind to clients, particularly where the adviser is unaffiliated. There is already legal precedent for displaying insurance certificates in respect of employer’s liability insurance so this in particular should not be problematic.

In addition, clients of members of Professional Bodies that require PII in order to hold a Practising Certificate/Licence are already able to check if this requirement is met as many Professional Bodies maintain a member/Practising Member searchable online database. Therefore, there should be no new requirements imposed on affiliated members where the client is already able to search for the relevant confirmation on the Professional Body website

Adding the requirement to hold PII to the HMRC Standard for Agents might seem sensible and an easy step to take however this would have minimal impact as this standard is not currently well enough known despite being referenced in the recently updated HMRC Charter.

We would not be supportive of an online portal for taxpayers to check their adviser has valid PII as this would add a layer of unnecessary cost when transparency can already be achieved by the means already set out earlier.

Publishing information about advisers who HMRC discovers are not complying with the insurance requirement may also seem like is a sensible move, but this would require a number of safeguards to be implemented to ensure HMRC is correct in publishing. Once again, it is unlikely to have sufficient impact unless this is published somewhere clients of the tax adviser will see it or know to look for it. This, in itself, would be a very difficult objective to meet.

Checking that advisers have insurance

This should be achieved in the simplest and lowest possible cost way for affiliated advisers. The consultation suggests that HMRC could automatically consider the requirement for PII to be satisfied if the adviser can prove they are a practising member of a Professional Body that already requires PII.

We suggest that this assertion could go further and place the burden on HMRC to check and place reliance on the searchable online databases of Professional Bodies to satisfy this requirement. Where a tax adviser is already a member of a Professional Body which requires PII and evidence of same as part of the annual practising certificate renewal application process, HMRC should consider placing reliance on those processes and not requiring the agent to certify again that it complies with the PII requirement.

Where an adviser is not affiliated, the burden of proof should fall on them to prove they meet the PII requirements by, for example, requiring them to provide the relevant evidence to HMRC at the appropriate time.

We also note the suggestion that HMRC could decline to interact with any tax adviser, in any form, unless they demonstrated that they had the correct insurance cover. This would seem to be a natural automatic inference of mandatory PII. It is not clear to us, aside from consumer protection, why PII would be a mandatory requirement for tax advisers if a tax adviser is still able to deal with HMRC on behalf of its clients.

However, this would need to be very carefully handled, and once again, appropriate safeguards would need to be built in due to the potential reputational damage from a tax adviser not being able to deal with HMRC, even if that were only for the period during which they were establishing PII cover.

The consultation document also makes a number of other proposals in terms of how HMRC could undertake checks in respect of tax advisers who already engage with HMRC (both affiliated and unaffiliated). It would seem to us that the burden of proof should not fall on already affiliated members of Professional Bodies who hold Practising Certificates/Licences.

The consequences of operating without insurance

HMRC suggests a number of options as consequences. However, it is our view that these should apply to unaffiliated advisers only who do not have the minimum level of PII (for the avoidance of doubt, this should include those with no PII).

Where the tax adviser is both affiliated, HMRC should use its existing powers in addition to those available under Section 20(3) of the Commissioners for Revenue and Customs Act 2005. These powers are not available in respect of unaffiliated agents hence HMRC powers in this space should go further.

The most effective of the proposals for sanctions for the unaffiliated is likely to be the suspension of access to online services and/or refusal by HMRC to deal with them until the appropriate PII is in place. Conversely, the carrot of having access to enhanced online services could be provided to those who are affiliated members of Professional Bodies with the appropriate level of PII.

As set out earlier, in cases where suspension of access to services/HMRC refusing to deal with is being considered, once again, appropriate safeguards would need to be built in, established and implemented.

We also note HMRC’s ambition to eventually share information about the adviser with their client digitally. We would welcome clarification on what exactly this means, what information would be shared and when and how HMRC plans to implement safeguards to ensure this information is correct and up to date. Ultimately this could damage client/tax adviser relationships, especially where the information provided is incorrect, meaning the tax adviser could seek to recover compensation from HMRC.

Implementation

For the reasons set out in the consultation document, it is evident that a staged approach to implementation will be required.

As many of the PII requirements of Professional Bodies are based on gross fee income, this could be used as an appropriate measure to stage mandatory PII starting with those with the highest gross fee income first. This is similar to the approach taken in recent years in respect of pensions auto-enrolment and Making Tax Digital for VAT, where turnover levels were used to stage the introduction of these.

However, the time taken to completion of staging should not be more than 18 months as this would afford those not yet subject to mandatory PII a continued unfair competitive advantage. Other consumer protection options should therefore be implemented from the outset to mitigate this impact. We refer to the added importance of these later in this submission.

The definition of tax advice

The definition of tax advice is a critical aspect of mandatory PII as this will be used to determine who is a tax adviser mandatorily required to satisfy this requirement.

As a general point, this proposal should apply only to those providing tax advice on a commercial basis. This would be harmonious with the current provisions in the dishonest conduct for tax agents legislation in Section 38 Finance Act 2012 – we see no advantage in making the definition for mandatory PII any different in that respect.

The proposed definition should also not be so widely drawn as to cover simple legitimate tax advice such as advising a client to set up an ISA or in scenarios where something other than a meaningful tax adviser-client relationship exists.

For example, it would appear that anyone preparing media articles advising on legitimate tax planning routes could fall within the definition of tax adviser unless a clear distinction is made between the general advice these articles provide and more specific tailored advice provided to clients where there is a clear commercial relationship between the parties.

Arriving at an acceptable definition of tax advice is also extremely challenging given the current complexity of UK tax legislation. This blurs the lines between tax compliance and tax advice work in the eyes of the client.

The continuing impact of complexity is referred to again later in this submission, but broadly the more complex legislation is, the more opportunities it presents for errors, complex schemes and rogue tax advisers. As set out in our response to the first consultation, tax complexity also leads to markets springing up around simple areas such as the marriage allowance and working from home expenses.

Less complex legislation would have the opposite effect, meaning the impact of the behaviours of unaffiliated agents on the tax system would naturally lessen. We set out specific proposals to tackle complexity in our first response to this consultation and return to, and update these, later in this submission.

On balance, the definition of tax agent in Section 38 Finance Act 2012 (dishonest conduct legislation) is, in our view, pitched at the right level. Although this is targeted specifically at dishonest conduct, it would seem anomalous to us if the same definition could not be said to apply to tax advisers more generally.

We also wish to comment on a number of the examples of activities and professionals who may be providing tax advice cited in Annexe C of the consultation document. Our comments below cover those activities where we feel tax advice is not being provided:-

• an employment intermediary advising a worker to work through an umbrella company – this example would appear to be largely moot from April 2021 due to the new off-payroll working rules in the private sector;
• an accountant preparing and submitting a self-assessment income or corporation tax return on behalf of a client – where the return is simply prepared on the basis of the information presented, this is not tax advice unless the client’s final tax position changes as a result of a particular claim, relief, election or interpretation of legislation etc.;
• a customs agent (completing and) submitting an import declaration solely using information provided to them – this would potentially mean bodies such as The Trader Support Service could be deemed to be tax advisers, which we are sure was not the UK Government’s objective in establishing this service;
• a payroll bureau managing an outsourced company payroll – this would not seem to be tax advice where the bureau simply prepares the payroll unless the final PAYE position changes as a result of a particular claim, relief, election or interpretation of legislation etc.;
• a bookkeeper maintaining records of money coming in and out of a company and preparing end of year returns is simply maintaining records and not providing advice;
• an accountant giving advice on gift aid to a charity, an advice worker at a charity helping with tax returns and someone helping their parents, acquaintances or a friend with a tax return for no consideration should all be excluded as these are not commercial activities;
• an insolvency practitioner advising a client on tax liabilities as part of a formal insolvency procedure as this is not the provision of advice but establishing tax liabilities due;
• a financial adviser providing advice on long-term estate planning, including setting up a trust, should not be classed as a tax adviser unless specific advice is provided on the tax implications of the trust structure – even then, explaining the tax compliance obligations of the trust would simply be good practice and should not be considered to be the provision of tax advice; and
• a VAT representative acting on behalf of a person outside of the UK who is selling goods via the internet into the UK – this is not the provision of advice as this would be managing their clients UK tax compliance obligations.

To ensure that unaffiliated advisers are not able to avoid mandatory PII by moving offshore, we see no issue with the definition of tax adviser applying to those who provide advice to taxpayers subject to UK taxation, irrespective of location.

In any case, members of Chartered Accountants Ireland operating in a different tax jurisdiction to that of their client have an obligation under the Institute’s Code of Ethics principle of professional competence and due care to recognise that they may not be professionally competent to provide tax advice in respect of another jurisdiction. In such cases, our members would be expected to refer the relevant work to a suitably qualified practising member able to provide UK tax advice.

In respect of potential alternative definitions from other countries, we recommend HMRC uses its direct contacts with other tax authorities globally to consider this. Interestingly, the OECD does not currently include a definition of tax advice in its glossary of tax terms, although it does refer to a tax agent as being “a term which refers to a tax adviser who assists the taxpayer in fulfilling his obligations under the legislation”. In our opinion, this definition would not be suitable as it does not distinguish between pure tax compliance activities and the provision of tax advice.

In Ireland, a definition of tax adviser can be found in The Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 which was passed on 18 March 2021. The definition is very similar to the UK AML definition set out in Annexe A of the consultation.

Overall, we would not be supportive of having different PII requirements for different activities. This would be too difficult and complex to determine and could result in unfair outcomes.

As a final point, the supporting guidance which will underpin these changes will also be crucial not just in terms of its development but also in respect of the timing of its publication, communication and introduction. Not too infrequently in the past, HMRC guidance has followed major changes on a very belated basis. This would leave those required to meet the mandatory PII requirement exposed to the proposed enforcement measures outlined earlier for simply not being aware of the requirement.

Further steps

The consultation also requested views on what further steps could be taken to raise standards, or what alternative action could be taken. Mandatory PII was just one of a series of potential options proposed in the first consultation “Call for evidence: raising standards in the tax advice market”. As set out in our response to the first consultation, this Institute is broadly supportive of options A-C (aside from the potential for an independent web-based rating service within option C) and, as set out in this response, is conditionally supportive of mandatory PII given the concerns expressed in respect of a potential cost increase for affiliated agents.

We continue to reiterate the importance of all of these options as an overall interlinked strategy in working towards the Government’s ultimate aim of raising standards in the tax advice market where the tax agent is not a practising member of a Professional Body, holding a Practising Certificate/Licence, such as those of Chartered Accountants Ireland.

Without other consumer protection initiatives, mandatory PII on its own will not be sufficient as very few taxpayers would be likely to check that their tax adviser holds appropriate insurance, nor will they know how/where to do so. This would mean that when things did go wrong, finding out their tax adviser does not hold PII would come far too late to offer them any protection.

In support of option A, an independent review into the effectiveness with which HMRC uses its powers should also be undertaken – we recommend this review be conducted by Sir Amyas Morse given his recent vital role in the review examining the independent loan charge. This review could usefully draw from the recent work of HMRC’s Powers and Safeguards Evaluation Forum.

The current consultation focuses solely on the potential to require tax advisers to hold PII and the definition of tax advice. We are aware that work is ongoing on option A (better use of HMRC or Government’s current powers) in the background and that a further consultation has been published in respect of tackling promoters of tax avoidance, but given the importance of all of options A-C as a combined approach it is vital that this work is transparent and continues alongside the current consultation’s workstreams.

In particular, given that the current consultation clearly recognises that gradual implementation of mandatory PII is likely to be required, the other suggested consumer protection measures (aside from the potential for an independent web-based rating service within option C) should be pursued in the meantime and reviewed to identify potential quick wins for consumers which can be implemented more speedily as work towards mandatory PII is progressed.

Simple actions such as a national media, social media and online campaign could be undertaken to educate consumers and help taxpayers make more informed choices when choosing a tax adviser/agent and to highlight the mandatory PII requirement before this takes effect. The recent campaign by the Financial Conduct Authority to help people avoid pension scams is an excellent example of how powerful and effective such campaigns can be.

The Association of Accounting Technicians (“AAT”) has also just published “What you should know before appointing an accountant”. Although we are not in agreement with the AAT’s assertion that mandatory PII will not drive up standards, this publication is a very good example which contains useful advice for consumers on how to protect their financial interests when appointing an accountant and the importance of what to consider when choosing an adviser.

We also continue to reiterate the importance of re-establishing HMRC’s GOV.UK pages which previously provided taxpayers with more information on choosing an accountant and contained further links to the various Professional Bodies own membership pages.

Several years ago, this Institute undertook a very successful marketing campaign, “Make sure your accountant is a Chartered Accountant”. We are not advocating that HMRC use the same slogan for any campaign it might undertake to educate consumers; however, something which makes consumers check if their adviser is accredited or qualified in some respect could be effective in the short term in helping consumers make more informed choices, subject to any competition law requirements.

As set out in our first response, “kitemarking” or another suitable quality mark could also be considered as a way of encouraging consumers to check if the adviser has some level of accreditation. This could be subject to certain conditions being met, such as the quality mark being automatically available to tax advisers who are members of a Professional Body and hold a Practising Certificate/Licence (and therefore also meet the relevant PII requirements), such as practising members of Chartered Accountants Ireland.

This would at the very least encourage taxpayers wishing to appoint an adviser, or those who have already done so, to check if that adviser has any accreditation. It might also encourage unaffiliated advisers to seek a professional qualification which would automatically help raise standards.

Although this would involve an initial cost, this, combined with a powerful education campaign, could be effective in the short term in establishing an important benchmark of quality in the market.

It is important, therefore, that HMRC sets out its combined plans in the area of consumer protection. It strikes us that the current consultation has overlooked this and although PII is a crucial element, it is not, as the consultation suggests, the natural first step in consumer protection due to the difficulties in implementing and managing mandatory PII as set out in the current consultation and here in our submission.

There are much easier, more rapid solutions that could be implemented in a matter of months. Perhaps the cost of these for HMRC/Government was the crucial factor in apparently bypassing other consumer protection measures. If that is the case, this is a disappointing indictment of the UK Government’s inability to see the bigger picture and focus on a combined package of consumer protection, including mandatory PII, which would have a more robust impact on raising standards in the tax advice market.

HMRC’s core purpose is not only to collect the money to fund the UK’s public services; it also has a stated aim of administering the tax system in the “most simple, customer focused (our emphasis) and efficient way”1. Consumer protection is at the heart of any customer focused strategy, particularly where a body such as HMRC interacts with intermediaries representing those customers in order to implement its core mission.

HMRC should therefore develop an overall consumer protection strategy. This would send an important early and serious message to the unaffiliated, many of whom may be able to delay the need to seek PII due to the necessity to phase its implementation. This would also provide a level of earlier protection to consumers when choosing a tax adviser.

The important role of professionally qualified agents

Our first consultation response also made a number of related but extremely important points which, once again, we stress are vital to ensuring the success of this project. We refer to and briefly update on each of these matters in this and the next sections of our response.

A crisis such as a pandemic inevitably demands the making of difficult decisions. Countless business owners confronted this reality during the pandemic and continue to do so. For many of them, professionally qualified agents, such as members of Chartered Accountants Ireland, were there in their time of need and continue to be trusted advisors providing advice, guidance and assistance in respect of government loans, supports and grants, key business decisions and cash flow management. This work as a trusted advisor is in addition to their usual role in the tax compliance cycle. The ability of these agents to interact with HMRC, on behalf of their clients, is therefore even more critical during a pandemic.

HMRC itself recognises the important role played by the majority of agents and referred to this both in the first consultation of this project and in this consultation on page 9. It would therefore be remiss of us, in a consultation which examines options to regulate the tax agent market, not to make reference to the reduced service levels provided to agents in recent months. Reduced service and delays also continue to be experienced by the very taxpayers, which tax advisers are also seeking to support.

It is therefore disappointing that the Agent Dedicated Line (“ADL”) has been experiencing significantly decreased service levels. HMRC is currently conducting a deep dive examination on the reasons agents make calls to the ADL, including a rebranding of the ADL, which this Institute supports and will continue to partake in. However, we welcome the recent news that from Monday 14 June, HMRC relaunched the ADL on a trial basis, with calls aiming to be answered within a maximum of ten minutes.

Overall, it seems disingenuous for HMRC to recognise the important role of agents whilst at the same time having provided a reduced level of service at such a vital time.

For this reason, it would also seem timely for HMRC to update its “Agent Strategy”, first published over seven years ago in 2014, to bring this up to date for the current times and to reflect on the even more vital role played by qualified affiliated agents in the UK’s modern tax system.

The continuing challenges of complexity and digitisation

In July 2020, HMRC and HM Treasury published the UK Government’s “Tax Administration Strategy”; the 10-year strategy to build a trusted, modern tax administration system. This strategy document sets out the UK Government’s vision for the future of tax administration in the United Kingdom and also included a roadmap for the extension of Making Tax Digital (“MTD”).

These future changes to tax administration will be a significant change to established current practice under the self-assessment regime, which will be in place for 25 years when MTD for income tax is due to commence in April 2023. This, and future changes to tax administration, place added importance on the role of the tax adviser in helping their clients prepare for, navigate, implement, manage and operate these significant changes.

However, the achievement of the various milestones in this roadmap will not be feasible unless the complexity of the UK tax system is tackled as a matter of urgency, as recommended by us in many recent consultation responses.

As set out earlier, the complexity of tax legislation in the UK also blurs the lines between what is considered to be pure tax compliance work and tax advice, a critical element which will underpin the need for mandatory PII in future.

Tax complexity continues to be an issue, and this continues to increase on an annual basis with the publication of each successive Finance Act. One recent example of further complexity is the introduction of a new complex Corporation Tax (“CT”) regime from April 2023, which was announced in the most recent Budget on 3 March 2021.

This Institute and the NI Tax Committee therefore welcomes the recently launched HM Treasury “Review of the Office of Tax Simplification“(“OTS”). The OTS can play an ever more vital role than it has previously as an independent adviser to the Chancellor on simplifying the tax system.

One overarching recommendation of this Institute is that the effectiveness of the OTS could be improved by tasking this body with providing an independent and authoritative analysis of the UK tax system, including its complexity, akin to the role of the Office for Budget Responsibility in respect of the UK’s public finances.

In particular, this would task the OTS with reviewing, commenting, advising and reporting on proposed changes to UK tax before their announcement on Budget Day but also by discussing proposed changes subject to consultation with HMRC before publication of the consultation via a confidential “sandbox” approach.

The work of the Tax Working Group in New Zealand2, and what can be achieved when a government is serious about reducing complexity, is a very good example of how the OTS could be used in the UK.

Tax policy making approach

In December 2017, HM Treasury published “The new Budget timetable and the tax policy making process”, which reaffirmed the UK Government’s commitment to the principles set out in “Tax policy making: a new approach”, published in 2010.

The 2010 principles set out clearly that when embarking on significant areas of reform, such as the current consultation, the UK Government should begin by setting out its policy objectives, including the case for change. In recent years, too often the case for change is not made sufficiently clear at the first consultation stage.

For example, the recent consultation on Making Tax Digital (“MTD”) for CT considered how the principles established for MTD could be implemented for entities within the charge to CT and also examined the potential design of the regime.

Although its earliest commencement date is April 2026, this consultation did not make reference to the UK Government’s specific policy objectives for introducing MTD for CT, except to set the consultation within the context of the UK Government’s 10-year tax administration strategy and its overall strategy of reducing the level of tax lost annually through avoidable error. It appears, therefore, that at present, the UK Government has settled on the policy of introducing MTD for CT, having previously not consulted or invited any comment on if it should be introduced and the case for doing so, if any.

This aspect of any major policy change is vital before considering the proposed design and implementation of the regime in any more detail. The UK Government, therefore, needs to be more explicit in setting out the case for change clearly and much earlier in the consultation process.

The UK Government also needs to ensure that stakeholders have sufficient time to respond properly to consultations. Although the consultation response period was extended for several vital consultations in 2020, this has not continued. For example, this consultation only afforded respondents a period of under three months to respond, at a time when many UK businesses were back in lockdown and their tax advisers remained incredibly busy as their trusted advisors.

At its highest-level forum with the Professional Bodies in the UK, the Representative Body Steering Group has a process of “horizon scanning” as part of its revised Terms of Reference adopted in 2020. This is essentially a forward look at upcoming changes and issues that will affect taxpayers, agents and software providers. However, this “horizon scanning” is reactive only in that it examines the changes to be implemented in future once they have already largely been legislated for/decided upon by the Government.

The UK Government should also consider building in true proactive “horizon scanning” to the tax policymaking process via the use of confidential “sandboxes”, which would involve trusted stakeholders and HMRC/HM Treasury discussing proposed legislative changes/new policies in tandem on a confidential basis.

This would help to identify pain points, unnecessary complexities, and implementation issues much earlier in the process, meaning less risk of delayed introduction of new measures and more certainty for taxpayers.

As many businesses have only recently reopened for the first time since December 2020, the key principles of the UK Government’s approach to tax policymaking of predictability, stability and certainty become even more vital as the UK seeks economic recovery and growth over the coming years.

Conclusion

In conclusion, it is our view that unless handled correctly, mandatory PII could lead to an increase in premia over the whole market which could result in affiliated tax advisers in smaller firms and sole practitioners, the trusted advisers who have played such a valuable role during the pandemic, being priced out of the market. We are particularly concerned about this in the context of the Northern Ireland tax adviser market. It is for this reason that we are conditionally supportive of a mandatory PII requirement and why we recommend HMRC implements a wider consumer protection strategy.

In the current economic climate, we do not want taxpayers to feel they have to seek assistance from rogue agents as could surely happen should the affiliated market shrink. It also seems possible that this could lead to increasing numbers of taxpayers completing and submitting their own returns.

Given the complexities and burdens already presented by our tax system, it is difficult to see how this could be viewed as productive or as fulfilling HMRC’s Charter promise to “respect your wish to have someone else deal with us on your behalf, such as an accountant, friend or a relative” (whilst making it as difficult as possible for them to do so).

We look forward to engaging in further consultation in future on this matter. In the meantime, in the context of the foregoing, as a minimum, we believe that the following key points merit serious consideration: -

• In introducing a mandatory PII requirement for tax advisers, the Government has a vital role to play in its discussions with PII insurers. An independent Tax Advisers PII Adjudicator should be established for the affiliated sector;
• The PII cover for an unaffiliated tax adviser should be higher than that required currently at the highest level by any of the Professional Bodies (which is expected of practising members of Chartered Accountants Ireland) and gross fee income could be used as an appropriate measure to stage mandatory PII;
• For affiliated agents, the burden should fall on HMRC to check and place reliance on the searchable online databases of Professional Bodies when establishing if PII is in place. Where an adviser is not affiliated, the burden of proof should fall on the adviser;
• Any PII enforcement options should apply to unaffiliated advisers;
• Access to enhanced online services should be provided to those who are affiliated members of Professional Bodies with the appropriate level of PII;
• On balance, the definition of tax agent in Section 38 Finance Act 2012 (dishonest conduct legislation) feels pitched at the right level;
• HMRC should develop an overall consumer protection strategy combining mandatory PII with other consumer protection measures;
• The UK Government should consider building in true proactive “horizon scanning” to the tax policymaking process via the use of confidential “sandboxes”; and
• The OTS should be tasked with carrying out a review of income tax complexity in particular given the proposed extension of MTD to income tax from April 2023.