Tuesday, February 16, 2010

IFAs are now Tax Agents and subject to new penalties

Last week HMRC published draft legislation on deliberate wrongdoing by tax agents. This is part of the ongoing consultation re Working with Tax Agents. The legislation contains a very wide definition of "tax agents" who will be subject to penalties for "deliberate wrongdoings" - which are also very widely drawn.

It's clear to me that anyone who ever provides advice related to inheritance tax is a tax agent for this purpose. This will certainly include many financial advisers. This could have very wide repercussions for those advisers who currently believe that HMRC are not interested in their advice. This is about to change!

Remember that this legislation is focused on deliberate wrongdoings by tax agents. And deliberate wrongdoings are very widely defined by reference to helping clients pay less tax. We think that the target at which HMRC is aiming comprises 'naughty' tax schemes. However it's not currently restricted in this way. Thus it could be used to penalise far more tax agents for far more advice than you might think.

For the record - here is the definition of 'tax agent' in para 2 of Schedule 1:

(1) A person is a tax agent if the person assists another person (a 'client') with the client's tax affairs.

(2) A person may be a tax agent even if -
  • (a) the assistance is given free of charge,
  • (b) the assistance is given otherwise than in the course of business,
  • (c) the assistance is given indirectly to the client or at the request of someone other than the client, or
  • (d) the assistance is not given specifically to assist with the clientís tax affairs, but the person giving the assistance knows it will be used, or is likely to be used, for that purpose.
(3) Assistance with a client's tax affairs includes assistance with any document that is likely to be relied on by HMRC to determine the client's tax position.

(4) Assistance with a client's tax affairs also includes -
  • (a) advising a client in relation to tax, and
  • (b) acting or purporting to act as agent on behalf of a client in relation to tax.
(5) If a client is assisted by more than one individual in a firm or business, each individual may be regarded as a separate tax agent.

And inheritance tax is included in the definition of 'tax' at clause 39.

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