Friday, February 19, 2010

"STOP giving tax advice - or face a charge of deliberate wrongdoing"

Of course no one needs to stop giving tax advice. And I think it's irresponsible to suggest that such a situation will ensue. But that is what some people are doing after reading the Draft legislation on deliberate wrongdoing by tax agents published by HMRC on 8 February.

The good news is that HMRC have bowed to pressure and are extending the deadline for responses to 28 April. The original deadline of 3 March (just 23 days after publication) was quite disgraceful as it gave far too little time for effective consideration and reasoned responses.

Over the last few days I have rejected the wilder fears from certain accountancy commentators that tax advice is to be banned; and at the same time I have flagged the issue for the IFA and will-writing communities, for the reasons I have set out below.

The first point to note is that the draft legislation goes WAY beyond the aspirations of the consultation document issued in December (Working with Tax Agents: The next stage). As drafted the legislation means that all Tax Agents would be potentially subject to tax geared penalties for giving advice that results in a reduction in someone's tax liability. This is clearly a nonsense and I'm sure it will be changed. As such I favour formal representations to HMRC by the widest possible range of tax agents.

In this context the draft legislation also extends the accepted meaning of 'tax agent' to include voluntary sector advisers (eg: CAB, TaxAid, TOP) and those in the financial services and will writing professions. It also extends to all employees as well the principals in firms/businesses.

I have enormous sympathy with HMRC's ambitions and am a supporter of many of the objectives set out in the Working with Tax Agents consultation documents. I can also see exactly what they were seeking to do with this legislation. Whether the parliamentary draughtsman was inadequateley briefed, chose to extend the potential scope of the rules or was asked to do so we may never know.

I have long deplored the extent to which we are already taxed by legislation and only untaxed by concession and discretion. The anti-terror laws are already used in circumstances way beyond their original intent. The original assurances given that they would not be misused are worthless. Sadly it is much the same with tax law - as those who have negotiated with HMRC will confirm all too readily. There are already too many examples of where, having been asked to trust HMRC not to abuse their powers, that trust has itself been abused.

We have also seen with the health and safety laws (in particular) that law abiding citizens end up taking things to extreme to ensure that they don't get close to crossing the line. Tax law is very different of course and to an extent HMRC want to discourage tax agents from 'planning up to the edge'. But the draft legislation is too widely drawn and too open to abuse by HMRC.

It has evidently been drafted in a hurry and needs to be revised in a number of places - not least to make clear that it can ONLY be applied to counter the real targets rather than only 'in particular' those targets. It is this prospect of wider application that is the biggest worry in my view. I confidently expect that HMRC will bow to pressure and common sense and revise the drafts now they realise how much wider it could be applied than they originally intended.

However, until the draft is amended, it says what it says and the more people who point out that it is much too widely drawn the better.


  1. Mark an excellent article.

    My concern is that there has been for a number of years, an underlying theme.

    HMRC have reduced the number of employees and offices in what can only be cost saving excercises. They have then over a period of time changed their stance with the help of new powers to pass on the responsibilty of policing the tax payer onto accountants/tax advisors and then forcing compliance by accountants with the threat of ever increasing statutory powers.

    The only reasonable end game to all this would be to force all tax payers to use an accountant/tax advisor and for the clients to bear the cost of this imposition.

    It is a rather stupid and ill thought out proposal which should not see the light of day. i hope all those who may be affected voice their disapproval however I'm starting to get the ominous feeling that HMRc will at some point in the near future stop listening and just impose anyway.

  2. Mark, as usual your response is well-thought out and measured. However, it is quite clear that the philosophy is changing within HMRC. It seems to me that all tax planning is deemed to be evasion.

    This, added to the sense that anyone not on PAYE is "getting away with something" means that the idea that one would honestly set out to pay just enough tax - not too much - taking advantage of whatever tax breaks are available, is tantamount to a crime. Tax planning has become next to impossible and this has a negative impact on the small business community way out of line with any benefits that might flow from increased tax collected. It actively discourages honesty.

    This is not paranoia. The lack of staff means that to meet targets HMRC will focus on previous miscreants. Anyone who has been daft enough to make a mistake and then honestly declare it is likely to be at the top of the list for further attention. I despair.