AIA Responds to HMRC Consultation on Raising Standards in the Tax Advice Market

AIA welcomes this opportunity to respond to the ‘Raising standards in the tax advice market: strengthening the regulatory framework and improving registration’ published by HMRC on 6 March 2024.

This consultation discusses the government’s intention to raise standards in the tax advice market through a strengthened regulatory framework. It sets out the three possible approaches to strengthening the framework: mandatory membership of a recognised professional body, joint HM Revenue and Customs (HMRC) – industry enforcement, and regulation by a separate statutory government body. The consultation also explores approaches to strengthen the controls on access to HMRC’s services for tax practitioners.

This document sets out AIA’s response to the questions posed by the consultation and provides further clarity and guidance on how AIA upholds standards of tax advice issued by its members in practice and acts in the public interest. AIA’s response builds upon previous responses made to HMRC’s consultations regarding raising standards in the tax advice market.

The response is informed by opinions surveyed of AIA’s population of Members in Practice. Any move to raise standards in the tax advice market is broadly welcomed by AIA Members in Practice, however any changes should be introduced in an efficient way with minimal regulatory burden or cost, both to the public and tax practitioners. AIA would argue that introducing some of the measures outlined within the consultation should increase the overall quality of tax advice received by taxpayers and therefore provide greater assurance to HMRC that decisions are made using correct information.

Good agents help to improve tax compliance by providing quality advice on tax law and ensuring that clients can only claim their appropriate reliefs and consequently pay the correct tax. Good tax agents help to protect the public interest by reducing resourcing costs for HMRC, allowing for an efficient and targeted taxation system.

There should also be further consideration given to introducing legal protection for professional titles, such as ‘tax practitioner’ and ‘accountant,’ within any strategy for encouraging good tax agents. There is a wider public interest argument in place for expansion of the role of professional bodies within the remit of improving ‘good agents’ and how they can add value.

The government should work to promote the effectiveness of good agents by recognising that additional safeguards and public interest concerns are met by consumers undertaking the services of a regulated individual to conduct their tax affairs, with proper recourse to advice if things go wrong and an independent complaints system.

It is clear that the simplest and most robust way of protecting the public interest is to ensure that any individual providing tax advice as a service is a member of a recognised professional body. All options set out within the consultation require careful consideration against the public interest – ensuring a continuation of the availability of tax advice to members of the public whilst recognising the benefits of greater scrutiny over the competence of tax agents to bear down on bad behaviour and agents.

It must be recognised that any option that increases the burden and cost of regulation may result in tax agents leaving the regulated sector and acting with a lower level of scrutiny which would not result in a net benefit position.

AIA notes that many taxpayers rely on tax practitioners to provide quality advice and services, helping them pay the right tax at the right time and access the tax reliefs they’re entitled to and welcomes HMRC’s initial comments that ‘most tax practitioners who provide tax advice and services are competent and adhere to professional standards’. It is clear, however, that there are issues raised within both the market and the consultation document which require addressing.

AIA agrees that any regulatory action implemented by the government should:

• Be proportionate to the harms observed and the benefits expected to minimise extra costs and burdens for the taxpayer, tax practitioners and their clients, and professional bodies
• Provide additional ways to monitor and enforce minimum standards for tax practitioners accessing HMRC systems and services
• Remove substandard and unscrupulous tax practitioners from the market by either improving their capability or ensuring they exit the market. It should do this by providing clarity on the standards required, support to meet those standards, and increasing the likelihood that error and misconduct are identified and dealt with appropriately; and
• Provide confidence in the quality of tax advice and services that clients receive from tax practitioners and ensure that support is available to clients when they want to resolve issues that arise due to actions taken by their tax practitioner

Of the three options presented by the consultation document, AIA is broadly supportive of Approach 1 as the option which could be implemented with the least delay and at the lowest initial overall cost. AIA also notes that the consultation does not suggest whether regulation of the tax advice market is the only way of raising standards or whether there are other measures alongside regulation are needed.

Overall, the proposals outlined within the consultation could help improve trust and confidence in the tax system, reduce pressure on HMRC services and protect taxpayers. AIA will work closely with HMRC and other professional bodies to ensure any regulatory changes are applied proportionately, efficiently, and fairly. It should be stressed, however, that AIA’s support for Approach 1 is contingent on further detail being presented as this approach is develop.

AIA has some concern that the overall model of regulation or oversight of the professional body supervisors and recognition of professional bodies is not outlined in detail within the consultation, so it is therefore difficult to prepare a complete response. In addition, there needs to be further discussion on an implementation timeline to ascertain resourcing and an achievable approach across both professional bodies and HMRC. AIA would stress that the requirements for approval as a recognised body would need to be high and is prepared to work with HMRC to discuss how this would work in practice. Any monitoring of professional bodies should be both proportionate and cost effective whilst recognising the frameworks in place by professional bodies to monitor and supervise members and the independent disciplinary actions available to take against members whose work or conduct falls short of what is expected and required.

AIA would also highlight that there is insufficient consideration given to the cost associated with monitoring and supervision and that professional bodies may be required to make significant investment into new systems, training, and expertise to enable them to expand current frameworks to take on new responsibilities relating to scrutinising tax work.

AIA is generally supportive of mandatory registration for all tax practitioners. A register is an initial step necessary to identify the population which need to be regulated and with increasing digitalisation and electronic interaction with HMRC this should be simple to achieve. Following the identification of all tax practitioners have been identified then it could be argued that further action can be taken to raise standards amongst unaffiliated agents which require demonstration of standards applicable to affiliated agents to avoid two-tier regulation.

AIA does not consider that it would be correct to exclude other professionals engaged in tax practitioner work from mandatory registration and regulation. This could be viewed as a significant weakness in the system, building loopholes into the framework and undermining fairness. AIA would also draw attention to ongoing reforms to audit and Anti-Money Laundering supervision which are yet to conclude and may affect the implementation of further regulation of tax practitioners. It will be vital to ensure that these reforms do not create additional regulatory burden or a regulatory approach which is unnecessarily split across different regulators to create a confused and inefficient landscape.

AIA believes that a significant transitional period or legacy system will be required should any of the approaches outlined in the consultation are adopted. HMRC should undertake further work to understand how professional bodies would implement Approach 1 and investigate how unaffiliated agents would – or would not – be regulated by professional bodies. AIA will work closely with HMRC and other professional bodies to ensure any regulatory changes are applied proportionately, efficiently, and fairly.

Read the full response

"It is clear that the simplest and most robust way of protecting the public interest is to ensure that any individual providing tax advice as a service is a member of a recognised professional body. The government should work to promote the effectiveness of good agents by recognising that additional safeguards and public interest concerns are met by consumers undertaking the services of a regulated individual to conduct their tax affairs, with proper recourse to advice if things go wrong and an independent complaints system."

David Potts, AIA Director of Policy and Regulations