Tax advisor registration: power struggle?

IT IS SURPRISING that the top brass at HM Revenue & Customs have any time to run the organisation in between attending serious reviews into its administration of the tax system. There are currently reviews from both houses in parliament, one beginning at the Office of Tax Simplification, and a commitment from the president of the Chartered Institute of Taxation to evaluate its relationship with HMRC.

Perhaps hearing constant criticism of the service provided and the low morale at the Revenue has led to it taking its own steps before any review is published. This week, HMRC announced its “tax agent strategy” consultation. This will allow certain advisors the chance to undertake “self service” – to enter HMRC systems to complete the clerical tasks that could save time and costs, the consultation says.

This has been almost universally welcomed but there are significant issues to be dealt with. Without set criteria around who can act as an advisor, this will mean anyone can enter the Taxman’s systems. But with quality control in place to allow or disallow advisors to use the system, it will create a two-tier system of “trusted” and “untrusted” advisors. So how will HMRC maintain the security of its systems while, it says, not introducing regulation through the back door and deciding who is in or out?

As it stands, there are no “haves”. The current relationship “does not recognise the professional nature of [the advisor’s] role nor does it benefit from trust or control being placed in the hands of the professional agent”, the consultation states. This relationship is costly, too: it costs HMRC almost £200m a year to provide services for advisors.

Call centre service

Not that this support helps as much as it should, it seems. The current problems are well documented. The tales of incorrect codings, spending 10 minutes on the phone trying to rectify problems only to get through to an untrained call centre operative are widespread.

As Paul Aplin, The Institute of Chartered Accountants in England and Wales’ tax faculty’s technical committee chairman, put it, “the major banes of my working life are incorrect PAYE codings, lack of replies to my correspondence, wasted time on the phone…if I can replace all that with just logging on, changing a coding and logging off again, that has huge attraction.”

This is exactly what the consultation proposes to allow. Therefore, there is little doubt that those included into the “self service” club – the “haves” – will benefit greatly.

The benefits of self service will include: self-authorisation, the ability to notify HMRC systems that agent A is acting for client B without the need for signed authority; the ability to generate and amend notices of coding and manage end-of-year reconciliation for those outside self-assessment; the facility to see payments and liabilities across all heads of duty, for a single client in one presentation of the information; allowing advisors to track and trace facilities for paper repayment claims and correspondence; and the ability to lodge correspondence and returns or forms that are not fully online via an electronic work area.

Quality control or regulation?

In opening up its systems, HMRC understandably wants some security. Stephen Herring, partner at BDO, says: “If they are being more permissive, they have the right to set a minimum.” Without some sort of quality control, the Revenue would lay itself open to fraud, which would be irresponsible in the extreme.

So how far will this quality control go? The consultation suggests there is some form of government regulation of accountancy already – for audit practice or for supervisory roles they undertake such as money laundering.

However, “no regulation exists for their role in creating and submitting tax computations, claims and returns”, it says. Importantly, the strategy “does not seek to regulate the profession”. However, “there could be value in all tax agent firms operating in the UK being expected to meet or exceed a minimum level of competence and professional conduct”.

Worringly, one of the approaches could include “limiting access for certain types of agent or for agents below a certain size threshold unless they can demonstrate that they have security arrangements which are satisfactory to HMRC”. This is highly unlikely to take effect because of the probable outcry. But, with approximately 43,000 firms providing advice to taxpayers, will there need to be an initial line in the sand if not based on size?

Greater institute power

There are significant hints that membership of a professional body will be taken into account. The consultation says that institutes “help to maintain high professional standards through the monitoring of agents’ performance”. It adds, while “the UK does not require membership of an oversight body or any level of qualification to act as a tax agent, over 70% of practicing agents would qualify against these criteria”.

Most strikingly, it states HMRC is “keen to explore the scope for all tax agents to hold a relevant qualification to provide tax advice and complete returns and claims on behalf of their clients”.

While the institute hierarchies understandably propose the merits in membership being a factor in being self-authorised – higher standards and vigorous entry requirements being the main arguments – this could cause problems.

As the consultation itself states, “those who choose not to undertake formal examination or become members of a recognised body may have very clear reasons for doing so”. It says advisors might be able to meet competence through other routes and adds it “would be keen to understand why some agents do not acquire qualifications or join a recognised body”.

The 30% of practitioners who are not members of an institute represent a significant minority. To be denied access to self-service would cause “controversy”, as CIoT tax director John Whiting understates. Ironically, many of the well regarded tax advisors who shun membership tend to be ex-HMRC employees. This is without even touching on the politics of giving the institutes greater statutory powers.

Having said this, it would be no surprise if membership of an institute did automatically qualify practitioners for getting on the enrolment system for self-service in the first instance. In the long term, however, an even more crucial issue is what safeguards there are for practitioners to stay on the register.

Greater HMRC power

The recent furore over HMRC’s refusal to deal with Christopher Lunn accountants and the subsequent judicial review brought this issue into light. The judge overseeing the review ruled against the Taxman not for the refusal in itself but for not undertaking due process when doing so. The standard to be applied for any decision not to recognise an advisor must be “necessary, relevant and proportionate”, the consultation says.

It contnues: “HMRC will publish procedural guidance on this in the light of recent developments to ensure that the process is understood and rights to representation are clear.” A further consultation on fraudulent advisors is due later this year.

But the self-service is another matter altogether. Theoretically, HMRC is allowing advisors access to its systems; if it were a private organisation, nothing would stop it from removing access for little reason. However, this would leave firms at a commercial disadvantage and there would need to be some process, if not as stringent as that covering the refusal to deal with advisors. It is “a worrying prospect if HMRC starts removing firms that offend them while staying within the law”, says David Ingall, a partner at UK200Group firm JWPCreers.

Once again, it comes down to HMRC not being judge, jury and executioner. Whiting says: “That might be ok in X Factor, but this is not Tax X Factor. There must be something for them to appeal to. If HMRC can just cut me out, that is affecting me commercially.”

The obvious answer is an independent body, something already proposed by CIoT president Thomas. This would mean more costs and more bureaucracy but perhaps it is preferable to permanent secretary Dave Hartnett as Simon Cowell. If there is no independent body, it could mean the scheme fails during the public vote.