HMRC proposals to impose PII on unaffiliated agents is short-sighted, says IFA

HMRC proposals to impose PII on unaffiliated agents is short-sighted, says IFA

HMRC’s consultation on raising standards in the tax advice market tiptoes around regulation issue, warns IFA

HMRC proposals to impose PII on unaffiliated agents is short-sighted, says IFA

On the face of it, HMRC’s proposals to impose professional indemnity insurance (PII) on unaffiliated agents may seem like a wise move on paper, but in practice it shirks the real issue of unregulated advisers and unprotected consumers, warns Anne Davis, director of professional standards at the Institute of Financial Accountants (IFA).

HMRC’s consultation on Raising standards in the tax advice market: professional indemnity insurance and defining tax advice states that “PII can help to create better market incentives for poor-performing advisers to improve standards”. However, we are not convinced of its benefits, and feel it only serves to reinforce the likelihood that the current proposals will be seen as “tinkering around the edges”.

IFA response

Our response to the consultation lays out our concerns and suggests that HMRC do more to understand the role of the professional bodies in raising (and maintaining) standards.

While providing a form of recourse is useful to consumers, we have seen little evidence in the consultation of how this raises the standards of the tax adviser. In fact, in the eyes of some, it might be viewed that PII cover could pave the way for complacency. PII cover is beneficial only in the context of other regulatory arrangements.

Potential public damage  

The foreword to the consultation notes that “there is a minority of incompetent, unprofessional and malicious advisers whose activities harm their clients”, which breeds public distrust and has the potential to damage the reputation of the accountancy profession. However, we believe that the wider public is also affected.

The requirement to have PII among those incompetent, unprofessional and malicious advisers will do nothing to rectify the damage done to those who have suffered first-hand. Neither will it protect consumers from ongoing poor practice and bad advice – all it does is merely offer a potential option for compensation from the PII providers.

Regulation and consumer choice

The consultation states that around 30 percent of the tax advice market are unaffiliated agents (tax agents not part of a professional body). It is thought that half of these may already hold PII. Trying to grasp how the requirement for a minority of tax advisers to hold PII in isolation might raise technical and ethical standards is challenging – as is seeing much benefit to a client whose accountant is not regulated by a professional body. A proportionate response requires looking at the bigger picture – the regulation of accountants and the informed choice of consumers.

Defining standards

Another proposal for raising standards in the tax advice market is that of raising awareness of the HMRC Standard for Agents (although it is also suggested that some tax agents may not fall within the definition of a ‘tax adviser’ and vice versa). However, this assumes that the HMRC Standard is effective and that there is a means of enforcing it. A review of the HMRC Standard would have to take place alongside the review of HMRC’s powers, but we believe that this process would result in a significant amount of duplication (i.e. regulatory overlap) between HMRC’s role and that of the professional bodies. In addition to the disproportionate costs that would arise, this would surely create a framework that is more complicated (and opaque) than it needs to be.

Understanding the role of professional bodies

We also assert that more needs to be understood about the role of the professional bodies in raising (and maintaining) standards, from HMRC’s point of view. While we understand there is no fixed timeline for this work, it is clear to us that such an understanding must be gained before HMRC’s project to raise standards in the tax advice market can credibly progress. An effective review of the work of the professional bodies will also identify areas in which reliance on (and understanding of) their existing regulatory frameworks could support other high-priority policy areas, such as fighting economic crime.

Consumer clarity is key

When it comes to raising standards among tax practitioners, this will, if attempted in isolation, be nothing short of a difficult task, and it will not meet the objective of protecting the public without significant cost and complexity. As the adage goes, to be forewarned is to be forearmed, and until consumers of accountancy services gain greater clarity, they remain vulnerable and unable to make an informed choice.

We remain of the belief that the professional bodies are best placed to regulate accountants (including tax advisers) in the interests of effective, proportionate and targeted regulation, and so maintain the high professional and ethical standards of their members. It is in the public interest to afford complete transparency to consumers on tax advice matters and to ensure they are clear on whether (and how) their adviser is regulated.

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