Rogue agents may see penalties as “acceptable cost of doing business”, warns ATT

Responding¹ to an HMRC consultation on powers to tackle tax advisers facilitating non-compliance, the ATT says the current limit of £50,000 under Schedule 38 Finance Act 2012 may not be enough to deter “high value tax loss cases”. It proposes the threshold be removed and penalties instead based on the fees received by the adviser.

ATT President Senga Prior said:

“The fact that there remain ‘wilfully incompetent’ and ‘dishonest’ tax advisers causing harm to the tax system would suggest that HMRC could still do more to tackle both these groups.

“While we do not have statistical data on the adequacy of the current penalties, we are concerned that the current financial penalty for dishonest conduct, ranging from £5,000 to £50,000, could be seen by some unscrupulous tax advisers as being an acceptable cost of doing business and built into their financial modelling.

“Therefore, we consider that the most appropriate way to calculate a penalty is to base it on the fees received by the tax adviser for undertaking the work that led to the non-compliance. Applying a penalty where the tax adviser is only being deprived of the fee that they initially received from the taxpayer for providing the advice may not prove a sufficient deterrent, so we would support a penalty on up to 150% of the fees received, though reserving the top amount for the most egregious deliberate behaviour.

“We consider this could be a greater deterrent, as it is unlikely that such penalties could be supported within a business model. However, it is important that the penalty regime is designed from the taxpayer perspective, primarily to encourage compliance and prevent non-compliance. Penalties should not be applied solely with the objective of raising revenue.”

The Association also opposes proposals that HMRC should be granted easier access to information from tax advisers based on a “reasonable suspicion” that the adviser has facilitated an inaccuracy in a taxpayer’s document or return, saying this would remove important safeguards at the same time as lowering the threshold to access the sanctions. This could lead to inconsistent use by some compliance officers.

Senga Prior added:

“What constitutes a ‘reasonable suspicion’ is a subjective decision and will vary for person to person. This risks some compliance officers using this lower threshold to justify unwarranted inquiries into uncooperative tax advisers.

“We do however support efforts that could make it easier and faster for both HMRC and the professional bodies to respond to and address sub-standard behaviour and work by tax advisers at an earlier stage and believe that it is also in the public interest for HMRC to publish more information about its activities.

“This could help taxpayers to be better informed about their choice of tax adviser by knowing which advisers are subject to sanctions or have had limitations imposed on them.”

Notes for editors:

1. ATT response to the HMRC discussion document ‘Enhancing HMRC’s powers: Tackling tax advisers facilitating non-compliance’.