20 April 2010
HMRC's consultation document of February 2010 which deals with Working with Tax Agents: the next stage, has a number of worrying aspects.
HMRC published a consultation document on working with tax agents following the Budget of 2009; "To begin the process of exploring with tax agents … what further work could be done to ensure the highest standards of performance by those working as tax agents".
Following that consultation HMRC published draft legislation in February 2010. The legislation is now intended to address "deliberate wrongdoing by tax agents". This of itself implies that it will only bite where agents have been fraudulent.
As you may have read, this could not be further from the truth. HMRC, most importantly, say that "The trigger to access working papers and for liability to penalty will be the same. It will be deliberate wrongdoing by the tax agent intended to cause a loss of tax. This is broadly the same test as applies for direct taxes currently under sections 20A and 99 of the Taxes Management Act 1970." (my emphasis)
This is wholly misleading. Section 20A TMA permits HMRC to obtain papers from a tax accountant in two circumstances. Firstly because the accountant has been convicted of an offence in relation to tax (i.e. a criminal offence); or alternatively if a penalty has been imposed on the accountant under section 99. Section 99 permits the imposition of a penalty but only where the accountant knowingly assists or induces the preparation and delivery of a document which he knows to be incorrect. This, too, is (in essence) a test of fraud. So common to section 20A is the concept of dishonesty. HMRC must show that an accountant has been dishonest before it can obtain a conviction or impose a penalty. Does deliberate wrongdoing by a tax agent which is intended to cause a loss of tax, also require the agent to be dishonest?
The answer is; very clearly not. Deliberate wrongdoing refers to an act that is capable of bringing about a loss of tax, and which is done deliberately with the intention of bringing about such a loss.
A loss of tax means "loss of revenue from tax, and includes a loss involving a relief, deduction, repayment or credit of any kind."
So any positive advice resulting in a loss of revenue as a result of the use of a relief, deduction, etc, is a deliberate wrongdoing and renders a tax agent liable to penalties and an obligation to deliver up documents.
It is not very difficult to see that virtually any advice given by a tax adviser will constitute a deliberate wrongdoing. Any tax computation involves deductions. There are a wide range of statutorily permitted reliefs. Positive advice about either comprises deliberate wrongdoing.
Whilst HMRC are reviewing the drafting, the main objection in this case is the weasel wording used in trying to justify this draconian provision. Very few people would complain if tax advisers were impugned if they behaved dishonestly; but to suggest that this is what the legislation is aimed at by using the words "deliberate wrongdoing", yet allowing it to encompass common or garden tax advice, is a disgraceful misrepresentation.