One in three tax advisers unregulated by professional bodies

While the majority of businesses use a tax agent to help deal with tax compliance, a third of these agents are unregulated and operate outside the self regulated tax services market, while they are not members of professional bodies which comply with accepted professional codes of conduct

An estimated 43,000 tax agent firms are working in the UK with around a third of agents operating outside the self-regulatory environment of any of the leading professional bodies, highlighting concerns about the quality of tax work and protection for clients, according to independent research, commissioned by HMRC, into the role of professional bodies in the regulation of tax agents.

The research examined the role of professional bodies in the oversight of tax agents and their relationship with HMRC. Currently, tax agents operate in an unregulated environment, unlike the legal profession, with the commercial tax services market being wholly self-regulated.

Although HMRC has no regulatory powers over tax agents, a catch-all which includes accountants, bookkeepers and tax advisers, the government strongly recommends that tax agents adhere to the Professional Conduct in Relation to Taxation (PCRT), which was tightened up in 2016 following efforts to clamp down on the abuse of aggressive tax avoidance, particularly by offshore companies and high net worth individuals.

Most tax agents (67%) are members of professional bodies that set standards for the behaviour expected of their members, such as Professional Conduct in Relation to Taxation which is a standard shared and written by the largest accountancy and tax professional bodies.

Self regulation

Apart from statutory regulation – anti money laundering (AML) supervision, for example – professional bodies did not consider that they formally ‘regulated’ their members. The majority saw their role as maintaining and enhancing standards through education, with a review process referred to as ‘practice assurance’ or ‘monitoring’.

While few of the professional bodies see their role as regulatory, a number expressed concern that members who were expelled from membership on disciplinary grounds could still legally practice, although the professional bodies that supervised, or reviewed, their members considered that self-regulation generally worked well, and that statutory supervision was sufficient.

This view was widely held, with one respondent stating: ‘I wouldn't have classed us as a regulator before. We obviously oversee our members. They all sign up to professional conduct in relation to taxation (PCRT)’, while another said ‘…we are here to support and represent our members and in another way to also provide them with independent regulation, so we are not a statutory body as most professional bodies are. We are here though to offer the public a certain sense of quality assurance for our members, so we operate a disciplinary process’.

However, with nearly a third of tax agents operating in a totally unregulated environment and not members of professional bodies, respondents said that there should be stronger oversight and safeguards to protect clients.

There were several calls for the introduction of legal protection of titles, so that only those professionals who met certain criteria would be legally allowed to use a specific title; for example, ‘professional tax adviser’. However, this could lead to unintended consequences, with agents who did not meet the specified criteria, but were providing perfectly adequate services, being unable to practice, some respondents warned. There were also concerns that if all agents were required to belong to a membership body, this could be perceived as a restriction on trade.

Currently HMRC does not operate any kind of formal vetting process for tax agents. A number of respondents called for an update on HMRC’s thinking about the supervision of agents who are not currently members of a professional body and were keen to work more closely with HMRC to address this.

‘We're over-monitoring those that are monitored...but we're not actually thinking about the 10,000 agents out there who aren't monitored by anybody and are sending things to HMRC on behalf of other people. Should we be looking closer at them to be monitored rather than looking at our existing monitored professionals and putting more checks and balances on them?’, one respondent said.

Despite concerns about rogue operators, there was no appetite to introduce a formal regulatory environment not to require all tax agents to take professional qualifications. Some cited the high number of former HMRC officials who move into tax work, with one commentator stating ‘we get a lot of ex-HMRC people, they’ve taken the HMRC exams; they’ve now gone out, set up their own tax practice…They’re never going to take our exams because they’ve had 20 years’ experience in HMRC; they’ve taken their exams.’

Error levels

It was recognised that agents make errors, but it is currently very difficult for professional bodies to identify the most common tax errors that are being made and the types of agents making them, which makes it harder to improve standards.

Not all the professional bodies reviewed their members for adherence to professional standards. For those that did not, their remit was either of a more educational or advocacy nature, or they believed that as their members would be members of other professional bodies, it was not necessary for them to have a separate system for assessing whether they were adhering to the agreed standards.

However, most had a complaints procedure and also reviewed whether members were keeping their continuing professional development (CPD) up to date, which could act as a proxy for ensuring members were adhering to professional standards of conduct.

The disciplinary process could be triggered either by failing to meet the required professional standards following a practice review or through customer complaints. The disciplinary process was often conducted by an independent board of professionals which could impose a variety of sanctions such as a reprimand, fines or expulsion from the professional body and the revocation of a practice licence.

Where issues with practice were identified, members were given an action plan and timetable for completion. Successful practice reviews would result in a practice certificate being issued; where issues remained unresolved or there was a refusal to cooperate, disciplinary action may be initiated.

The outcome of any disciplinary action could be a reprimand, fines or expulsion from the professional body.

The research was conducted by Kantar Public and consisted of 45-minute qualitative interviews with senior officials from 15 professional bodies. Eight subscribe to the Professional Conduct in Relation to Taxation (PCRT), including the seven original PCRT professional institutes including CIOT, ICAEW, ICAS and ATT, among others; 11 were Anti-Money Laundering (AML) supervisors; seven have a Memorandum of Understanding with HMRC covering how it will tell professional bodies of individual members that may not be acting professionally; seven are members of the Joint Initiative Strategy Group (JISG); and eight are members of the Agent Strategy Group (ASG).

HMRC Research and analysis - Role of professional bodies in the regulation of tax agents, issued 28 May 2019

Report by Sara White

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