Plans for professional indemnity insurance for tax advisers

The government is to consult on plans to make professional indemnity insurance compulsory for tax advisers in an effort to raise standards in the tax advice market

The move is one of four measures under consideration following the outcome of a call for evidence launched at March Budget 2020, which attracted 83 written responses as well as input from 22 virtual roundtables.

The call for evidence was triggered  by  recommendations from Sir Amyas Morse’s  independent review into the loan charge, published in December 2019, which highlighted the need for the government to look at ways to improve the tax advice market and take further steps to tackle the promoters of loan schemes.

In its summary of the findings, the government noted: ‘Taxpayers are in many cases receiving advice that subsequently leaves them open to substantial tax bills and while responsibility for their tax affairs remains with the individual taxpayer, the government recognises that it can be hard for a taxpayer, faced with a complex and fragmented tax advice market, to know what advice to trust.’

Respondents were largely of the view that most problems lie with an estimated 30% of unaffiliated tax advisers and that, as such, a one-size-fits-all solution may not be appropriate.

The consultation on making professional indemnity insurance compulsory for tax advisors will consider  a definition of tax advice and the activities that should be in scope; the impacts and burdens on tax advisers, taxpayers and the market; options for enforcement; and the operability of the policy.

As well as this consultation, HMRC is to work on raising awareness of its standard for agents as a baseline standard. This sets out HMRC’s expectations of all individuals and businesses involved in professionally representing or advising taxpayers, and covers standards of integrity, professional competence and due care, professional behaviour and standards for tax planning.

The standard specifically states that agents must not create, encourage or promote tax planning arrangements or structures that set out to achieve results that are contrary to the clear intention of Parliament, or which are highly artificial or contrived and seek to exploit shortcomings in the legislation.

HMRC is also to conduct an internal review of the powers  it currently has to enforce that standard, which include providing educational support where errors are identified, removal or suspension of access to online services for the adviser and use of powers such as dishonest tax agent penalties and public interest disclosures.

In addition, the government pledged to continue to work in partnership with adviser professional bodies to understand the role they play in supervising and supporting their members and raising standards in the profession.

Finally, the government will look at the cost to taxpayers of advisers who are claiming tax refunds on their behalf, for example in cases where agents handle bulk claims and charge a percentage of the tax repayment, although it does not indicate what options it is considering to address this. 

John Cullinane, CIOT director of public policy, said: ‘We particularly welcome the proposal that all tax advisers should have professional indemnity insurance - as professional body members already do. This would provide a very basic level of protection for the customer.

‘We also welcome the announcement that HMRC will review their powers to enforce their standards for agents. Although this is less comprehensive than professional conduct in relation to taxation (PCRT), to which our members and most tax professionals adhere, enforcement would in itself be a step forward.

‘The government’s commitment to continue to work alongside professional bodies in this area is also welcome.’

Useful links:

Raising standards in the tax advice market summary of responses

HMRC standard for agents

Professional Conduct in Relation to Taxation (PCRT) information

Accountancy Daily roundup: Treasury releases tax policy announcements

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