Currently in the UK, the provision of tax services is unregulated – anybody can set themselves up as a tax adviser, even if they know nothing about tax.

Regulation of the tax profession has been under discussion for a long time. It has recently resurfaced as a hot topic in the midst of new initiatives and consultations at home and abroad. In the UK, there are various factors that have driven the potential need for regulation up the agenda, namely closing the tax gap, the need for greater consumer protection and to drive out poor behaviours.

To paint a fuller picture, ICAEW’s Tax Faculty assembled an international panel of speakers for the Wyman Symposium. The aim was to raise awareness of all of the factors at play ahead of a UK consultation anticipated before the end of 2022.

Jens Poll, chair of the International Ethics Standards Board for Accountants (IESBA) working group examining tax planning and related services, was the keynote speaker. Poll provided an overview of the direction of travel for that project and the challenges identified.

Aleksandar Ivanovski, Technical Director at CFE Tax Advisers Europe, summarised the European Commission’s public consultation regarding the role of “tax enablers”.

Charlotte Barbour, Director of Regulatory Authorisations at ICAS and secretary to the Professional Conduct in Relation to Taxation (PCRT) group, highlighted the recent UK developments.

To provide an overview of a mature regulatory system, Grant Wardell-Johnson, Global Tax Policy Leader at KPMG International and partner with KPMG Australia, described the requirements to register with the Tax Practitioners Board in (TPB) when providing tax agent services in Australia.

Francesca Lagerberg, CEO of Baker Tilly International, then summarised the challenges of these moving parts from the perspective of operating in the tax advice market both domestically and internationally.

While the speakers agreed that there was no concrete view on the UK’s regulatory scene, they delved into aspects such as the key drivers behind the renewed focus on regulation; whether existing tax codes such as PCRT and high-regulation jurisdictions such as Australia can provide templates for greater international or domestic regulation of tax practitioners. This led on to who exactly would provide oversight, discussion of the difficulties in pinning down the operation of such regulations, and what new regulation might mean for the profession.

A recording of the event is available to watch here.

Why regulate? – the lay of the land

Poll gave an insight into IESBA’s work on developing new additions to its Code to govern “Tax Planning and Related Services”, a project that has been running since 2019.

IESBA is the global standard setting board for the accountancy profession and already has a detailed ethical code to which ICAEW is a signatory. However, the code is focussed on auditors, and there is a shortfall in coverage for tax. Several widely publicised tax scandals, often with a cross-border element, have added to pressure to address this lack of coverage.

To counter this, IESBA’s draft framework seeks to require higher thresholds from tax professionals providing advice. One element of this is the establishment of a “credible basis” test for what is acceptable in tax planning. An adviser should be convinced that their position should prevail, considering legal basis, precedent and evolving tax expertise. A “standback test” would ask advisers and clients to consider the commercial, reputational and wider risks of proceeding with a recommendation, to ensure that tax decisions are made in the overall interests of the company.

Crucial to this are standards that allow companies to demonstrate to stakeholders that a proper, engaged thought process has been undertaken in relation to a tax decision, and that the thought methodology has been properly documented.

Ivanovski’s talk centred on the movement within the European Union (EU) to legislate against aggressive tax planning, with the European Commission (EC) launching a public consultation regarding the role of “tax enablers”.

However, difficulties have arisen around how to regulate this, given that tax is jurisdictional and often a highly charged area. Respecting national boundaries while also creating useful and consistent EU regulations may require careful balance.

One idea being considered is the registration of non-EU entities providing tax advice into the EU single market. This would impose an obligation of due diligence on the part of all tax advisers operating in the EU space, which would have knock-on implications for UK firms and advisers advising in this area.

The grey zone – legality, morality and more questions than answers

The scope of tax is broad. It was widely acknowledged that while there are tax planning areas that are clearly good or bad, there is a wide “grey zone”. Greater control over tax planning in this grey zone is a key driver for increased regulation.

Both Poll and Ivanovski highlighted public acceptability of tax measures as playing a greater role in future codes and regulations. However, the perception of public interest varies wildly between countries, based on factors such as attitudes towards tax, the level of tax authority development and political desire for tax regulation.

Legislation in different countries is formulated in different ways. Some are meant to be interpreted literally, while in others (such as the UK), the courts will look at the underlying intention of the legislation. Any potential international regulation of the tax profession would need to take this into account.

Questions from the floor prompted discussion of whether efforts to navigate the “grey zone” would involve imposing a set of morals belonging to one party over the written legalisation of many jurisdictions. For Poll, the introduction of new code would be more evolution than revolution to provide more consistency across jurisdictions, but adapted into domestic legislation in a way its government sees fit.

Barbour challenged the audience to think about the unknowns of how potential regulation may operate.

She questioned where the perceived problem with the tax profession stems from – experiences of tax avoidance, or desire to understand or reduce the tax gap? Understanding who is driving the push for regulation, whether from a political standpoint, or the practicalities of working with tax agents and advisers on a daily basis, may also go some way to determine the desired outcome of regulation.

Barbour reiterated that the tax profession is a broad church, encompassing lawyers, accountants, tax advisers and financial advisers. There’s an argument it extends to payroll agents, software developers and HMRC itself via the operation of tools and helplines. With this range of parties involved, would it make sense to regulate particular professions, or to regulate specific service lines?

A widely quoted statistic suggests that 70% of tax professionals belong to a professional body. Is it the unaffiliated 30% who should be more heavily regulated?

And if regulation is required, who would regulate? This might require a separate board or professional bodies could regulate members. The panel agreed that it would not be appropriate for HMRC to provide regulatory oversight. Barbour said that the model requiring all tax agents to hold professional indemnity insurance (PII) would have made PII providers the de facto regulator. Following consultation this proposal had been rejected.

Help or hindrance? – practicalities for the profession

Wardell-Johnson explained the role of the TPB in registering and regulating Australian tax advisors. Australia has a requirement to register to the TPB if you are providing a tax agent service for a fee and are not operating within a limited number of exclusions.

Tax agent services include tax liability advice, calculating tax liability or representing someone to the Australian Taxation Office (ATO), which includes tax software providers and conveyancers. This has led to the registration of c45,000 tax agents and c17,000 BAS (akin to VAT) agents. Suspended members, terminated members, and terminations subject to appeal are listed in separate sections of the register.

Registration is based on a matrix of three factors: qualification, undertaking TPB approved courses and work experience. It is possible for an adviser without a qualification to register if they have undertaken all TPB approved courses and have gained sufficient work experience.

While this seems like a potential solution to the tax regulation debate, Wardell-Johnson pointed out some of its shortcomings. For instance, no distinction is made between members who have been terminated for professional reasons or those that have died, making it difficult to draw conclusions from the register.

In respect of the working practices of the TPB and ATO, Wardell-Johnson pointed out a “greater level of dependence” in respect of “practical work functions”. This is partly driven by the employee crossover, with most of the TPB’s staff originating from the ATO.

The TPB operates separately from the ATO, with its own legal structure and budget. While the TPB has a culture of independence, Wardell-Johnson noted that the links between ATO and TPB are substantial, raising questions for how a UK or international equivalent might operate. The TPB is also resource-heavy, employing around 140 individuals.

Lagerberg rounded out the evening by drawing comparisons with audit regulation. Arguably these have led to higher standards in the auditing industry. However, this comes with instances of regulator nit-picking, under-resourcing and a focus on regulating larger, more visible entities. When considering regulation for the tax profession, much of the mischief that authorities might look to clamp down on occurs within smaller entities.

Heavy regulatory burden may also make the profession less attractive for new recruits and retaining staff, in an increasingly competitive market for talent.

Additional regulation will inevitably bring additional costs of compliance, which will ultimately need to be borne by tax advisers and the taxpayers who engage them. Lagerberg flagged a key concern: to ensure that there is some stability between various international regulations, hoping for a framework that upholds “the simple, the straightforward, the consistent”.

Conclusions

The evening delivered more food for thought than conclusions. However, the increasing appetite to align tax planning with public interest, and the need to balance overarching regulation with domestic attitudes and existing regimes, were major points.

Simplicity in the tax system, Lagerberg felt, was key to achieving this, as the “more complicated we make our rules, the easier it is for them to be circumvented or misunderstood”. The complexity of UK tax law and the increasingly international operations of both corporations and individuals make navigating tax rules ever trickier.

As Barbour noted, the issues involved with regulation are more finely nuanced than they might first appear. It may be some time before we have a clear view of the regulatory landscape ahead.