The government has published a consultation on options to strengthen the regulatory framework in the tax advice market and require tax advisers to register with HMRC, if they wish to interact with HMRC on a client’s behalf.  

The government will also be exploring how to make it quicker and easier for tax advisers to register with HMRC. 

The UK tax advice market is not subject to any form of regulation. Almost anyone can start providing tax advice and services to clients. They can do so with limited or no oversight if they are not a member of a professional body.  

HMRC estimates that there are 85,000 tax advisers assisting 12 million taxpayers. Previous HMRC statistics suggest that about 35% of this figure comprises unaffiliated agents, (not affiliated to any professional body). In other words, about a third of tax advisers by number are not subject to any oversight, although the proportion of the unaffiliated sector by value is likely to be considerably lower that 35%. 

Strengthen the regulatory framework 

The consultation sets out the three possible approaches to strengthening the framework. 

Option 1 is mandatory membership of a recognised professional body. Professional bodies would monitor and enforce standards and raise those standards where necessary. 

This would be achieved through: 

• Recognition of professional bodies to act as a supervisor on the basis that they set acceptable minimum professional standards for their members and have adequate processes to monitor and enforce their members’ adherence with those standards. This could be assessed by a government body or an otherwise agreed supervisory body.
• A mandatory requirement that tax practitioners are a member of a recognised professional body. 

Option 2 is a joint HMRC-industry enforcement to monitor and raise market standards. Under this so-called hybrid approach, tax practitioners in scope of the regulatory framework would be required to either become and remain a member of a recognised professional body or be supervised by HMRC. HMRC would take a greater role in maintaining and raising standards of unaffiliated tax practitioners.  

Option 3 is regulation by a government body that sets, monitors, enforces and raises standards in the market. This approach would see the introduction of a new independent regulator or an expanded remit of an existing regulator to regulate all tax practitioners. A single independent regulator would provide consistency across the market. Having an independent body would avoid potential conflicts of interest arising from HMRC acting as a regulator (as in Option 2). It would also avoid a potential race to the bottom, which could occur under the first two options. 

The government’s preference is clearly for mandatory membership of a recognised professional body. However, the government considers that it may be necessary to introduce formal oversight of professional bodies for their supervision of tax advice and services. This would be to ensure: 

• professional bodies set sufficiently robust requirements for their members, maintain standards and enforce requirements;
• professional bodies accepted as supervisors continue to maintain the required standards; and 
• new bodies with lesser standards cannot enter the market or act as a shelter for substandard or unscrupulous tax practitioners. 

In principle, the adoption of the above oversight steps sounds like regulation in all but name.  

As to which professional bodies would have a supervisory role in such a regime, the proposal suggests specifying a set of standards rather than a ‘white list’ of acceptable bodies. For example, those bodies recognised as supervisors under the anti-money laundering regulations. 

The government proposes to exclude groups of tax practitioners who interact with HMRC that are already subject to statutory regulation where this regulation extends to the provision of tax advice or services. This includes those in regulated professions such as legal services, insolvency, audit, licensed conveyancers, and independent financial advisers. However, it is not clear whether regulation of these sectors does extend to the provision of tax advice and services in the manner envisaged by the government. ICAEW is also regulated by the Legal Services Board in respect of probate services. Would ICAEW also be also scoped out under this proposal? 

To minimise burdens on the sector, the government proposes that any regulation is applied at the firm level. To ensure firms are complying, the government will require the controller or controllers of the firm (for example, the principal or director) to be a member of a professional body and to be accountable for ensuring their staff are complying with professional standards.

Strengthening controls on access to HMRC’s agent services

The consultation also proposes strengthening existing controls on access to HMRC’s services. The government proposes to mandate the registration for all tax practitioners operating in a professional capacity who wish to interact with HMRC. To minimise the administrative burden of mandated registration on professional tax practitioners, HMRC will improve its registration processes by introducing streamlined, automated processes. These checks will be performed at the point of registration and periodically after registration to ensure ongoing compliance.

HMRC will introduce a single agent registration service that will allow a tax practitioner to register for all relevant services. 

Data on non-compliance

The consultation also includes as Annex C, some interesting data on the results of random enquiry programmes in three sectors:

1. R&D tax credit claims sector;
2. small business corporation tax sector; and
3. self-employed in the self assessment sector. 

The data highlights several areas which would benefit from further research, including:

• the performance of affiliated agents is better than no agent or an unaffiliated agent, but not by as much as might be expected in terms of numbers. However, in terms of potential tax gap, it is much better; and
• the performance of unaffiliated agents appears often to be worse, both in actual numbers and the potential tax gap. 

Timescale

Legislation will need to be introduced to require all tax practitioners to register with HMRC and to set out the criteria they must satisfy. In addition, HMRC will need to build a new registration system. Indicative timing suggests this could be implemented by 2028. 

In terms of mandatory professional body membership, legislation will be required. There would need to be a transitional period to give currently unaffiliated tax advisers the opportunity to become a member of a professional body. The suggestion is that this could be at least three years. 

It looks unlikely that any enhanced regulatory regime would be up and running before the end of the decade.

We want to hear your views

The proposals in the consultation could have profound consequences for the tax services market, both for advisers and, potentially, any professional body and its members. The closing date for comments is 29 May 2024. We would welcome your thoughts and comments. Please send them to Frank Haskew.