The UK government is currently considering the case for possible regulation of the tax profession. This approach also mirrors similar developments internationally.

There is no formal regulatory framework in the UK governing those who provide tax services. Anybody can set themselves up as a tax agent and adviser. This situation contrasts with extensive regulatory regimes in other areas such as financial services and insolvency. However, it is not true that the tax services market is completely unregulated. Many providers of tax services will belong to a professional body such as ICAEW and will need to comply with our regulatory rules and codes of conduct, including the Professional Conduct in Relation to Taxation (PCRT). In addition, anybody providing accountancy and related services will need to be registered for anti-money-laundering purposes, either with one of the 22 bodies, such as ICAEW, listed in the regulations or with HMRC as the default regulator.

Finally, the UK tax law includes a number of provisions that effectively provide some elements of regulation of the tax profession, for example covering those who enable and promote tax avoidance. Indeed, the author reviewed a book for TAXline that was published last year called Law and Regulation of Tax Professionals. Although a first edition, it runs to 572 pages and highlights that there is already a considerable amount of regulatory reach into the UK tax services market.

A diverse market

The UK tax services market is diverse and fragmented. It includes not just tax services provided by chartered accountants and tax advisers, but many more specialised providers including payroll, pensions, capital allowances, research and development (R&D) tax relief and, increasingly, software providers.

HMRC figures suggest that there are about 65,000 registered tax agents. Of these, about 70% are advisers who are affiliated to a professional body such as ICAEW, although finding robust data on the make-up of tax service providers and identifying if they are registered with a professional body is difficult. This is because HMRC does not hold detailed information on tax agents.

Whatever the actual figures, in round terms about 30% of tax service providers do not appear to be affiliated to a professional body and therefore are not subject to any direct oversight. There is no doubt that this is a potential regulatory gap that allows some unscrupulous providers (rogue agents) to abuse the system.

The journey so far

In his report into the problems of the loan charge, published in December 2019, Sir Amyas (now Lord) Morse recommended that the government should “establish a more effective system of oversight for tax advisers, which may include formal regulation”.

In March 2020, the government published a call for evidence on raising standards in the tax advice market. The following year, it consulted on proposals for all those providing tax services to hold compulsory professional indemnity insurance (PII), which, of course, ICAEW members providing tax advice must have. However, in late 2021, the government announced it would not proceed with this proposal. Instead, it planned to publish a consultation on the case for possible regulation of the tax profession. At the time of writing, it looks unlikely that any consultation will be published until late in 2022.

Will regulation help?

We should remember that, by and large, the majority of the UK tax services market works pretty well. If we do not define the problem, there is the risk that regulation will be ineffective and disproportionate, merely loading costs and burdens on the ordinarily compliant advisers and their clients, such as firms supervised by a professional body, while still allowing the rogue agents to operate.

To take an example, if you intend to provide tax services in Australia you must register with the Tax Practitioner Board and meet various requirements, which include registration, being a fit and proper person, and meeting various PII/continuing professional development (CPD) requirements. Discussions with colleagues from Australia about this regulatory regime suggest that the jury is out on whether it is effective in preventing rogue agents from operating. However, it does impose costs and burdens on the rest of the tax advice market.

There are various possible regulatory models and experiences we can learn from across the audit, financial services, anti-money-laundering, insolvency and legal services sectors. Indeed, there are other possible models and approaches including, for example, the regulation of architects, healthcare professionals, and in the area of immigration. But, as mentioned earlier, the tax services market is diverse and there is no obvious existing regulatory model that could be adapted or extended to cover regulation of tax.

No matter what regulatory approach is decided upon by government, one key problem will need to be addressed: how exactly do you establish oversight of the unaffiliated sector? As noted above, the unaffiliated appear to be about 30% of the market, which might total around 20,000 advisers. Some years ago, HMRC shared some high-level data during discussions that suggested that the 30% unaffiliated sector gave rise to about 70% of its problem cases. Even if we need to treat this data with considerable caution (recognising that many of the unaffiliated will be doing a reasonable job), intuitively this sector must display a far higher risk profile than the affiliated. That being the case, it must make sense to target any regulatory response at the unaffiliated sector. Raising standards in this sector is likely to be time consuming and potentially expensive: who would undertake that work and who would pay for it?

There is a danger that overregulation could damage compliance by making it too expensive to seek help. The approach adopted will need to be proportionate to the problem and cost-effective in terms of raising compliance and reducing the tax gap.

The publication of a recent consultation on repayment agents and changes to the R&D tax relief rules suggests that HMRC is beginning to focus more clearly on tackling problems in the high-risk areas. There seems to be a growing appreciation within HMRC that the professional bodies and member firms have a shared interest in driving poor behaviours out of the tax system. This is a welcome development.

International news

In the EU, a consultation has been launched on a new draft directive against ‘enablers’ who facilitate tax evasion and ‘aggressive tax planning’. The paper sets out three possible options.

The first would be for all enablers to carry out dedicated due diligence procedures to check whether the arrangement or scheme they are facilitating leads to tax evasion or aggressive tax planning. The second option proposes a prohibition on facilitating tax evasion and aggressive tax planning combined with due diligence procedures, with an additional requirement for enablers who provide advice or services of a tax nature to EU taxpayers or residents to register in an EU member state. The third option is the requirement that all enablers follow a code of conduct obliging them to ensure that they do not facilitate tax evasion or aggressive tax planning (this sounds similar to the requirements already in the PCRT). The consultation runs until 12 October 2022 and it is the intention that any directive is adopted in the first quarter of 2023.

In the US, there have been regulatory requirements placed on tax preparers for many years. Even so, there is clearly concern about whether the rules are effective. Currently, there is a Bill before Congress with the grand title of Taxpayer Protection and Preparer Proficiency. The Bill includes requirements for tax preparers to be registered, pass an exam and background (ie, ‘fit and proper’) checks and comply with CPD requirements. Although the Bill has bipartisan support, it is not a US government Bill and looks to be stuck at committee stage.

The stated requirements in the US Bill look broadly similar to those adopted in the Australian regulatory model. However, in both cases, the existing regulatory rules and requirements do not appear to be necessarily as comprehensive as those you would need to follow if you are a practising firm registered with ICAEW. For example, neither system has a monitoring regime included within it, such as the Practice Assurance scheme.

Is regulation the way forward?

While improvements can always be made to ICAEW’s regulatory and oversight arrangements, the existing framework provided by a professional body such as ICAEW already meets, and in some areas exceeds, the statutory regulatory requirement found elsewhere in the world. Therefore, it would make sense to build on and extend such requirements across the wider tax services market, rather than introduce requirements that are not as effective as those under which an ICAEW professional firm already operates, and which risks taxpayers being shut out of taking the advice they need to comply with their obligations because it has become too expensive.

Frank Haskew, Head of Taxation Strategy, ICAEW

There will be an opportunity to hear the views of others on this topic at the Wyman Symposium taking place at 18:00 on Tuesday 1 November. Book your place to join us in person at Chartered Accountants' Hall or virtually.