While tax avoidance was once confined to wealthy individuals and large corporates, it can now be found “across every social and economic group”.

That was one of many sobering facts to emerge from this year’s presentation of ICAEW’s annual Hardman Lecture, delivered on 25 November by Ray McCann, Consultant at Charter Tax and former President of the Chartered Institute of Taxation (CIOT).

Drawing on extensive experience in the tax arena, including a key role at HMRC leading the introduction of the disclosure of tax avoidance schemes (DOTAS) rules, McCann told the audience at Chartered Accountants’ Hall that a surge of avoidance schemes is being fostered by a lack of correct regulatory controls in the tax profession.

Right now, McCann pointed out, anyone can present themselves as a tax adviser. There are no requirements to hold any professional qualifications – and neither is the title ‘tax adviser’ a protected term.

‘Shadow advisers’

According to recent figures, McCann said, the UK tax advice sector comprises around 85,000 firms, assisting some 12m taxpayers. Past estimates suggest that at least 30,000 advisers are unaffiliated with any professional body. However, given those who work in supporting roles, the total number of unaffiliated people involved in the advice process is “much greater”.

In McCann’s assessment, low barriers to entry have combined with the sizeable affiliation gap to open the way for so-called ‘shadow advisers’ – in his words, individuals “who lurk in the shadows, never interact with HMRC and, when challenged, will even deny that they’re giving tax advice”. In turn, opportunities for shadow advisers and their promoters to devise and spread tax schemes are being significantly widened by three issues.

First, McCann said, as evidenced by disguised remuneration, R&D tax credit schemes and loopholes that have enabled “all the landlord stuff we’ve seen”, the government’s whole approach to tax policy inevitably attracts bad actors.

Second, HMRC’s ‘repay now, check later’ policy has only encouraged fraud.

Third, taxpayer education and – more importantly – taxpayer attitude leave much to be desired. “Too many clients assume a level of professional qualification that may not exist,” McCann said. “I’ve never been asked by a client, ever, to demonstrate to them how I’m qualified to do what I do.”

Encircled with scrutiny

So far, McCann said, the government’s response to those issues and their effects has been limited to a series of consultations, published in 2020, 2021 and March this year. The latter set out three options for tightening controls:

1. All tax advisers must be members of a professional body.
2. A hybrid model, whereby HMRC supervises unaffiliated advisers.
3. Oversight by a new regulator, or an existing one with an expanded remit.

In their feedback, McCann said, all the main professional bodies favoured Option 1 – while the unaffiliated found it the least appealing.

In its recent Budget, the new government didn’t make a decision on those options, but proposed that from April 2026, all advisers who wish to interact with HMRC will have to formally register with it. Those who wish to submit a repayment claim will have to obtain from the relevant client an Advanced Electronic Signature. Meanwhile, in a further consultation, HMRC will explore the scope for stronger sanctions against advisers who enable clients to pay the wrong amount of tax.

For McCann, though, there is an obvious flaw in the Budget statement: “The main problem is advisers who don’t interact with HMRC – and don’t want to.”

McCann pointed out that current, supply-side regulatory measures from HMRC are hardly in short supply. Alongside DOTAS, examples include the General Anti-Abuse Rule, HMRC’s Standard for Agents, Stop Notices – now with criminal sanctions – and the naming and shaming of promoters. In tandem, the Solicitors Regulation Authority, Information Commissioner’s Office and Advertising Standards Authority each have enforcement roles in the field. Add in TaxWatch, other lobby groups, individual commentators and both traditional and social media, McCann said, and the tax profession is “completely encircled” with scrutiny.

Yet despite all those contingencies, he noted, unscrupulous advisers and promoters “have been able to get away with it too often. And the reason they’re getting away with it is because the system doesn’t work properly.”

Tougher sanctions

In the long term, McCann believes, mandatory membership of a professional body for all advisers “is probably the best solution to the situation we’re in at the moment. It doesn’t solve all the problems – but it will deal with a lot of them.”

Even so, he warned, bringing thousands of unaffiliated professionals into regulatory membership within a reasonable timeframe will present major logistical challenges.

For now, though, McCann said, DOTAS’s scope must be expanded. “The fundamental point,” he stressed, “is that you shouldn’t be able to market a tax-planning scheme without some level of engagement with HMRC.”

Alongside that step, he noted, there are several other immediate actions that the government and HMRC must take.

• To properly catch shadow advisers in its net, the proposed registration scheme must apply to everyone involved at any stage of a process that culminates in a taxpayer making a claim, or filing a return, with HMRC. 

• Government must ensure that effective penalties, including criminal sanctions, exist for cases where unregistered individuals give tax advice.

• HMRC should have the power to suspend a registration to prevent an individual from giving advice for the applicable period – with safeguards and appropriate civil and criminal sanctions to kick in if the suspension is breached.

• HMRC should also have discretion on whether or not to accept a registration. For example, it may choose to decline registration if an individual has been suspended or expelled from a professional body.

McCann concluded: “Unless HMRC can operate closer to real time, and unless it can effectively regulate the shadow advisers – preferably out of the market – then it’s just a matter of time before we’ll be having this conversation again.”