People will get greater chance of redress with wider definition of tax advice

The Chartered Institute of Taxation (CIOT) is calling on the Government to include non-compliant ‘umbrella’ companies and providers of tax software in their plan to give people a greater chance of redress from the impact of poor tax advice.

The CIOT was responding to an HMRC consultation on raising standards in the tax advice market1 that came about following a recommendation by Sir Amyas Morse as part of his review of the controversial loan charge.2

HMRC propose to introduce a compulsory requirement for tax advisers to hold professional indemnity insurance (PII). But HMRC is also looking for feedback on agreeing a definition of tax advice to make it clear who will require PII and who will not. There is currently no single definition of ‘tax advice’ or ‘tax adviser’ in legislation.

John Cullinane, CIOT’s Director of Public Policy, said:

“A wide definition of tax advice is vital to help HMRC use compulsory PII to raise standards across the tax advice market, improve the public’s trust in tax advice and enable taxpayers to have redress when things go wrong.

“A widely drawn and principles-based definition of tax advice is essential if compulsory PII is to achieve its purpose. If a provider of advice can be sued for the losses that their mistakes cause clients, then it is wrong if the client cannot be compensated because they do not have the funds to pay out. That is why they should be insured.”

CIOT says it is vital that a definition of tax advice brings within scope of PII:

  • Tax compliance services  (including those provided by High Volume Repayment Agents)
  • Advice provided by ‘boutique’ firms whether dealing with specialist areas of tax or indeed promoting  tax avoidance
  • Non-compliant ‘umbrella’ companies which abuse their position to promote disguised remuneration schemes
  • Tax software providers where the software prompts the consumer to act or respond in particular ways3
  • Pro bono tax work provided by an organisation to members of the public where the provision of poor quality advice can have an adverse impact on the individual being advised

CIOT supports the proposal that all tax advisers should have PII – as members of CIOT and other professional bodies already do. 

John Cullinane said:

“It is essential that this first step with PII is built on to bring all tax advisers within the scope of other professional body requirements such as continuing professional development, monitoring and enforcing standards, education and disciplining. There are proportionally more issues with the smaller unaffiliated sector and professional body efforts to improve quality are undermined if tax advisers have the option of operating in the unaffiliated sector to reduce the compliance burden by eliminating this essential protection.

“A requirement to have PII cover in place together with the commercial pressure to minimise the cost of that cover should drive up standards as firms with poor internal policies, a poor claims history or dealing with riskier areas of work will need to review current systems and work to obtain cover at an economic rate and maintain their business. If they cannot get cover they will need to cease trading.

“HMRC enforcement of the PII requirement will be key to ensure firms who do not comply are removed from the market. The current tax advice market has sufficient capacity to absorb any clients displaced where firms cease to trade – in many cases principals and employees of displaced firms might seek and obtain employment with advisory firms with better quality arrangements and able to get cover. Those clients will in turn be better off by receiving better advice with appropriate consumer protection in place.”