The government wants to raise standards and increase transparency in the tax advice market. Gerry Brown looks at government consultations, definitions of ‘tax advice’, and approaches that might be considered.
At Spring Budget 2020, the government published a ‘call for evidence’ to look at ways to raise standards in tax advice, asking for views on:
• the scope of the market for tax advice and tax services
• the characteristics of good and bad practice
• current government interventions
• international models
• possible approaches to raising standards.
When HMRC analysed responses it said:
“There was a general consensus regarding what constitutes good practice, centred around competence, behaviours, and certification.
“Having up-to-date knowledge, and following ethical principles, was seen as particularly important. Professional body members also emphasised the importance of being affiliated to a professional body.
“Many respondents suggested that making it compulsory for all tax advisers to hold professional indemnity insurance would provide a baseline level of taxpayer protection.”
Roll forward to Rishi Sunak’s March 2021 budget and a further HMRC consultation was issued.
What is considered tax advice?
There’s no definition in the UK tax code. However, there is a definition of ‘tax adviser’ in money laundering legislation, as follows:
“a firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services”.
Strictly speaking that definition is only relevant in the context of anti-money laundering, but it could become more widely used.
The HMRC consultation gives 20 examples of activities that could constitute tax advice including:
• an employer advising an employee about taxable benefits for the year
• a payroll bureau managing an outsourced company payroll
• a bookkeeper maintaining records of money coming in and out of a company and preparing end-of-year returns
• a financial adviser, who in the course of providing investment advice to a client, advises on the most tax-efficient ways to invest
• a financial adviser providing advice on long-term estate planning including setting up a trust
• a barrister providing an opinion on a potential avoidance scheme
• a promoter of a tax avoidance scheme.
Advice or guidance?
It’s hard to accept that the first three activities involve tax advice. The last two certainly do. But what about those involving a financial adviser?
The Financial Conduct Authority (FCA) states that:
• advice is a service which recommends a specific course of action based on consumers’ individual circumstances and goals, and
• guidance is the provision of information and/or options to narrow down consumers’ choices, without making an explicit recommendation.
But is it advice to point out that investing through an ISA wrapper is more tax efficient than investing directly in open-ended investment company (OEIC) shares? Or is it simply a fact?
If it’s advice, then most financial journalists are giving advice. There must be a boundary, but where that boundary lies requires further discussion.
Raising standards in the tax advice market: different approaches
The HMRC approach is that, once it’s been established that tax advice is being given, the ‘adviser’ should hold professional indemnity insurance.
That’s a sensible approach that protects the client too.
Of course, lawyers, accountants, chartered tax advisers and financial advisers already have professional indemnity insurance. The problem is with those offering advice that falls into a grey area.
Other suggestions range from HMRC not co-operating with uninsured advisers to making it an offence to give tax advice without appropriate professional indemnity insurance.
However, it’s disappointing that there’s little discussion of education or creating a requirement that only qualified individuals and firms be permitted to give advice.
The consultation has the stated aim of raising standards, but there’s some way to go before that ambition becomes a reality.