HMRC yesterday issued the summary of responses and outline for the next steps with its plans for raising standards in the tax advice market.
The consultation sought views from respondents as to whether introducing a mandatory requirement for tax advisers to hold Professional Indemnity Insurance (PII) would help to create better market incentives for poor-performing advisers to improve standards.
However, the summary of responses to the consultation document issued yesterday makes it clear that respondents soundly rejected the view that compulsory PII on its own is an effective mechanism to raise standards.
AAT, whilst fully supportive of efforts to raise standards in the tax advice market, was very critical of the proposal to make PII compulsory for anyone providing tax advice. Through our Accountable campaign, we made it clear that this measure alone was ‘wholly inadequate’ to address the problem of poor advice, which is inextricably linked to unregulated accountants.
According to HMRC, approximately two-thirds of complaints it receives about agents relate to the one-third who are unregulated. Anyone can call themselves an accountant without holding a professional qualification, completing CPD (Continuing Professional Development), being accountable to a professional body, or being subject to a disciplinary process. And they are not obliged to have PII.
AAT supports PII and believes it is appropriate for professional advisors to hold it. But we argued that, as a solution to improving trust in the tax advice market and reducing instances of poor behaviour, it simply would not deliver on its own.
For the two-thirds of accountants who belong to professional bodies such as AAT, mandating PII could also have impacted the cost and availability of cover. We expressed concerns that insurers would inevitably seek to mitigate the impact of an increased risk to them in having to insure the unregulated cohort of advisers and the likelihood of a higher volume of claims arising from the demonstrated shortcomings of unregulated advisers.
As AAT Comment reported in May, insurers also believed that compulsory PII was the wrong idea to raise standards, and was being proposed at the wrong time.
Insurers concerned over PII
The insurance industry expressed its concerns in its response to the consultation, stating that available cover is already decreasing while premiums are increasing. Further regulation would be needed to increase the appetite of insurance firms and make it feasible for them to differentiate between good and bad tax advisers.
The Government reflected on this and recognised that introducing ‘risky’ advisers into the market could mean that ‘good’ advisers would potentially find it difficult to obtain insurance and could have to leave the market as a result.
The weight of all of these arguments has forced the Government to conclude that “PII alone would not drive poor advisers out of the market and thereby raise standards, and so would not achieve the policy aims of targeting poor behaviour and improving trust.”
More evidence of risky behaviour
Alongside the consultation exercise, HMRC commissioned an external research report entitled ‘Understanding the Characteristics of Unaffiliated Tax Agents’. This adds to the worrying body of data uncovered by AAT and others about the problems of unregulated advisors:
- Only 4% of unregulated tax advisers follow the professional conduct in relation to taxation (PCRT) guidance that AAT and six other professional bodies require of our members
- Only 18% of unregulated tax advisers follow HMRC’s standards for agents with an astonishing 46% stating that they weren’t even aware of it
- A mere 21% of unregulated agents undertake any professional development on an annual basis at all with many more only engaging in CPD activity once a year
- Only 18% of unregulated agents held any type of professional accountancy or tax qualification
- Well over half of the unregulated agents had no qualification at all (29%) or held qualification at secondary school/NVQ 1-3 level (27%)
Worryingly when asked, 73% of unregulated agents stated that they would not consider becoming a member of a professional accountancy or tax body with reasons such as age/retirement, lack of eligibility and cost being the main reasons for this.
If anything, the figures emerging from the research reflect a worse situation than we had imagined.
Whilst we do recognise that there are unregulated agents who are likely to be highly competent at their jobs, we have long campaigned that if the Government is intent on raising standards then there is a ready-made solution.
Compulsory membership of a professional body
Compulsory membership of a relevant professional body would also ensure that all accountants and tax agents are appropriately qualified and undertake regular Continuing Professional Development to stay up-to-date with legislative changes, whilst simultaneously providing consumers with recourse to professional bodies complaints and disciplinary processes. Moreover, it would free up time and resources for HMRC because unregulated agents account for two-thirds of all agent-related complaints to HMRC
The summary of responses indicates that the Government remains committed to raising standards in the tax advice market, providing taxpayers with reliable assurance that the advice they receive is competent, professional, and trustworthy and helping taxpayers to make informed decisions when seeking tax advice.
The Government’s goal is simple: to support taxpayers, raise standards of advice, and curb tax avoidance and its promotion throughout the market.
As AAT has argued in its Accountable campaign, compulsory professional body membership is no different from what the law already requires for doctors, nurses, architects and solicitors.
So why should accountants and tax advisers be treated differently? This is especially the case as the UK moves to have amongst the most tightly regulated audit sector in the world, which brings into much sharper focus the absence of regulation amongst high street accountants.
AAT has been campaigning on this for many years, and we are supported by the public and our members on this, as well as by over three-quarters of MPs. We have also developed resources to help businesses and individuals with finding a member of a relevant professional body who can provide paid-for tax advice and protect their financial interests. AAT published a free consumer guide, ‘What you should know before appointing an accountant’, as part of the ongoing Accountable campaign. More information about the campaign is available here.
As well as deciding not to introduce mandatory PII for tax advisers having taken the feedback to the consultation into account, the Government recognised that there is still a compelling need to raise standards in the tax advice market. The summary of responses stated that “there is a case for intervention in the market for tax advice where currently there are no minimum requirements to satisfy in order to set up as a tax adviser, no oversight for those who do not belong to professional bodies, and research on unaffiliated agents shows that over 80% do not hold professional qualifications”.
The summary of responses indicates that Government considers that any future method of raising standards must satisfy three criteria:
- Clarity on the standards required
- Ensure transparency
- Effective enforcement
The Government is therefore intending to consult on further options that meet the criteria set out above.
In terms of these criteria, further details suggest that any clarity on the standards required should include requirements amongst individuals such as fit and proper tests, codes of conduct, and conditions about how the individual or firm goes about their business. AAT has all of this in place as part of the existing regulatory framework we apply to all of our members in ensuring an ongoing commitment to the maintenance of high standards of professionalism.
In addition the requirement around transparency, helping to ensure that tax payers can make informed choices when choosing an adviser, and that they understand the standards that apply to advisers is also readily deliverable through professional body membership and features in the guidance we have captured in our ‘What you should know before appointing an accountant’, e-book.
As for enforcement, AAT’s membership regulatory framework already ensures that all members are appropriately qualified and undertake regular Continuing Professional Development to stay up-to-date with legislative changes, whilst simultaneously providing consumers with recourse through our complaints and disciplinary processes.
AAT will continue to campaign on this vitally important issue and will, of course, be responding to the Government’s consultation on improving the wider regulatory framework supporting standards in tax advice next year and welcomes the opportunity to do so. However, we are disappointed that time has been wasted considering the inadequate proposals in the 2021 consultation when a ready-made solution exists.
In the meantime, ahead of the self-assessment deadline in January, we would encourage everyone to look after their interests by downloading our eBook, What you need to know before appointing an accountant, and by appointing a member of a recognised professional body.
Adam Harper is AAT's Director of Professional Standards & Policy..