With us or against us?

KEY POINTS

• HMRC’s Working With Agents consultation paper.
• Do agents have a valued role?
• Can HMRC monitor agents’ competence?
• No room for mistakes.
• Are the professional bodies trusted?

At this year’s Taxation Awards, Chris Davison of HMRC won the tax personality of the year prize.

Someone said to me after the dinner that he thought it bizarre that someone from HMRC should win this prestigious award. I do not think it bizarre.

I think that HMRC are as much part of the tax profession as the Tax Faculty and the CIOT, so why shouldn’t the achievements of their staff deserve to be recognised as much as anyone else’s?

Chris very much deserved his award. Ironically, he got it not because of his illustrious career with HMRC; he got it for defending the role of tax agents and shifting the focus of what started life as an OECD perception that agents are largely to blame for the woes of the tax world into a reasoned and thoughtful paper on the role of agents in the administration of tax.

I very much doubt that Chris had any input on HMRC’s new consultation paper on Working With Tax Agents.

This seems to me to throw out of the window the reasonableness and commonsense that Chris brought to the OECD paper.

It adopts the original OECD stance of wanting to blame the woes of the UK tax system on the involvement of agents.

It makes clear that HMRC do not trust us, they believe many of us are incompetent, that our professional bodies are weak and that the whole system would be far better if HMRC were to be given power to control the involvement of agents in the tax system.

That is a shame, because in one swipe it undoes the good work that Chris achieved with the OECD.

Anger and sadness

I used to have a secretary, sadly now deceased, who when I dictated an angry reply to an HMRC letter that upset me would contrive to take two or three days to type it.

And if I chased her for the letter she would magically produce it, but query whether I really wanted to send it. She was almost always right. I invariably revisited the letter and toned it down.

This article is rather like that.

I started to write it a week ago, but when I came to finish it, I found that my anger had dissipated a little and had become entangled with a feeling of sadness. I rarely rewrite articles; what you get is normally my raw thoughts.

But this time I tore up what I had written and started again because I thought it better to try to reflect my sadness more than my anger.

Sadness, because over the years a lot of people within HMRC have told me that they value the role of agents. I think that the consultation paper shows that to be empty words.

It gives the firm impression that HMRC distrust agents and believe that they ought to be entitled to exercise a large degree of control over what agents do.

Sadness, also, because if HMRC get their way the effectiveness of agents will be seriously compromised. I am very much in favour of working with HMRC; but I fear that my definition of ‘working with’ is very different to HMRC’s.

I regard working together as trying to appreciate one another’s problems, trying not to exacerbate them and to make life easier for the other side and together working out the best way to address whatever concerns HMRC may have with a particular client in such a way as to minimise the costs to the client.

I can see no hint in the consultation paper that HMRC have any desire to work co-operatively with agents. Indeed, the thrust of the document seems to me to be to seek to control how agents work and what they do.

The adversarial relationship

Sadly, to my mind, that completely undermines the relationship that I believe ought to exist.

We can work with HMRC in the sense of trying to be helpful, polite and reasonable. However, we are in an adversarial relationship. My prime responsibility is to my client, not to HMRC.

My client does not want me to agree with everything that HMRC say. He does not want me to hand over anything they demand irrespective of the rights that parliament has given my client.

My client wants to pay as little tax as he is legally entitled to do. If it takes a fight with HMRC to assert his rights, then he is happy for me to fight.

That is incompatible with doing everything that HMRC want me to do. It may also at times be incompatible with volunteering information to HMRC to which I do not believe that they are entitled.

Accordingly, it is fundamental to the relationship with HMRC that at times I need to adopt an adversarial attitude.

I cannot sensibly service my client if HMRC are empowered to oversee my work and that must inevitably inhibit my obligation to the client to be adversarial when the situation demands it.

I do not want a relationship with HMRC that damages my relationship with my client. But from my reading of this consultation paper I believe that that is what HMRC are aiming for.

The professional role

I am also sad that HMRC seem dismissive of my professionalism. They believe that a person who chooses not to join a professional body is entitled to be treated the same as me if he shows his competence.

I know a lot of competent people without any professional qualifications - but from a client’s point of view I believe that professionalism ought to be at least as important as competence.

Professionalism means integrity, the willingness to follow a code of ethics and to subject oneself to the disciplinary procedures of a professional body if one falls short of those ideals.

Professionalism means taking responsibility towards clients, having professional indemnity cover to protect the client if something goes severely wrong, segregating clients’ monies so that they do not get absorbed into the financial requirement of my business and having a proper complaints system when the client is unhappy.

Professionalism means keeping up to date, complying with a professional body’s continuing professional education (CPE) requirements and realising that, in the rapidly changing tax world, competence yesterday will not imply competence tomorrow unless one’s store of knowledge is constantly refreshed.

I am sad that HMRC do not realise that professionalism not only benefits the client, but ought to benefit HMRC too as it involves a degree of external scrutiny that ought to reassure them that professional agents strive to meet the standards to which HMRC itself aspires.

I should stress that I am perfectly happy to be regarded by HMRC on a par with unqualified agents who voluntarily do all of these things. I am not seeking to make a point about those qualified by examination and those qualified by experience.

The point I seek to make is that competence of itself ought not to be enough, but HMRC seem to be seeking to make it the sole test.

Of course they are right if they see the role of agents solely as to make life easier for HMRC; but, when it suits them, elsewhere in the document they look to the needs of the taxpayer. I think it strange to look at the role of agents without starting from those needs.

Human infallibility

So what is it that HMRC are proposing that so concerns me? How about...

‘HMRC also has to recognise that where its staff become aware that an agent has acted inappropriately in their representation of a client, then there may be a question over the conduct of that individual or firm in relation to some or all of the clients they represent… HMRC might reasonably seek assurances, potentially from an external monitor, that identified errors… were not systematic across an agent’s clients’ (paragraph 2.10)?

None of us are infallible. The capacity to make mistakes is an inherent attribute of human nature.

I think it wholly unreasonably for HMRC to say that if I make a mistake, or the officer I am dealing with thinks that I have acted inappropriately (perhaps by challenging the officer’s right to demand that I do what he wants me to do), HMRC should assume that my fallibility is an indication that I should be required to breach client confidentiality by exposing my files to an external monitor – and, it is suggested, at my own cost.

Areas of competence

Or what about ‘there will be issues of complexity that may become quickly overlooked or where tax agents are stretched beyond their area of competence, while still promising an effective service’ (paragraph 3.2).

I have no problem with my professional body challenging whether, in accordance with its ethical rules, I have acted outside my level of competence.

I believe that its disciplinary procedures, which give me a full opportunity to seek to justify what I have done, are fair.

I have huge problems with someone in HMRC believing that they are capable, from what I do on one or two cases, to determine what is my level or area of competence.

I believe that I am competent in most areas across the whole range of UK taxes. I am not aware of anyone within HMRC with that same breadth of experience.

Of course, if I only come across a handful of cases in a particular area I am unlikely to handle them in the same way as a specialist in that area.

But it is not reasonable to equate competence with specialism. It is not reasonable to expect a client faced with an unusual transaction to seek to find and engage a specialist, often an expensive specialist if the area is fairly arcane, when I am capable of understanding tax legislation, of reading textbooks and of working out the answer.

It may be frustrating for an HMRC specialist to have to deal with me, but it would be a huge leap from there to accuse me of incompetence.

Pressure and mistakes

What about the suggestion that if HMRC think that I am careless, but they reluctantly decide that my client has not acted carelessly in seeking and accepting my advice, so they cannot penalise him, they ought to be able to collect the penalty from me instead (paragraph3.9)?

That is hardly ‘working with’ me. It is a fundamental shift in the traditional relationship between HMRC and agents. It no longer sounds as though we should understand each other’s problems.

It becomes that I should understand the pressure under which HMRC work and accept their mistakes, however careless they might be, while HMRC will be unforgiving of my mistakes and expect far higher standards from me than they demand from their own staff.

This concept is reinforced in paragraph4.7, which says that where I make a mistake HMRC ‘would wish to understand how it has occurred, ensure that the position was put right for relevant past tax periods, and ensure that the agent takes steps to ensure the mistakes are not made in the future’.

We are talking here of mistakes, not of some sort of outrageous behaviour. Mistakes are accidents. No one deliberately makes a mistake.

So why do HMRC need to understand how it has occurred? In most cases I do not understand that myself.

It may have been a lapse of concentration, I may have been distracted in the middle of what I was doing; it could be anything. If the mistake is discovered a week later there is no chance of me knowing how it occurred.

Note also the assumption that if I make a mistake, I must inevitably have made the same mistake lots of times so the past needs to be ‘put right’.

And how can I ensure that I do not make future mistakes?

It is inevitable that I will do so from time to time, just as it is inevitable that every one of HMRC’s staff will also make mistakes from time to time.

Well, HMRC have an answer to that. If in the course of my career I make a second mistake HMRC want to regard that as a failure to take reasonable care (paragraph 4.8).

I will get too angry if I try to explain what HMRC want to do with me then. Have a look at paragraphs 4.9 to 4.12 and see for yourself.

Monitoring behaviour

HMRC also apparently want to monitor my CPE (paragraph 3.6). They think that I ‘may find it difficult to consistently maintain… objectivity when dealing with key clients’ (paragraph 3.17).

I do not know why. That is a fairly fundamental attribute of professionalism. I have no difficulty at all. Indeed at the end of the day my key clients will accept what I tell them we need to do.

HMRC also think that a ‘problem that recurs’ (I assume this to mean those mistakes I cannot manage to avoid making) may flag up a risk involving me.

Accordingly, they ‘need’ to be able to ‘assess the extent of this risk… decide upon the appropriate remedial action and take a view on whether or not it was the result of careless or deliberate behaviour’ on my part (paragraph 4.2).

To do this they say that they could undertake ‘a compliance check on a representative proportion of all of my firm’s clients’.

However, that would have significant resource implications for me as well as HMRC and could result in unnecessary costs for those clients whose tax returns are correct.

They also feel that ‘where there is sufficient evidence’ (which I assume means sufficient in HMRC’s eyes, not those of the first-tier tribunal) that a risk arose as a result of a deliberate action by me; they would want to consider refusing to deal with me in future (paragraph4.13).

I suspect that a deliberate action by me probably includes those instances where I take the deliberate action of questioning whether HMRC have power to demand what they are requiring and suggest that it infringes upon my client’s human rights.

Taking the remedy

Be that as it may, they only want to work with me to understand the extent of any risk and where appropriate agree a remedy. They suggest, ‘one option would be for HMRC to request that the agent commission an independent report assessing the extent and causes of the risk’.

Well certainly the costs and time involved in having to do that would teach me a lesson.

Unfortunately, I’m not sure what lesson. I am still fallible. I will still be prone to making mistakes.

That is part of our make-up. HMRC may think that God erred in not making me infallible, but that is a fact of life.

There is nothing HMRC can do to change it, however many extra burdens and costs they impose on me.

Oh, and just in case I do not want to ‘work with’ HMRC to identify the reasons for my mistakes (they’re right, I don’t) they think they need power to be able to act more formally and to obtain access to my working papers if they consider this appropriate (paragraph 4.5).

The professional bodies

Finally, HMRC also complain that if they report me to the ICAEW, the ICAEW will not necessarily ‘take action that HMRC considers appropriate.

Their focus may be on addressing the professional issues rather than the tax consequences that are relevant to HMRC’ (paragraph 4.19).

They are right. The ICAEW will. That is because the ICAEW have to respect my human rights in its disciplinary processes and are subject to judicial review if they do not treat me fairly.

Personally I think it a good thing that the ICAEW (and the CIOT, and IIT of which I am also a member) should look only at whether I have brought my profession into disrepute and not have a role of forcing me to do what I am told by HMRC and imposing on me the penalties that HMRC demand that they impose.

If they were to succumb to this they would in my view cease to be a professional body and merely be the enforcement division of HMRC.

HMRC did consider whether they should simply bypass the professional bodies, but are not convinced that they should ‘take significant and possibly costly steps’ of registering all tax agents (paragraph 5.5).

As a registration scheme would achieve nothing – other of course than to enhance the status of unqualified and incompetent practitioners – I welcome their decision not to embark on such an incredibly expensive and wholly pointless exercise (which registration without regulation clearly is).

However I am horrified that they go on to ask whether anyone has any ideas for a ‘credible light touch alternative’ (paragraph 5.5).

The future relationship

I hope I have said enough to encourage readers to download the consultation document and express their views on it, preferably to their professional body if they are a member of one, but if not to HMRC. I think that if implemented, even partially, it will change the tax profession forever.

Even if you support what HMRC want to do, this may be your only chance to help determine how the relationship between HMRC and the tax profession develops.

Please don’t ignore the opportunity.

Issue: 4209 / Categories: Comment & Analysis , Admin