Have HMRC have evolved into a lean mean tax fraud fighting machine? Well some would argue they are leaner given the number of redundancies and front offices that have closed; although this measure has arguably been made to improve processes and tackle fraud more efficiently. HMRC have new software (Connect which we have previously written about), an array of new powers and anti-avoidance legislation and have introduced a number of legislative disincentives to tax avoidance (or planning as it was thought to be).
Schedule 38 Finance Act 2012 introduced legislation affecting tax agents who conduct themselves dishonestly. The legislation came into force on 1 April 2013 although we await the full thrust of it!
The rules provide a more commercial approach to penalise suspected corrupt tax agents. However, the legislation may affect more tax agents than first expected given that HMRC are required only to determine that someone has been dishonest as opposed to the position being considered or proven independently. Once HMRC has made their decision, they will serve a conduct notice, which could be appealed within the normal 30 days.
Dishonest conduct must have been carried out by an agent assisting clients with tax affairs in the course of business. The scope could therefore include various professionals as well as those holding themselves out in the capacity as an agent (in the business of assisting with tax affairs). The legislation targets individuals and holds them personally accountable: it does not target a company or organisation.
Dishonest conduct is defined as:
Doing something dishonest with a view to bringing about a loss of tax revenue, whether or not that loss actually occurred.
Examples given in HMRC’s Compliance handbook manual include:
Falsely inflating expenses leading to construction industry scheme repayments
Submitting amended returns (without clients’ knowledge) to claim and keep repayments
Knowingly omitting a client’s income from non-business activities
Claiming capital allowances and input VAT on computer equipment knowingly returned to the supplier
Assuming no successful appeal, HMRC will request documents to ascertain the extent of the dishonest conduct. If needed, HMRC have powers to demand this data through a file access notice (if approved by the tribunal).
The documents HMRC are likely to want include:
Working papers and any other documents in the agents possession used to assist with the clients tax affairs
Correspondence including emails
The notice is not limited to clients associated with the dishonest conduct: it can cover all current and past client files!
The notice may be served on someone other than the tax agent who is believed to hold documents (i.e. a former employer).
Penalties can be levied for failing to comply with a file access notice.
The following potential punishments include:
There is a monetary penalty ranging between £5,000 and £50,000
Publication of the agent’s details in the public domain
Disclose of the misconduct to a professional body when a conduct notice is issued
The pressure is mounting on tax agents to ensure their practice is squeaky clean. However, many tax agents would have been faced with an awkward situation at some point in their career and may have made the wrong decision all be it based on influencing factors. The consequence of a notice could be detrimental to a career or business and therefore, it is imperative that professional conduct is upheld. For those holding themselves out to be tax agents without relevant qualification and experience, the risks could unknowingly be significantly greater!