It has been a bone of contention among professional accountants for many years that anyone can set up as an accountant and start advising clients, preparing financial statements and submitting tax returns to the tax authorities. Admittedly this undoubtedly provides a valuable service both to clients who can, generally, get their affairs dealt with relatively cheaply and to unqualified accountants who:
- May have served time in a professional firm and learned the trade there
- Attempted a professional qualification and not made it
- Obtained a degree in accountancy
- Read a book about it or looked it up on YouTube
By and large these estimated 24,000 advisors in the UK seem to provide a perfectly reasonable service. There are no proposals to regulate the activities of unqualified accountants, other than to ensure they can't carry out audits, so why the proposal now to regulate tax advisors? It is estimated that some 30% of tax advisors, around 7,000 or so, are not members of any professional body.
HMRC has put out a consultation paper asking for views on the standards in the tax market, good and bad practice and the scope of the market itself. The first question is why don't they know already? They receive all the stuff from tax advisors and they know who these advisors are because they have to be registered. They know how many investigations they carry out and the results of them so HMRC must have a fairly good opinion on the tax market.
So what lies behind this request? Is it a genuine desire to raise standards by requiring all tax advisors to be members of a professional body or is it an attempt to regulate the market for tax avoidance schemes?
Looking at the first point if all tax advisors have to be members of a professional body then which one and what will be the criteria for admission? If they have to be members of one of the chartered bodies ICAEW, ICAS, ICAI or ACCA there are two difficulties not least the fact that probably a good number of them have tried this and failed the other is the subscription and all the CPE requirements which go with that membership. Trying to join the Chartered Institute of Tax ('CIOT') is probably even harder as their exams look really difficult.
To the small business tax advisor who deals in routine tax accounts and tax matters and some relatively low level and straightforward tax planning this is a sledgehammer to crack a nut in reality. They have been performing a valuable service to small business which clearly does not require a major intervention in a part of it. It shouldn't be forgotten that the UK tax authority, HMRC, has extensive powers to investigate the affairs of their clients if they feel that the client has been less than honest in declaring their taxable income or liability to VAT.
If, therefore, the intention is to hit tax avoidance scheme promoters this isn't going to work either as many or most of them are not tax advisors. These are companies who devise and market these schemes for tax advisors to implement so if the rules are confined to advisors these devious organisations wont be caught up unless specifically legislated for.
There is, however, one argument which might have some validity. Membership of a professional body requires members to abide by ethical standards and associated regulations. At the moment anyone who is not a member of such a body has no such requirement so the only thing keeping them on the straight and narrow is their personal morality and ethical code.
The desire to keep a client, the inclination to not look too closely at the client's affairs and to ask too many questions, the knowledge that any submissions to the tax authority is the client's responsibility not theirs can all make tacit collusion in tax evasion, not merely avoidance, a reality.
If the CIOT are right and around 7,000 tax advisors in the UK are not members of a professional body this could represent a significant loss to the Exchequer every year.
Regulation of the tax advisor market in whatever form is unlikely to work in any case. If these ideas are implemented it may just force unscrupulous tax advisors underground. They can continue to carry out exactly the same work for clients, they just won't register with HMRC and let the client submit everything. Some will get caught out but these are ones who would have got caught out anyway using HMRC's existing powers so what's the point?
Increased regulation will only work if all those involved see a need for it. Regulation of audit firms works because a high level of ethical standards and technical competence is required in maintaining the validity of company financial statements as a key aspect of the financial system. Imposing standards and professional requirements on advisors who submit financial statements of small businesses, farms and shops is a different matter and may be unlikely to command the same level of compliance and acceptability.
Responses to these proposals have already been submitted so it remains to be seen how this will go in future but it will probably not be particularly welcome and may create more problems than it attempts to solve.
John Taylor is an author for accountingcpd. To see his courses, click here.
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