On February 8, HM Revenue & Customs published draft legislation to address deliberate wrongdoings by tax agents.
As IFAs are within the definition of tax agents in the legislation, it is important to be aware of what is going on here.
This is all part of an ongoing consultation on Working with Tax Agents. However, the draft legislation goes way beyond the aspirations of the consultation documents.
First, there is an all-encompassing definition of tax agents that includes employees as well as principals.
Second, the draft legislation defines deliberate wrongdoings more widely than anyone expected.
It is clearly nonsense for such wrongdoings to be defined as including the provision of advice that causes a “loss of tax” as in a reduction in a tax bill or the claiming of a relief or deduc-tion. I am not sure if this was deliberate, naive or simply poor drafting.
The real target at which HMRC is aiming concerns abusive tax schemes and tax-motivated investments.
However, the draft legislation is not currently restricted in this way. Unless revised, it could be used to penalise the provision of completely legal tax planning advice. The intention is that individual advisers will be subject to penalties of up to 100 per cent of the tax “lost”.
I am hopeful that the poor drafting will be corrected so that we end up with something less widely targeted, less objectionable and less reliant on HMRC’s discretion.
Unless revised, it could be used to penalise the provision of completely legal tax planning advice
I deplore the extent to which we are already taxed by legislation and only untaxed by concession and discretion.
Even if the basic definition is changed, I still expect that IFAs will remain within the scope of the legislation. This could have very wide repercussions for those advisers who currently believe that HMRC is not interested in their advice. This is about to change.
The accountancy and tax professional bodies have already protested to HMRC about the poor drafting of the legislation and the short time period given for it to be considered. This has led to HMRC agreeing to extend the deadline for comments from March 3 to April 28.
The draft needs to be revised in a number of places – not least to make clear that it can only be applied to counter the real targets rather than just “in particular” those targets.
It is this prospect of wider application that is the biggest worry in my view.
I am hopeful that HMRC will bow to pressure and that common sense will prevail.
However, until the draft is revised, it says what it says and the more people who point out that it is much too widely drawn the better.
Mark Lee is chairman of the Tax Advice Network