HM Revenue & Customs has extended the consultation period for draft legislation on tax advice after an industry outcry. Tax experts called on HMRC to redraft proposed legislation on penalties for tax agents after fears that advisers could be punished for giving legitimate advice on reducing tax liabilities.
There was also anger over the short timeframe for responses originally allowed by HMRC.
It published the draft legislation on February 8 and set the deadline for responses as March 3 but has now pushed this back to April 28 following pressure from industry bodies.
The change follows an urgent meeting last week involving HMRC, the Institute of Chartered Accountants of England and Wales and the Chartered Institute of Taxation.
The Tax Advice Network chairman Mark Lee warned that, as currently drafted, the legislation could hit IFAs with penalties of as much as 100 per cent of the tax saved by clients as a result of their advice.
The CIOT says current drafting means that, theoretically, a newspaper writing a Top 10 tax tips feature or someone offering tax advice as a friend or a welfare adviser would be likely to be breaking the law.
HMRC insists the legislation is not intended to catch honest advisers but those engaging in fraud or dishonesty but Lee warned that “anti-terror laws are already used in circumstances way beyond their original intent” and says that “sadly, it is much the same with tax law”.
An HMRC spokesman says: “Tax agents play a vital role in the delivery of the tax system and the overwhelming majority advise their clients appropriately.”
Leah Milner reports on protests at HMRC plans which pose a massive threat to tax advice
HMRC says the legislation “would only apply where there is deliberate wrong doing meaning fraud or dishonesty on the part of the tax agent”.
Lee says: “I have enormous sympathy with HMRC’s ambitions in this regard but I depore the extent to which we are already taxed by legislation
and only untaxed by concession and discretion.
“There are already too many examples of where, having been asked to trust HMRC not to abuse their powers, that trust has been abused.”
Lee says the proposed legislation appears to have been drafted in a hurry.
He says: “It 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 only ’in particular’ those targets.”
An ICAEW spokeswoman says: “HMRC confirmed that the intention was to provide legislation that reflected what was said in the December 9 2009 consultation document and that it is only intended to apply to those who have been involved in what amounts to fraudulent or dishonest behaviour.
“Following our meeting, HMRC appreciates that the draft legislation has caused major concerns.
“It has agreed to extend the consultation deadline so as to allow time for further examination of the legislation.”
Legal & General head of tax and estate planning Mark Green agrees that the legislation should be reworded to better define its target.
He says: “The definition of tax agent is very wide. It even covers people who give free advice, so even Citizens Advice and charitable bodiescould be affected.”
Green says it is part of a revenue raising drive by HMRC which is echoed by the Robert Gaines-Cooper case in which the Court of Appeal last week ruled that the Seychelles-based entrepreneur was liable to pay an estimated £30m in UK tax even though he spends less than 91 days a year in the country. The court determined that England remained “the centre of gravity of his life and interests”.
Green says: “The HMRC is aiming its legislation at tax evasion, but it should be clearer so that there are no grey areas.”
Taxbriefs editorial director Danby Bloch says the legislation as it now stands gives too much power to the discretion of judges. He says “The legislation needs to be defined far more clearly. As it stands, it is very discretionary, which means it will be left to judges to decide.
“My guess is that HMRC have started out with something that sounds very Draconian so that everyone breathes a sigh of relief when the final rules come out.”
Skandia head of tax and financial planning Colin Jelley says if the legislation were implemented in its current form, offshore advisers working on a cross-border basis under Mifid would not be subject to the same constraints as UK advisers, meaning they would be at an advantage when offering tax advice to UK residents.
He urges the industry to respond to consultation in writing to make sure the legislation does not go through as it stands. He says: “HMRC may be listening but have we actually changed their mind? It is still unclear.”