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On 31 May 2011, HMRC launched a new consultation on the relationship between tax agents and HMRC.  The consultation document is attached here.

The paper focuses on two "areas for development": enrolment of tax agents with HMRC; and "understanding the total engagement of individual agents to target relevant support and in some cases improve standards."

A new enrolment procedure for tax agents, if used simply to enable tax agents more easily to provide HMRC with information whilst ensuring appropriate security systems for data transfer are in place, must be a good thing.  However, the consultation appears to suggest something more than a benign easing of administrative difficulties. Why, if the aim is merely to input data and receive repayments on behalf of clients, would HMRC need "the relevant HMRC unique identifier(s) of the agent for their own tax affairs and confirmation that they have met their relevant tax obligations to file returns and meet liabilities" before it allows the agent to input data?  It is of no consequence to a firm or individual tax agent's ability to provide data and receive repayments if that agent has not paid all its personal taxes on time and within the time limits required.  That is a separate matter as between the tax agent and HMRC - it does not go to the root of the tax agent's ability to act on behalf of its clients.

The concept of "understanding the total engagement of individual agents" also has worrying undertones.  The consultation paper states that HMRC does not propose to seek regulation of tax agents by a new body or to undertake regulation of agents as part of its functions.  But then the paper also says that it should be "for HMRC to monitor performance of [how tax agents and their clients comply with tax obligations] using risk based principles?"  Why should an agent be held responsible for client failings and vice versa and how will tax agents with "good" records of compliance not be deterred from taking on more tricky clients - which is likely to assist in the collection of tax from those clients - if accepting those clients might affect such agent's good standing record with HMRC and its ability to access HMRC's systems?

The consultation suggests that HMRC is considering imposing a requirement that all tax agents hold a relevant tax qualification.  But it does not really address the fact that there are many professional advisers who advise on tax issues outside of those who hold a "recognised accountancy or tax based qualification" - licensed conveyancers and solicitors file SDLT, property agents and VAT advisers file VAT returns, licensed probate practitioners and solicitors file inheritance tax returns to name but a few.  Indeed many tax practitioners - particularly those operating within law firms or at the bar - do not have an accountancy or tax based qualification - is the suggestion really that those practitioners take such examinations when they have been practicing in this area for decades (and in some cases actually advise the Government on tax law!)?

There are several other uncomfortable points in the consultation paper.

The consultation paper suggests that HMRC may limit access to its systems by smaller firms unless they can show that they have satisfactory security arrangements.  No such limitation is placed on larger firms. Whilst one would expect that any firm that wishes to have access to the relevant systems to have to show that its security systems are up to scratch, it cannot be right that this requirement is only imposed on businesses below a certain size threshold.  That looks very much like a barrier to competition.  You would have thought that HMRC would know that the size of an organisation does not make it immune from security lapses.

The consultation paper also canvasses the possibility that HMRC might refuse to deal with an agent who it considers has acted dishonestly or has abused HMRC's systems.  This is a difficult area given that professional reputations and livelihoods are at stake.  Before these decisions are put into effect and clients are notified, at the very least, the decision of HMRC should be notified to the agent in confidence first, together with an opportunity for that agent to appeal to an independent arbiter.  Only after an appeal process has been exhausted should notice be given to clients of the agent concerned.

The consultation process on these issues should not be biased in favour of a limited few large firms and HMRC should be more open about what is really being considered and why.  This may be no more than a storm in a teacup or it may be the start of a worrying new trend.  Only time, and active participation by all interested parties, will tell.

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