Working with tax agents – draft legislation about “deliberate wrongdoing”

I am a solicitor and I read the consultation with some concern. It seems to me that this draft legislation would catch much of what I and my colleagues do on a daily basis. For example, it is quite comment for a client's tax adviser to suggest a course of action as benign as using an LLP rather than a limited company to save tax, and for them to approach us to implement the suggestion. On a strict interpretation of the proposed rules, we could be viewed as tax agents despite never having given any tax advice. This seems to be ridiculous. Whislt we can assume that HMRC will exercise some discretion in how the rules are applied in practice, this assumption is hardly binding on them.

The problem seems to be the very loose definition of "wrongdoing".

If a loss of tax (a term that is not defined) arises then any action that causes that appears to be a case of "wrongdoing". The implication is that faced with more than one course of action, offering advice to achieve any result which results in anything but the maximum amount of tax becoming payable constitutes "wrongdoing". This appears to bring a brand new meaning to the idea of what is wrong.

On a slightly lighter note wouldn't this also affect hundreds of "mates in the pub" up and down the country?!

There could also be an impact on charities (like the CAB) that are set up to provide support and advice particularly to those who are vulnerable and who probably do not have their own advisors.

I believe that HMRC will do this with every consultation, especially with "working with tax agents" (and has done to date) They will suggest many outrageous things, we will complain and bleet, and HMRC will then make minor amendments to appear to calm our fears, but what we will be then stuck with will still be bad. Rober Mass, a frequent write in Taxation Magazine, gives a very good opinion in response to "the next stage". I share his view totally, and I would not trust the HMRC top brass as far as I could throw them. I can envisage some advisers deciding tax isn't with the hassle anymore if things go the way HMRC want them to. It's all too one way.

I'm not sure that everyone is focused on the real issue in the draft legislation.

I agree it's not well worded but you do have to read Para 3(6) as well as the earlier parts of para 3 which refer to deliberate wrong doings and loss of tax.

Para 3(6) makes clear that the key focus is not on just ANY loss of tax (as defined) but specifically 'acts done on behalf of clients in respect of which a penalty could have been imposed on the client under an enactment relating to tax, had the client done the act, and advising or otherwise assisting clients to do any such act.' 

The problem then is that the start of para 3(6) states that the legislation applies '..in particular..' to those acts - when it should say '...only...' to those acts. That's really what it means. It is clearly NOT targeted at generic or specific advice of the type that most accountants and tax advisers provide every (working) day of the year.

I entirely take the point that poorly worded legislation needs to be tightened up to avoid leaving loophopes whereby HMRC could apply it in circumstances other than those for which it was intended (as has been happening with anti-terror laws).

As a former General Commissioner I have heard applications by HMRC to issue third-party notices to produce information because of wrongdoing by the taxpayer.  Whilst obtaining information was usually justified, there were two cases where there was insufficient justification for continuing the enquiry along the planned lines.

Mark Lee is far to optimistic.  The draft legislation clearly says that a penalisable action is only an example of deliberate wrongdoing.  In HMRC "Spotlight" they state that investing in a partnership in the expectation of sideways loss relief is a reprehensible action which they will attack.  Reprehensible conduct is certainly within the present definition of deliberate wrongdoing.  Do you trust HMRC to judge whether claiming a partnership loss is reprehensible or just making the best of an unfortunate situation?  If not, do you want to rely on the First Tier Tribunal ignoring the wording of the proposed legislation and applying a common sense test of wrongdoing?

Former General Commissioner: Thank you for that interesting if not scary insight. Let us hope that HMRC will clarify "wrongdoing" within the proposed legislation, and not just in some guidance note or Question and answer sheet with no legal standing, but I am not confident they will. I suspect that the definition of wrongdoing will change on a regular basis, and will "creep" evermore into perfectly acceptable tax planning? To be honest I am starting to think that I no longer really know what is acceptable tax planning anymore.

Much has been said about the man down the pub, but as he tends not to leave a paper trail it’s difficult to see what HMRC could obtain with a court order.

For me, the most disgraceful part of the draft legislation is the definition of loss of tax. It says “Loss of tax” means loss of revenue from tax, and includes a loss involving a relief, deduction, repayment or credit of any kind.” So, in other words, a loss is defined as being a loss. Full stop. Hardly a definition.

But a loss compared to what? It seems to me that it will be difficult to nail down a proper definition of loss of tax without first establishing in law the notion of the “correct amount of tax”. This would be the properly calculated tax based on the taxpayer’s income, reliefs etc, all calculated using existing tax law and precedent. This is a concept which has been pushed for a while by others (including Richard Murphy), and I couldn’t agree more, although defining it in a way which could be used in legislation looks tricky to me.

In other words, as a minimum it would (and should) be set down in law that actions, advice etc designed to result in the taxpayer paying the correct amount of tax should not be caught by the new measures.

The Revenue’s target ought to be the rogues – the powers should extend no further.

For me, the Institute’s reaction to this draft legislation ought to have been the kind of howl of rage which greeted the income shifting proposals. Never have I seen the Revenue called such utter, utter idiots, but in professional language. It quite made my day.

It would seem to me that the Institute should concentrate their efforts on explaining to the Revenue, that half our time is spent by correcting revenue errors and not generating our own rather than  seeing how best to implement legislation that is completely flawed in the first place.The Revenue have even got through a system that if we don't spot their errors , then it is our Client's that still pay the fine; have we no clout at all??

 HMRC could not do with out the Agents, and they should jolly well realise this. I am just glad I am nearly retiremnt age , and be away from all this soon.

Nicholas, I totally agree with your view as stated. I have always believed that HMRC do not like agents, never have and never will, but they tolerate us because as you say, they cannot do without us. But they will do their best to make sure that we capitulate and do things the way they want them done. I have also believed for some time that professional bodies (of all types) are not agressive enough in defending our position and opinions and that they give too much respect to HMRC even where, let's be honest, stupid, flawed, and just plain nonsense is put forward by HMRC as potential future legislation. I only wish I was like you approaching retirement, I am not looking forward to the future of tax in the UK.