Schedule 38 of Finance Act 2012 introduced legislation to implement a measure where a ‘tax agent’ has behaved dishonestly i.e. ‘dishonest conduct’.
Legislation was previously set out at Section 99 TMA 1970 which provided for a penalty where:
- any person assisted or induced the preparation or delivery of any information, return, accounts or other document which was known to be incorrect
- would be or was likely to be used for the purposes of tax
The replacement legislation defines a tax agent, what amounts to dishonest behaviour and provides powers for HMRC to obtain certain documents and impose sanctions and penalties.
A tax agent is an individual who, in the course of business, assists people with their tax affairs. The engagement does not have to be direct with a client. The definition would therefore indicate the person assisting stands to commercially benefit from the relationship with the person receiving the assistance. It is necessary to understand what is meant by assistance.
HMRC’s Compliance Handbook provides the following examples of who is a tax agent:
Tax advisor and tax consultant
Sole accounting practitioner
Partner or employee of an accounting practice
Solicitor giving advice on tax matters
Employee of a bank where that person provides tax advice
Valuer providing valuations for tax purposes
Partner or employee of a ‘high volume agent’
Reference to high volume agents is to ‘refund organisations’ or ‘claims firms’ assisting taxpayers obtain refunds and or reliefs etc.
HMRC specify that the following are not tax agents:
An in-house tax professional who files tax returns on behalf of the business
A person who is providing tax advice for family members where it is not in the course of their business
An employee of Citizens Advice Bureau
An organisation, including partnerships and companies
Assistance with a client’s tax affairs includes advising a client in relation to tax and acting or purporting to act as an agent. Specifically included within the term assistance is provided in relation to any document that is likely to be relied on by HMRC to determine a client’s tax position.
The assistance does not have to be given for tax purposes. The assistance may be provided for non-tax purposes although given in the knowledge it is likely to be used in connection with the client’s tax affairs.
Dishonest conduct occurs where a tax agent, in the course of business, undertakes a dishonest act with a view to bringing about a loss of tax revenue. It is not necessary for the act to actually bring about a loss of tax.
A loss of tax includes:
- Obtaining more tax relief than entitled
- Obtaining tax relief sooner than permitted
- Accounting for tax later than required
Where HMRC determine there is dishonest conduct, an authorised officer may notify the tax agent with a conduct notice. The notice will explain the reasons for their determination.
There is a right to appeal in writing to the officer providing the conduct notice within 30 days of the date on which the notice was given. The appeal must state the grounds for the appeal. The Tribunal may confirm or set aside the notice.
Where an agent is either served with a conduct notice or is informed by an officer that a conduct notice will be or is likely to be issued, a further offence may arise when the person on his own account makes arrangements to conceal, destroy or otherwise dispose of a material document.
When a tax agent is issued with a conduct notice and makes arrangements to conceal, destroy or otherwise dispose of a material document it may amount to a further offence.
A material document includes a tax agent's working papers and any other document created, prepared or used by the tax agent for the purposes of or in the course of assisting clients with their tax affairs. What constitutes a material document or ‘relevant documents’ is therefore very wide.
No offence is committed when material documents are destroyed after a conduct notice is set aside or was issued more than four years before or the act was without knowledge of that event. The period is two years where the individual was informed a notice was likely.
The penalty for an offence of concealment may not exceed:
- an initial penalty for failing to comply with the file access notice: £300
daily penalties of up to £60 a day for each day the person fails to comply
A document is also within the offence if the agent has been informed it will likely be required and no more than six months has lapsed since last informed of the likely requirement.
An agent guilty of the offence is liable to a fine (as above) and on conviction to imprisonment not exceeding two years. The agent may be fined and imprisoned.
An agent that has acted dishonestly is liable to a penalty of not less than £5,000 and not greater than £50,000. When determining a fine, regard must be taken to disclosure and compliance with the file access notice. There is the ability for a special reduction.
In addition to the fine, HMRC has power to publish details including the individuals name, address, nature of business, penalty and period of dishonest conduct.
HMRC has a power to obtain the tax agent's files when:
- a conduct notice has been issued and no appeal made or an appeal withdrawn or determined
Or when, with the approval of the tribunal:
- an individual has been convicted of tax fraud or dishonesty
- the offence was committed after the individual became a tax agent
- the time for appeal has expired without an appeal or the appeal withdrawn or conviction upheld
The power may be exercised by an officer in writing requiring relevant documents. The notice may:
- require specific relevant documents
- require documents in the agent’s power or possession
- reasonably require documents to be provided within a period and in a specified way and form
Documents outside the period of twenty years prior to the date the notice may not be requested. Documents with legal privilege remain protected.
There is a right of appeal against a file access notice. An appeal must be made in writing to the officer who gave the notice within 30 days beginning on the day the file access notice was given. As with any appeal, it must state the grounds for the appeal.
The Tribunal may confirm, vary the notice, require compliance with the notice or set it aside.