Competent adviser ?

The new penalty system, introduced last year, is now beginning to receive wider attention in anticipation of the system coming into practical effect from next month.

Where a tax geared penalty would otherwise be due, the taxpayer will not be charged that penalty where he, or she, can show that they have a reasonable excuse for the behaviour which led to the penalty . The notion of reasonableness is, of course, a big one, but has certainly been well rehearsed over the years and is, in itself, unlikely to cause problems.

One of the grounds for reasonable excuse is that the taxpayer has relied upon another person. The act of reliance is a long way off the mere appointment of someone else who the taxpayer can blame if it suits them. The Revenue guidance quite rightly points out that the taxpayer cannot simply seek to rely on another person as a way of excusing them from taking sufficient responsibility for their own tax affairs.

But where the taxpayer has acted reasonably themselves and is seeking to rely on the “mistake” of another person to avoid the imposition of a penalty, whom might that other person be ?

The view expressed by the Revenue, following consultation, is that the person will only be HMRC itself or a competent adviser. The mere thought of placing any reliance on a HMRC call centre is enough to demand a lie down, and is a topic for another time. 

But who is a competent adviser, how will the expression come to be interpreted, and whose job will it be to make that interpretation ?

It looks highly unlikely that the onus will be placed on the actual taxpayer to determine whether the adviser is competent. Here, guidance can be drawn from consumer legislation which implies terms of satisfactory quality and fitness for purpose into contracts. With the law properly acknowledging the lack of expertise and unequal bargaining power of the consumer (often covering more than the private individual), and even when buying the most mundane of goods and services, it hardly make any sense to demand a different standard of the consumers of tax expertise.

That then leaves the Revenue on the one hand and, on the other, the adviser. For those of us who belong to professional bodies, one should suppose that those bodies would also want to take an interest and if only because they might otherwise risk the quality of their membership criteria being called into question.

HMRC believing it is well placed to determine the competency of advisers is a source of some consternation, especially among those of us who have to devote increasing amounts of our own time and resources in doing the Revenue’s job for them because of their own incompetence. That leaves the professional bodies, who have already done a stand up job in fudging the issue at the consultation stage and are probably now hoping the matter will not need to be revisited.

But, this seems fanciful when, in an era when tax law and practice is more voluminous and complex than ever before, and we are now also moving into a regime with higher penalty weightings, it will not be long before a penalised taxpayer will choose to raise the issue, and if only to show attempts at mitigation before entering into litigation against an adviser.

The apparent difficult faced by the professional bodies is that tax is a very broad church and there are myriad bodies all wanting to fight their own corner. Add to that, those practitioners who do not belong to professional bodies and it is not difficult to see how nothing can be achieved when it comes to agreeing upon a satisfactory definition of a tax adviser, let alone a competent one.

Notwithstanding, the professional bodies probably do have an incentive in getting their act together. If they take the lead, they will be able to best represent their interests. If not, it will have to be left to the courts and that could be gruesome, with an unfavourable ruling by the Court  possibly proving very damaging to the standing of one, or more, professional bodies. The expression of “competent adviser” does appear in a handful of judgments but, as best we can establish, only in a benign sense. It would, therefore, seem that the court would dispense with any consideration of the expression and turn instead to the negligence law, which is notoriously rigorous when it comes to laying down standards expected of those holding themselves out as professionals.

It will, of course, remain to be seen how this aspect and many others in the new regime are played out.

For those of us who have studied and been examined in tax, act in accordance with professional rules and who practise with significant levels of indemnity cover, we can be confident we should make the cut when the issue comes to be resolved.

But, parliament has not enacted the reliance “get out” for the benefit of tax advisers but, rather, for the benefit of taxpayers. To this end, it is not difficult to think that this is all very mealy mouthed and unsatisfactory for an issue which potentially affects so many people. Perhaps now, with the current climate being so very different from only 3 years ago when the framework of the new rules was discussed, a different tack is more appropriate.

Half baked quasi legislation left in the hands of government agencies does not work well, as the financial regulators have so woefully demonstrated. So, in the alternative, why not change the law to say that the person on whom reliance can be placed can be either HMRC or a statutorily regulated tax adviser ?

There is, of course, no such animal currently but statutory regulation would be no bad thing, and is probably long overdue in any event. Into the bargain, we could look forward to enjoying an almighty argument kick off among the different interested parties. With the state of the economy  now likely to cause taxpaying to be a high profile topic  for the next few years, now seems as good a time as any for the issue to be broached.