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Mark McLaughlin looks at HMRC's approach to dealing with agents who are considered to be acting unprofessionally or dishonestly.

Introduction

HMRC caused a stir on 31 May 2011, with the issue of the consultation document 'Establishing the Future Relationship between the Tax Agent Community and HMRC'. HMRC's proposed strategy includes "providing additional support to agents whose standards are below those expected in the professional community."

The document requests comments on appropriate actions by HMRC to deal with agents who "...knowingly or unknowingly fall below the high professional standards expected by the tax agent community". These include:

• "What actions/sanctions could be applied to those who act unprofessionally other than HMRC refusing to deal with them?
• In the most serious cases how should HMRC best address their responsibility to take action against an agent by refusing to deal with them? Should that decision be informed by an independent panel?"

A separate discussion is also taking place on changes to the legislation to "strengthen HMRC's ability to deal with dishonest tax agents" (see below). Draft legislation will be published ahead of Finance Act 2012. HMRC's proposals include the facility to obtain the working papers of dishonest tax agents, penalise them and publish their details on the HMRC website. These proposed sanctions were the subject of an earlier consultation in December 2009, followed by the publication of draft legislation on 'deliberate wrongdoing' in February 2010.

Dealing with Agents

A refusal by HMRC to deal with a firm is not a 'power' within any legislation. However, there is no specific statutory provision which requires HMRC to deal with agents authorised by taxpayers either. The Commissioners for Revenue and Customs Act 2005 (CRCA 2005) merely empowers HMRC to "...do anything which they think (a) necessary or expedient in connection with the exercise of their functions, or (b) incidental or conducive to the exercise of their functions" (CRCA 2005 s 9). This apparent element of discretion over whether HMRC deals with a particular agent is potentially alarming, although it must be said that HMRC have very rarely applied this sanction in the past.

In Lunn and Ors v CRC [2011] EWHC 240, the claimants applied for judicial review against HMRC's decision to cease communicating with them as agents. The claimants’ application was heard in the High Court. HMRC had previously expressed ’serious concerns’ about a significant number of tax returns submitted by the claimants on behalf of clients. Subsequently, HMRC began a criminal investigation. The claimants applied for judicial review following the issue of search warrants. A ‘high level’ meeting with HMRC resulted in a refusal to deal with the claimants in respect of client tax returns and accounts submitted to HMRC on or before the date of the search operation. HMRC later decided to terminate the claimant’s status as an authorised agent, and refused to deal with them.

The High Court judicial review concluded that, in principle, fairness required that the claimants should have been given the opportunity to make representations before HMRC’s challenged decision was made and communicated. In the particular circumstances of the case, HMRC’s alleged need for urgency did not justify their course of action. In addition, the Court’s view was that fairness required that reasons should be given to explain the termination of the claimant’s authorised tax agency, although a full explanation why the decision was taken had now been given during the proceedings. Overall, permission was granted to bring the application for judicial review, and the claim was allowed.

However, it was subsequently announced that HMRC would no longer be treating Christopher Lunn & Co as a tax agent, as the Commissioners for Revenue & Customs had once again decided to withdraw the firm's tax agent status (Taxation, 28 July 2011).  

Confidential Note

During the hearing, reference was made to a ‘confidential note’ issued to HMRC staff by HMRC’s Business Customer Unit in June 2009, giving guidance on dealing with agents. This note was actually unpublished internal HMRC guidance to staff (although it was subsequently published by the Chartered Institute of Taxation with HMRC's agreement, and is to form part of HMRC's normal guidance). The guidance acknowledges that an opinion of what constitutes poor behaviour by an agent is often subjective, but categorises such behaviour under four main headings:

1. Suspected repayment fraud or evasion - HMRC are instructed to report suspicious cases.
2. Abusive, threatening or discriminatory behaviour - HMRC have reporting procedures in such cases.
3. Technical ability that puts tax at risk (e.g., poor bookkeeping or accounting, computational errors, lack of taxation knowledge, unreasonable or untenable technical views) - There is a referral process within HMRC to report agents whose behaviour is considered to be the "root cause of a potential loss of tax".
4. Agent behaviours which, although legal, give HMRC cause for concern - HMRC acknowledges that this category is subjective, but state: "Whilst it is accepted that agents may be acting perfectly within their rights, for example by declining to bring their client to a meeting or delaying responses until formal powers are invoked, there is some concern that if this ultimately becomes the norm for audit or inspection engagement this may not be a direction of travel that would ultimately yield benefits for either HMRC, our customers or the professions."    

The guidance instructs HMRC staff not to refuse to deal with agent completely unless there are "exceptional circumstances". However, it also states: "Where we have concerns about the behaviour of an agent we are perfectly entitled to deal with our customer directly and should do this when the appropriate circumstances arise." If a client receives a letter from HMRC along the following lines, this would indicate that HMRC has an issue with the agent:

"I note that you have appointed X as your agent however the legal responsibility for your taxation affairs remains with you and until further notice I wish to correspond with you directly. I will continue to copy correspondence to X".  

The Future

The discussion document "Working With Tax Agents: Dishonest Conduct" was published on 14 July 2011. The document outlines various proposed sanctions against agents found to be acting dishonestly, such as those mentioned earlier in this article. These sanctions appear to be in addition to HMRC's general discretion to effectively withdraw tax agent status. This all amounts to a substantial array of weapons to use against agents suspected of serious wrongdoings. It is to be hoped that any safeguards introduced to protect agents will be fair and adequate.