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Brian Redford speaks to TaxationWeb about the future relationship between HMRC and tax agents.

Introduction

HM Revenue & Customs has set itself the task of speaking directly to and hearing the views of 1,000 agents about the consultation issued on 31 May: Establishing the Future Relationship between the Tax Agent Community and HMRC.

TW recently attended a workshop hosted by HM Revenue & Customs in Manchester and caught up with Brian Redford afterwards to discuss what the future holds.

Is the New Relationship Just a Cost-Cutting Exercise?

Brian Redford (BR) was adamant that the consultation was not simply inspired by a desire to cut costs but a long-standing recognition that HMRC needed to work more efficiently with tax professionals and knew relatively very little about the agent community as ‘stakeholders’. As part of its 2007 Capability Review (see Capability Review of HM Revenue & Customs for the report) it became clear that HMRC was in certain respects “information rich but intelligence poor” (see page 27 of the report) and that despite volumes of data relating to transactions with agents it was not then possible to compile a useful picture about any particular agent. BR admitted that there was a general expectation that costs would be saved in the end but was keen to point out that he expected those savings to benefit agents as well as HMRC;  also that the Treasury had not set a target for savings from this exercise.  BR commented that “It is surprising how little HMRC can currently tell about the total dealings an agent has with HMRC.”

Local Knowledge

BR would not be drawn on the old argument put forwards by agents that ‘local knowledge’ had been lost with the closure of regional tax offices/departments but responded that,

“Local knowledge always had its limitations – few agents of any size would have dealt with just one local tax office in any case – and it would have been very difficult to be transparent in dealing with agents across the UK...  ...we are where we are:  the reorganisation of HMRC was absolutely necessary to produce consistent and efficient processes and there’s no going back.”

Enrolment/Authorisation

BR wanted to know how much information agents thought was reasonable for HMRC to require as part of its enrolment process, so that agents could be identified and profiled accurately. Many agents were quite happy for HMRC to liaise with their respective professional bodies for bona fides, etc. BR observed that this would require significantly more detailed interaction between HMRC and the Institutes than there is now; also that this was not a route open to all tax agents.

A recurring issue was that the enrolment/authorisation process had to be open to all: non-qualified agents as well as to those who were professionally qualified. Taxpayers can currently use a 64-8 to appoint basically anyone to represent them, from a professionally qualified agent to a family friend. Should this change?

BR said,

“Even if HMRC wanted to restrict access to certain groups of agents, any restriction could potentially breach Human Rights requirements. The lack of information on agents at present means that there is no evidence upon which to base conclusions about those agents who are the most effective.”

Should a case be made for a qualification or membership of a body as a requirement for them to do business with HMRC, BR wanted opinions on what might be a reasonable time to require non-qualified agents to gain a suitable qualification if this route were followed.

Self-Serve

Whilst the new enrolment process would give HMRC more precise information to categorise tax agents, those agents who successfully enrolled could in turn expect greater access to HMRC’s systems, through “Self-Serve”. The following possible enhancements were suggested:

• Self-Authorisation – an agent can notify HMRC that he has been authorised to act on behalf of a taxpayer and gain access to Online Services without needing to submit a 64-8.
• Coding Notices – once authorised to act, the agent can amend a taxpayer’s Notice of Coding.
• A facility to see all liabilities and payments across all heads of tax in one place, for a particular client
• A “track and trace” facility for repayment claims and correspondence
• The ability to lodge correspondence, etc., online through a ‘shared workspace’
• Online education modules on processes and legislation changes

Except for the first two proposals, these enhancements could arguably operate within the context of the current online offering available to authorised agents. Some agents wanted to go further, and not just lodge notification forms such as CWF1, CT41G, VAT1 and SA1 to tell HMRC about clients’ new activities, but actually have the facility to set up the underlying files and references in HMRC’s systems.

Supporting Agents and HMRC Officers

BR suggested that a better understanding of individual agents would allow HMRC to target any specific support needs more accurately and efficiently. Many of the agents attending the workshop suggested that problems on the agent side were broadly attributable to non-qualified practitioners. BR countered that,

“Statistics compiled from the thousands of random enquiries undertaken each year into SME businesses indicate that many require correction and that up to 70% of those businesses are represented by agents, but it is not [currently] possible to say whether those agents are qualified or not.  More widely, independent research indicates that around 30% of agents are not either qualified or a member of one of the main representative bodies.”

 He also said that academic work on “The Tax Gap” suggested that SMEs were ‘responsible’ for a loss of around £6Bn (out of a total of £42Bn) in relation to error by failing to take reasonable care in compiling returns and claims and this needed to be addressed.

BR accepted that of course there were occasions where HMRC officers might also benefit from support and recognised that this was a “two-way street”; also that HMRC would “welcome a constructive discussion on this arising out of the consultation process”.

Sanctions

BR said that recently, “the ultimate sanction” of formally refusing to deal with an agent had been exercised by HMRC. He said that this was a step taken very seriously by HMRC because of the possible implications for the agent’s business. (Attendees were kind enough to refrain from pointing out that Lunn had not gone that smoothly for HMRC either).

BR pointed out that HMRC had a similar approach as regards the burden of proof required in such circumstances, as it applied in the context of TMA 1970 s 99 (assisting in the preparation of an incorrect return) and that the burden of proof for TMA 1970 s 99 was also “rightly set at a high level”, because of the consequences for the agent. (Presumably, he meant not the £3,000 fine but the consequent ease of access to working papers under TMA 1970 s 20A).

BR happily agreed that the new Enrolment facility was intended to be the front end to what HMRC envisaged would be a new system that would compile comprehensive, useful information on agent behaviour. 

“I hope that it will allow HMRC to identify where agents need help in certain areas. We are open to ideas about what HMRC might be able to do before matters get to the point where it has to consider refusing to act – such as liaising with an agent’s professional body, where appropriate.”

We suggested that the Enrolment process should provide a facility whereby an agent could forewarn HMRC that he specialised in, say, enquiry work. This would hopefully help to explain to HMRC why that agent statistically had more enquiries than average, rather than leave HMRC perhaps to infer that ‘education’ was in order. 

HMRC’s Vision?

We asked BR what he thought was the ideal end result for HMRC.

“I don’t have an ideal result. That’s what this consultation is for: to discuss the proposals and find something that broadly works for everyone. We want agents to engage in the consultation process. But if there is no clear consensus then HMRC will review the spectrum of views and propose solutions.”

Having said that, BR did have some comments to make about HMRC’s ‘direction of travel’.

“We [both HMRC and agents] spend too much time on transactional stuff: filling in forms, processing them; we have 150 people in Newcastle processing 64-8s, at a significant cost. We need to move away from that and spend more time using the information we compile to identify where we can apply ourselves efficiently and effectively and allow agents to control the process.”

Conclusion(s)

We draw the following conclusions – we should stress these are our conclusions rather than those of Brian Redford/HMRC:

1. HMRC wants to get more information on agents and, using it and the data it already holds, gain a much better understanding of the agents with whom it deals.
2. It hopes to use this information intelligently to identify agents in need of ‘assistance’, or indicate evidence of greater risk of unacceptable tax avoidance behaviour, or worse.
3. In terms of gathering information about agents, not only does HMRC have little useful data so far, its systems aren’t currently configured to make best use of it. The necessary improvements will entail a significant re-working of HMRC’s information systems at significant cost – so HMRC must be confident that the exercise is worthwhile.
4. In terms of gaining a working understanding of its relationship with agents, it will be in most respects a ‘standing start’ – it will probably take years until HMRC has an appreciation built upon useful statistical information.
5. HMRC feels that it wastes time and resources processing information from forms which an agent has completed and could therefore enter directly into HMRC’s systems instead. This would ‘free up’ HMRC’s resources to do other things, like use their new improved systems to monitor agents.
6. This will effectively distinguish how HMRC deals with unrepresented taxpayers as against those with agents – far more so than now. It is also quite possible that HMRC’s perception of an agent’s risk profile will reflect on its clients.

Please feel free to leave comments on this article and we'll forward them on to HMRC, as appropriate - Ed.