However, tax professional body declares this is not a ‘magic bullet’ in achieving the government’s aims of improving trust and reducing bad behaviour in the market
HM Revenue and Customs (HMRC) has launched a consultation to make professional indemnity insurance mandatory for all professionals who provide tax advice.
Published on 23 March 2021 and running until 15 June 2021, the consultation aims “to raise standards in the tax advice market, to improve trust in the market by reducing poor advisor behaviour and enabling taxpayers to have redress when things go wrong”.
The proposal follows a call for evidence on raising standards in the tax advice market, which ran between March and August 2020.
The government received around 85 responses, which it published in November 2020 – this included respondent feedback which “suggested that making it compulsory for all tax advisors to hold professional indemnity insurance would provide a baseline level of taxpayer protection”.
Risky to insure
Within the consultation, the government acknowledged that “from early discussions with the insurance industry, some insurers regard providing tax advice as an inherently risky area to insure, due to the complexity of tax law. The government will, therefore, consider how best to support the provision of appropriate information to support the assessment of risk”.
It added, however, that although professional indemnity insurance is not currently mandatory for tax advisors, many professional bodies require their members to have some level of professional indemnity cover upon joining – this means “there is already a precedent in understanding and pricing risk in the accountancy part of the market”.
“The government estimates that most of the 70% of advisers who belong to a professional body already hold professional indemnity insurance,” the consultation stated.
For example, the Institute of Financial Accountants (IFA) requires members to hold professional indemnity cover of 2.5 times gross annual income, or £100,000 if gross fee income is under £400,000. If fee income is over £400,000, cover must be £1m.
The government is also considering affordability and “whether it should set out minimum levels of cover, excesses and other mandatory aspects of insurance that anyone providing tax advice should hold”.
In particular, however, the government wants to receive feedback from the insurance industry around promoters – it is separately consulting on whether to give HMRC greater powers to make information about suspected promoters public.
“The government would welcome views from the insurance industry about whether this information (or similar information about adviser compliance) would be useful in assisting insurers in deciding whether to offer an adviser insurance or to set a premium,” it added.
If these proposals get the go-ahead, the requirement to hold professional indemnity insurance would be added to the current HMRC Standard for Agents – this clarifies what is expected of agents, particularly those who are not members of professional bodies.
The government further proposed a three-pronged enforcement approach, using transparency, checking advisors have insurance and issuing sanctions for non-compliance.
“These sanctions could include a new offence of providing tax advice without holding professional indemnity insurance. In addition, there may need to be sanctions for not holding adequate cover, or for taking out cover but letting it lapse by deliberately not paying premiums,” it said.
Speaking on the consultation, Adam Harper, director of professional standards and policy at the Association of Accounting Technicians, said: “It is already clear that doing nothing more than requiring unregulated tax advisors and accountants to hold PII – as has been required of professional body members for decades – is simply inadequate. It could arguably make a small improvement to the symptoms of unregulated advice but does nothing to address the causes.
“There are serious tax evasion and money laundering consequences of having so many unregulated accountants and tax advisors and there are frequent horror stories of mistakes and poor advice that can leave taxpayers with unnecessary fines, penalties and tax liabilities. The unregulated are also costing the exchequer hundreds of millions of pounds a year.
“If the government is serious about tackling this problem, it needs to make professional body membership compulsory for anyone providing paid for tax and accountancy services. Doctors, nurses and solicitors have long been required by law to belong to a professional body, why not accountants and tax advisors?”
Jeremy Coker, president of the Association of Taxation Technicians, added: “We see the introduction of mandatory insurance as essential, but it is not a magic bullet in improving consumer protection in the tax advice market. In particular, it will not take out the hard-core minority of unscrupulous tax advisors.
“It needs to be accompanied by adherence to common professional standards by all tax advisors, and that can only be achieved if they are subject to formal disciplinary and complaints proceedings through a professional body.”