Professional Indemnity Insurance & Regulation in the Tax Advisor Market
Government’s Push to Raise Tax Advice Standards
At The Spring Budget 2020, the Government asked for evidence to look at ways to raise standards in the tax advice market.
The Consultation on Compulsory Professional Indemnity Insurance
As part of this, the Government sought to seek views on making professional indemnity insurance (PII) compulsory for all tax advisers and launched a consultation on 23 March. We are still awaiting the findings of the consultation, which closed on 15 June 2021, and these are expected later this year.
HMRC’s Initiative for Enhanced Tax Market Standards
The new consultation follows HMRC’s call for evidence last year on raising standards in the tax market, a summary of responses published in November 2020. The call for evidence aimed to support:
- greater market transparency;
- access for taxpayers to reliable advice from a competent professional maintaining high ethical standards;
- preserving market access and
- enhancing tax compliance.
Government’s Perspective on Professional Indemnity Insurance
In its consultation document, the financial secretary to the Treasury Jesse Norman stated, “There is a minority of incompetent, unprofessional and malicious advisers whose activities harm their clients, reduce public revenue, and undermine the functioning of the tax advice market”.
The Government belief that a requirement to hold professional indemnity insurance could be a valuable first step towards improving standards in the market. PII can help to create better market incentives for poor-performing advisers to improve standards. It can also protect consumers by giving them greater access to recourse against the providers of bad tax advice.
Professional Bodies’ Support and AAT’s Critique
Professional bodies support the government’s direction. The new requirement should not affect the 70% of tax advisers who are members of a professional or regulatory body, which usually requires their members to hold appropriate levels of PII.
The AAT is behind the debate after describing the government’s mandatory PII plans as “inadequate”. It has launched what is seen as a crusade against unregulated agents, urging for there to be a legal requirement for anyone offering paid-for tax advice to be a member of a professional body.
A YouGov poll has found that 78% of 103 MPs back compulsory membership of a professional body for anyone offering paid-for tax and accountancy services. An estimated 21,000 advisers are not part of a professional body and, therefore may not have PII.
Legislative Prospects and HMRC’s Enforcement Strategy
It would appear that should the government introduce a bill proposing legislation to effect the above, it would be supported and entered the statute books.
HMRC envisages there being an enforcement regime with three elements:
- Transparency: It should be easy for clients to establish whether an adviser holds PII, ideas for which include requiring advisers to display their certificate of insurance at their premises or online.
- Checks: Ideas here include HMRC performing checks when an agent requests access to online services or to be authorised to act on behalf of a client.
- Sanctions: HMRC could suspend access to online services for non-compliant agents. A more hard-hitting option could be to make advisers joint and severally liable with the taxpayer for errors in returns where they do not hold the required PII.
Immediate Actions for Unregulated Tax Advisors
It’s clear that all unregulated tax advisors without PII cover need to take action now to ensure they comply with any changes to regulatory requirements that appear to be brought into force soon.
ICPA’s Support with PII Cover for Members
The ICPA offers members PII cover as an integral part of its membership subscription. For further information, simply contact us, and a member of our team will be in touch with you.
In light of the evolving tax advisory landscape and the looming regulatory changes, joining the Institute of Certified Practising Accountants (ICPA) emerges as a prudent step for professionals seeking to stay ahead of the curve.
With the ICPA, you gain the assurance of Professional Indemnity Insurance as part of your membership and access to a wealth of resources, expert guidance, and a supportive community of peers. This proactive approach ensures you remain compliant, informed, and ahead in your practice. Don’t let regulatory changes catch you unprepared. Embrace the benefits of ICPA membership today and position your practice for continued success and compliance in the dynamic world of tax advisory.
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