Do UK tax advisors need regulation?

9 December, 2022

Baker Tilly International CEO Francesca Lagerberg took part in a recent high-profile debate at the ICAEW, to consider whether tax advisors in the UK needed formal regulation — or just a better adopted set of professional standards.

You can’t put a horseshoe on a horse in the UK unless you are a registered farrier.

You can’t be a security guard without a special licence, nor an arts therapist working in healthcare without the say-so of a professional council.

There are regulatory bodies that cover statutory auditors, probate practitioners and those working in insolvency.  But despite three in four UK businesses using a tax advisor to help with their business taxes, there’s no formal regulation over this important role. Indeed, anyone can call themselves a tax advisor or agent, regardless of their experience.

The question of whether the UK should introduce regulations in this area — and/or whether individuals who profess to offer tax advice should at least be compelled to join a professional body — was the basis of a recent lively discussion hosted by the Institute of Chartered Accountants in England and Wales (or ICAEW) at their headquarters in London. The ICAEW has more than 150,000 members including many tax advisors and a dedicated Tax Faculty.  

ICEAW Tax Faculty Chair, Nick Parker, told members that the regulation of tax advisors was a hot topic not just in the UK but internationally. “There’s considerable public interest concern about tax evasion and tax avoidance, driven by the need to close the tax gap, improve consumer protection and drive out bad behaviour by certain tax agents and taxpayers,” he said.

“The provision of tax services is already regulated in some countries, but whether such regulation is necessarily effective in driving out poor standards and behaviours is a matter for debate.”

While the UK has an unregulated system for tax advisors, he said that in practice, tax laws included measures that could be described as quasi-regulatory. For the two-thirds of advisors who are members of professional bodies, there is also an obligation to comply with standards such as the 52-page Professional Conduct in Relation to Taxation guidelines.

However, that still leaves a third of advisors potentially operating outside an enforceable system.

“In the UK anybody can set themselves up as a tax advisor even if they know nothing about tax,” Mr Parker said.

“An unregulated market provides scope for unscrupulous advisors to abuse the system and it allows them to operate with little or no oversight.''

“This damages the effectiveness of the tax system and can undermine the work of professional advisors who do have to comply with extensive professional obligations.”

Charlotte Barbour, Director of Regulatory Authorisations at the Institute of Chartered Accountants in Scotland (ICAS), said His Majesty’s Revenue & Customs (HMRC) had been engaged in the discussion for several years, working on a project known as Raising Standards. While there had been different papers and rounds of consultation, no clear direction had yet been set.

“I just don’t think the issue is as easy as it looks or it would have been done and dealt with,” she said. “When you look at the problem [of the behaviour of tax advisors] I don’t think it rests only on tax avoidance.

“There’s also the tax gap, where there is always a gap between what HMRC collects and what it should collect. Why is there a gap? Is it that people are avoiding tax or is it fraud? There are areas to be explored there as well.

“Then in more recent years, there has been the rising issue of consumer protection.

“Some of these ideas sit around ethics and behaviour, while others sit around general competence.

“Do you actually know what you are doing or whether you should be advising on this issue?”

Investigating insurance

One idea put forward during consultations was the role of professional indemnity insurance (PII) in professional bodies as a lever to address poor behaviour.

“One of the things that we’ve said over the years is that professional indemnity insurance is the key in a professional body to regulation,” Ms Barbour said.

“But it’s clear that actually, PII is part of a suite of measures that professional bodies can use to maintain standards.

“We need exams, we need well-run practices with safeguards if the practice is well run, and consequences if it’s not. We need CPD.

“PII is part of the package, but it isn’t the solution on its own because then you would be asking the insurance industry to decide who they would or wouldn’t sell insurance to. Do that, and lo and behold, they’ve become the de facto regulator.

“The insurance industry is not going to want that responsibility.”

Baker Tilly International CEO Francesca Lagerberg said regulation for regulation’s sake helped no one, but there was value in looking at other parts of the wider profession, such as audit, to see the impact regulation could have, as well as the experience of tax advisors in other countries.

“We need to look at the ‘why’,” she said.

“You regulate because it serves a purpose. It’s making things better. It’s driving public interest. It’s helping create a better system.

“There is a strong public interest element to this for us as tax professionals not only to uphold rules and regulations but also be seen to be acting in the public interest.”

Ms Lagerberg said there were lessons that could be learned from the approach taken to audit, which had largely been beneficial for the profession.

“We can stand back and say it probably has raised standards overall, by having some clear core rules and a framework to drive things forward,” she said.

“Perhaps most importantly, it impacts those who are responsible for the outputs that sit within an audit — which don’t just rest with the auditor, they rest with the organisations that are audited.

“They have to take things far more seriously. You have to think about things in a better way. You have to take accountability and responsibility into your mix of things that you do.

“There is perhaps more understanding and arguably more consistency with international rules, rather than a mishmash of different standards and different approaches.

“But on the negative side, it hasn’t all been rosy. There are examples of regulators really becoming hung up on certain issues to the detriment of the end game of raising standards.”

Global regulations

Looking overseas, Ms Lagerberg said there had been similar calls for regulation in some countries.

In the Netherlands, there had been significant scrutiny over the ethical responsibility of tax advisors on the issue of acceptable and unacceptable tax planning.

“These discussions have resulted not in formal legislation but in a Code of Conduct of tax principles, that were recently concluded in April by the Dutch Tax Advisors Bar Association,” she said.

“These are binding tax principles for all tax advisors that are members of the Dutch Tax Advisors Bar Association. Our own firm in the Netherlands has committed to this. They are now at the stage of building these principles into their daily work and they have a statement on their website, so the stance is also clear towards external stakeholders.”

In Spain, there was no specific regulation, with the exception of courtroom advocacy and litigation, which requires tax professionals to follow the legal code of conduct and be registered with the Spanish Bar.

The prospect of regulation is not very popular in Spain, however, given the combination of political inertia and the experience of Germany — which has a challenging path to formal qualification — shows partly why.

“Germany is an outlier in this discussion as one of the few countries in Europe where a tax advisor is regulated, and the title is protected by law,” she said.

“To qualify as a tax advisor, you have to pass an examination combined with at least two years of professional experience.

“The tax exam comprises an oral and a written part and, with a failure rate of about 50%, is considered one of the most demanding professional exams in Germany.”

Ms Lagerberg who is a former ICAEW Tax Faculty Chair said that for those who had been involved in the UK tax profession for some time, the discussion of regulation was a perennial topic and any approach needed to return to basics.

“I think at the heart of it most of us know when something doesn’t smell right. If it doesn’t look right, doesn’t feel right, it’s probably wrong,” she said.

“When you cut through all of this, having a really clear framework that is simple, straightforward and consistent becomes a lot easier to put into practice. “The more complicated we make our rules, the easier it is for them to be circumvented or misunderstood. Simplicity and consistency should be the heart of any regulation that may come into play.”

Meet the expert
Francesca Lagerberg
Baker Tilly International

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