East Sussex accountancy firm, Christopher Lunn & Co, has again had its tax agent status removed by HMRC.

This is the second time CLAC has had its status removed because of perceived irregularities. Last November, HMRC officials raided CLAC’s offices and its agency status was removed. However, in February a judicial review found that CLAC was not allowed to answer the Revenue’s claims and its status was reinstated.

The Revenue has now taken representations from CLAC and last week it announced that, with immediate effect, it will no longer be dealing with the contractor accountancy firm.

Dave Hartnett, the permanent secretary for tax, said this situation only occurs in exceptional circumstances where the department believes there could be serious irregularities in accounts and tax returns.

The president of the CIoT, Anthony Thomas, stressed that there needs to be independent oversight into the powers of HMRC when it comes to tax agents’ status. This will be even more important if the proposed system of enrolment comes into force, as this will inevitably lead to disenrollment of some tax agents. He added that a clear, agreed procedure needs to be drawn up so that everyone knows where they stand in situations like this.

Christopher Lunn claims that HMRC has once again acted wrongly and improperly. The firm issued a statement in which it said the Revenue had notified its lawyers that it would no longer be dealing with the accountancy firm as a tax agent. CLAC believes this action is wrong and will be demanding an explanation for their conduct.

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Last Thursday, HMRC published new proposals to clamp down on tax agents who act dishonestly.

“Working with Tax Agents; Dishonest Conduct” lays down the Revenue’s latest proposals along with draft legislation.

Dishonest tax advisers will be subject to a civil penalty and HMRC will have the right to publish details of advisors who do not make full disclosures on its website. The Revenue will also be allowed to issue “dishonest conduct notices”, which the advisor will be able to appeal.

HMRC has admitted that the way it interpreted draft legislation early last year was different to the way most tax professionals saw it. However, it has now made substantial alterations to the original proposals to make sure that penalties would only be imposed when there was an illegitimate loss of tax.

The permanent secretary for tax, Dave Hartnett, said the Revenue has worked closely with interested bodies to draw up the new draft legislation.

Anthony Thomas, the CIoT’s president, said HMRC should receive praise for listening to the views of interested parties and returning to the drawing board to start again from scratch.

However, he does question whether this legislation is necessary and whether it is coming at the right time. He went on to say that the CIoT shares the Revenue’s desire to track down rogue advisors.

The head of tax at the ACCA, Chas Roy-Chowdhury, pointed out that HMRC has taken on board the concerns his organisation had and a man talking about tax in his local pub will not be penalized. The focus of the new legislation is on agents making mass claims for tax repayment.

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HMRC intends to improve its relations with the tax agent community, a move which could bring benefits to contractor accountants.

The department has drawn up a list of proposals which include understanding the tax system from the perspective of an agent and providing additional security against fraud by enrolling agents on a database.

HMRC spokesman, Brian Radford, pointed out that tax agents had a vital role to play in delivering the tax system and the Revenue would be unable to function without them. HMRC wants to improve its service to take account of the changing needs of its customers and make administration more consistent and efficient.

He concluded by saying the department had been working closely with agent representative bodies because they also want to help taxpayers meet their tax obligations effectively and efficiently.

The Chartered Institute of Taxation has welcomed the move. The president of the Institute, Anthony Thomas, said agents are likely to welcome the proposed self-serve facility so that they can access some of HMRC’s system. Agents get frustrated at the time wasted waiting for the Revenue to do its job, correcting errors and routinely chasing progress. If the self-serve facility is implemented effectively, it could save agents, HMRC and taxpayers both time and money.

Thomas did express concerns that the database enrolment should be overseen by an independent body and the system must not become bogged down with excessive bureaucracy. It’s important to remember that tax advisers are agents to their clients and not the Revenue.

HMRC’s proposals are now at the consultation stage and the Revenue intends to run a series of meetings and workshops with agents to find out their views.

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HMRC has decided to rethink its policy of just sending documents to taxpayers and not their agents. The new policy, which was introduced in September, was designed as a cost saving measure.

However, the Revenue has backtracked slightly and said that some documents will also be sent to tax advisers and contractor accountants.

The decision has been welcomed but the CIOT, but the Institute remains concerned that this change will not include all tax documents.

The CIOT’s deputy president, Anthony Thomas, said that we all know government departments are under pressure to cut costs but HMRC is likely to face more queries and adjustments by keeping agents in the dark about the tax obligations of their clients. This action could end up costing the government more than it saves.

The documents that will be sent to agents include Tax Calculation P800, Entry to Self-Assessment letter SA250 and Exit from Self-Assessment letter SA251.

Agents will not receive copies of their clients’ P2 PAYE Coding Notices but the form the taxpayer receives will advise him to show it to a tax agent or adviser.

HMRC plans to use some of the money saved from the withdrawal of P2 agent copies to create an IT solution allowing e-enabled tax agents to see the P2s of their Self-Assessment clients online.

Meanwhile, members of ICAEW have said the standard of service provided by the Revenue is still declining. 70% of members said they needed to contact HMRC more than once to resolve a single enquiry and 61% said the technical knowledge of many of the Revenue’s employees leaves much to be desired.

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Contractor accountants might want to let their clients know that HMRC’s Sunday hotlines are set to close down as from the end of November.

The Revenue says that contact centre staff who work on Sundays will be redeployed at peak periods which should bring down waiting times and provide a more efficient service for everybody. HMRC also plans to change the opening times of its contact centres during the week to ensure peak periods are well staffed.

The majority of lines will be open from 8am to 8pm, Monday to Friday and from 9am to 4pm on Saturdays.

A recent survey carried out in Scotland highlighted some of the problems encountered by people trying to communicate with the Revenue. Members of the Institute of Chartered Accountants were asked about their experiences and results showed that 43% of HMRC’s systemic errors and shortcomings were due to poor communications. This is a big increase from the 13% reported 18 months ago.

The director of tax at the Institute, Derek Allen, said there has been a drastic deterioration in facilities for contacting the Revenue over the last year. He pointed out that phone calls to the help desks go unanswered and letters sent could lie for months before they get opened.

Allen also remarked that many of the staff do not appear to have adequate training to help them carry out their allotted role and so technical questions relating to tax matters are passed from pillar to post. He believes urgent action should be taken to simplify the tax system.

Other concerns raised by the survey included problems with online filing and long delays before tax repayments are received.

Earlier this month, the National Audit Office published a new report ‘Engaging with Tax Agents’. It suggests that systems could be improved if HMRC and tax agents worked more closely together. In the light of the number of complaints against them, the Revenue may want to consider taking that advice on board.

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The Chartered Institute of Taxation responded last week to the National Audit Office’s report ‘Engaging with Tax Agents’.

The report sets out ways the Revenue can work with tax agents to overhaul the tax system. Anthony Thomas, the deputy president of the CIoT, said the paper was helpful but believes the NAO could have missed a golden opportunity.

One recommendation that does meet with approval is that HMRC could reduce costs if it let agents do more self-service on-line. This would reduce the inevitable delays that always occur when using the postal system.

However, Mr Thomas pointed out that the report did not contain an analysis of who is making over-declarations of tax, and why the errors are happening. The CIoT has been working with the Revenue for several years on just these issues and he feels the report should have reflected this. The paper also relies on data that is 5 years old and does not deal with the error rate within HMRC.

The CIoT is pleased that the report acknowledges the work of tax agents and says that without them the level of tax under-declarations would probably be a lot higher. At the end of the day, tax agents save the government money by assisting clients with their tax returns and doing tasks that would otherwise need to be done by the Revenue.

Meanwhile, tax agents are angry that although their work is acknowledged in the report, it also claims that people are more likely to under-declare their taxes if they receive advice from an agent.

The NAO claimed that 37% of self-assessment tax returns from people who consulted tax advisers had under-declared liabilities compared to just over 1 in 4 of the returns filed by taxpayers on their own.

The NAO report concluded that if the average amount of under-declared tax was reduced by 3%, the government would benefit by an additional £100m each year.

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People who have just become self-employed will have to wait up to 8 weeks for their registration to be processed says HMRC.

The Revenue has explained that it has had to redeploy tax officials to more high priority work and so processing time for paper applications of form 64-8 and self-assessment registrations will also be affected.

This will not affect Internet authorisations but HMRC warns that further delays may incur if tax agents submit the 64-8 form online after previously submitting it on paper.

One personal tax adviser commented that a delay of 8 weeks for registering newly self employed freelancers sounds as if HMRC wants to put people off paying tax altogether!

Meanwhile, HMRC is likely to suffer more job losses when the results of the Comprehensive Spending Review are released in October. The Association of Revenue and Customs however points out that this is not necessarily a sensible move as HMRC does generate revenue for the government.

The president of the ARC, Graham Black, said it was ridiculous to cut more jobs at HMRC. He suggests increasing staffing levels to bring in more tax and catch tax evaders and he will outline his case to MPs on September 8th at Westminster.

Since 2006-07, the amount of money collected by HMRC has dropped by £25bn and the amount spent on dealing with the tax gap has almost halved from £3.6bn to £1.9bn. Every pound the government spends on dealing with tax evasion will reap 30 times that amount, or even more. Any logical person would jump at such an investment opportunity, Black remarked.

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In a bid to reduce the amount of errors that are made when contractor accountants help clients file their self assessment tax returns; HMRC has produced a series of tax toolkits.

The kits contain a checklist, explanatory notes and links to obtain further information and guidance. It is not compulsory to use these but they may prove a valuable aid to freelancers and limited company contractors who struggle to complete their annual return.

So far 5 toolkits have been released including a kit that deals with personal and private expenditure. The toolkits will be updated as and when new legislation comes into force and the revenue has already said that they will continue creating kits to cover more aspects of taxation.

The toolkits, which have undergone a year of testing by agents, focus on the areas where most mistakes occur and they include an explanation of the Revenue’s treatment of certain confusing aspects of tax law.

Businesses who take advantage of the toolkits will be able to show that they are taking more care over tax matters and are less likely to suffer penalties if a return is later found to be wrong.

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An extension of nearly 2 months has been granted on the consultation period for HMRC’s new draft law on “deliberate wrongdoing”. The proposal “Working With Tax Agents: The Next Stage” will now be under discussion until 28th April, the Chartered Institute of Taxation was recently told by the government department.

There have been concerns raised by the CIOT and several contractor accountants over the wording of the law which they feel could be applied to anybody handing out tax advice as opposed to just those who are indulging in illegal activities.

The way the wording in the proposal stands at the moment, somebody having a pint in the pub with his friends could be fined for talking about tax tips.

One of the primary aims of the consultation is to find a way to deal with tax agents who deliberately give their clients dishonest advice, i.e. acting fraudulently, in order to reduce the client’s tax liability. Anyone found guilty of ‘deliberate wrongdoing’ would be fined between £1,500 to £50,000.

A spokesman from HMRC has confirmed that “This legislation only tackles people who are doing something illegal, it will not touch anyone giving out honest advice.”

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