Industry experts have warned HMRC of inadvertent damage to the pension advice market and other broader unintended consequences in their responses today (16 June) to the UK tax office's consultation on raising standards in the tax advice market.
The Association of Consulting Actuaries (ACA) welcomed the initiative to improve standards but made it clear that this should not be at the expense of inadvertently damaging the pension advice market or the provision of high-quality information to scheme members.
ACA chair, Patrick Bloomfield, said: "HMRC is looking to find an extremely wide definition of ‘tax advice'. This is understandable as it means promoters of tax avoidance schemes cannot hide behind a label of offering ‘guidance' rather than ‘tax advice'.
HMRC is looking to find an extremely wide definition of ‘tax advice'."
"However, given the complexity of pensions tax rules, such a definition could inadvertently capture a wide element of the industry helping the day-to-day delivery of pension schemes. This could significantly inconvenience scheme members and bring pensions professionals into regulations primarily designed with traditional tax advisers and their clients in mind."
ACA pensions tax committee vice-chair, Tim Sexton, added: "ACA is also concerned it could become difficult to communicate with trustees, employers or members effectively without encroaching on a wide view of tax advice. Any policy regulating tax advice should not interrupt the high quality advice given by pension professionals, interfere with the good running of pension schemes, or interfere with the Pension Regulator's aim that pension schemes give members as full as possible information to understand their rights and options."
HMRC has proposed in the consultation using professional indemnity insurance (PII) as a tool which might remove some advisers from the market, and then provide fallback for compensation to customers who suffer from badly given tax advice.
But the ACA argued that if HMRC intends to make PII cover mandatory across the very diverse range of advisers who comment on tax matters to clients then the policy should:
- focus on protecting personal customers and small business customers (rather than larger businesses which already tend to have strong procurement processes).
- avoid duplicating equivalent requirements already imposed by professional bodies or statutory regulators, and construct simple coverage requirements for smaller unaffiliated tax agents serving individuals and small businesses.
- target providing appropriate protection for shortcomings by an adviser rather than imposing a uniform amount and design of PII across the whole market.
The Society of Trust and Estate Practitioners (STEP) was also among those to respond to the consultation, arguing that HMRC should be as specific as possible as to what it considers constitutes ‘tax advice'.
"However if HMRC is seeking a wider definition then we are mindful that it may be more suitable for HMRC to consider what constitutes ‘tax services' as not all tax services are "advice" For example, financial advisers may give general guidance on estate planning issues which clients may then wish to follow up with other advisers, but are very clear that they are not giving any tax advice.
STEP suggested adopting a narrower definition, giving tax advice in its natural meaning could cover the following:
- Compliance - ie drafting and submitting tax returns and advising on and arranging tax payments
- Advising on and dealing with tax enquiries and investigations.
- Giving advice as to the tax consequences of a transaction which has already happened or one that will happen.
- Advice on planning ie how you could improve on the tax consequences of a suggested transaction and pay less tax or how you could avoid tax on a particular event such as death in the future.