The government is to consult on making professional indemnity insurance (PII) compulsory for tax advisers. It argues that this will raise standards in the tax advice market, provide recourse and protect consumers.
The move comes in response to the government’s call for evidence into ‘Raising standards in the tax advice market’. In a summary of responses published in November 2020, the Rt Hon Jesse Norman, Financial Secretary to the Treasury, accepts that many tax advisers are technically competent and adhere to high professional standards. But he warns that some are incompetent, and some actively bend or break the rules.
Law firm DWF says that around 70% of tax advice is provided by professionals who subscribe to high standards and are required to take out PII by their professional bodies. It says that the government is focused on the 30% of advisers who are not members of professional bodies and are not required to carry PII.
Existing industry standards for tax advice, such as HMRC’s ‘Standard for Agents’ and the ‘Professional Conduct in Relation to Taxation’ (PCRT) standard, published by seven professional bodies and associations, set out principles for professional conduct, but do not carry legal force. HMRC can only act against tax agents who have committed a crime such as money laundering.
The government believes that making PII compulsory will help to raise standards in the tax advice market by driving out advisers who are unable to get insurance as a result of riskier practices. This has led to the consultation on introducing a requirement for all tax advisers to hold PII.
However concerns have already been raised about the government using the insurance market as a means of regulating tax advice. DWF says there is a risk that the insurance industry “will reject the quasi regulatory role that Government is seeking to force upon it, by indicating that it is simply unwilling to cover the types of activity that Government would like to see covered.”
Other initiatives proposed by the government include raising awareness of the ‘Standard for Agents’ and reviewing HMRC powers of enforcement. It says it wants to work with professional bodies to understand the role they play in supervising and supporting their members and raising standards in the profession. It will also review options to tackle the sometimes high costs to consumers of agents claiming tax refunds on their behalf.
James Burgoyne, Director – Claims & Technical, Brunel Professions says: “Most tax advisers are highly professional and already hold PII insurance thorough their professional body regulation. The government’s move appears targeted at a sub-set of the unregulated advisers who provide aggressive and highly contrived tax planning structures. It will be interesting but probably predictable how PII insurers in an insurance hard market respond to the suggestion that they provide further cover in this area when the government’s consultation is published. For that matter, other professions already suffering premium increases as a result of the present hard market would not want to be impacted by PII insurers being hit by a wave of losses from this sector.”
Brunel secures competitive professional indemnity insurance cover for financial services professionals. To find out more visit the Brunel website or call Mark Sommariva on 0203 475 3275.