Spring Statement 2025 - Shakedown for Bad Tax Advisers
Spring Statement 2025
The Chancellor of the Exchequer, the Rt Hon Rachel Reeves MP, gave her first Spring Statement, which, as expected, contained few surprises about employment status.
While the Employment Rights Bill will eliminate the qualification period for various rights, such as unfair dismissal, thereby subjecting umbrella companies to a potentially unmanageable administrative burden, the details of the Spring Statement contained a nasty surprise for rogue tax advisers.
As part of the Treasury’s aim “to enhance HMRC’s powers and sanctions to take swifter and stronger action against professional tax advisers who facilitate non-compliance in their client’s tax affairs”, a consultation exercise was announced. Of note, the Treasury is seeking views on expanding powers to obtain information from tax advisers, imposing penalties on tax advisers who “contribute to the tax gap”, and publishing information about errant tax advisers.
Schedule 38 to the Finance Act 2012 already allows HMRC to issue a conduct notice to a tax adviser and to obtain working papers in specific circumstances and lengthy rights of appeal. However, the Treasury wishes to target advisers who contribute to the tax gap. James Murray MP gave the example of a tax adviser who “submitted inaccurate repayment claims” and “causing significant harm to the tax system”. Examples of contributing to the tax gap provided in “Enhancing HMRC’s powers: tackling tax advisers facilitating non-compliance” include the provision of advice which results in accuracies in a client’s tax returns. Such an activity is distinguishable from providing a legal opinion on the likely IR35 status of an engagement, which empowers a client to make an informed decision about tax planning.
While the aims of promoting high standards of tax advice are laudable, the Treasury has proposed consultation on greater powers to obtain working papers, including confidential legal advice. Indeed, the proposals mean that “professions such as solicitors, auditors and financial advisers are in scope of the proposals for any work they do which amounts to tax advice or services.” The main aim is to overcome the difficulty in obtaining evidence that a tax adviser’s activity is dishonest conduct by obtaining greater powers to request information. However, the grounds that HMRC must have for reasonably suspecting that a tax adviser has facilitated an inaccuracy have not been given in detail.
If enacted, the new power will enable HMRC to issue an information notice without tribunal approval, but a tax adviser can still appeal to the tribunal. The Treasury also announced its intention to consult on penalties based on the potential lost tax, which the tax adviser’s activity contributed to, thereby providing a greater deterrence than the existing penalty system.
As part of the consultation exercise, the government must consider the impact on Article 6 of the European Convention on Human Rights enacted in Schedule 1 to the Human Rights Act 1998 and (before the second reading of a bill) make a statement that the provisions of a bill “are compatible with the Convention rights” (as per section 19(1) of the said Act).
The right to a fair trial in the determination of civil rights may be infringed by legislation that has the effect of hindering a legal adviser’s ability to advise a client confidentially. Similarly, a client who fears disclosing all advice documents to HMRC may feel inhibited from discussing all aspects of an instruction with a legal adviser. We would strongly encourage the government to restrict the scope of the proposed measure to instances where an adviser operates a tax avoidance scheme in addition to providing “vanilla” legal advice. There are numerous examples of services and schemes offered by advisers at the less than desirable end of the tax advice market.
The Law Place Limited provides confidential and impartial legal advice on recruitment law, including the IR35 legislation, and does not promote any scheme or service that facilitates tax avoidance.
That’s why we have never advocated substitution as a means of avoiding tax risk.
If you have any questions, please get in touch with Martyn Valentine LLB (Hons), Assoc CIPD on 07788 773871 or by email: martyn@thelawplace.co.uk.