HMRC’s new tax penalty regime applies to accounting periods beginning on or after 1 April 2008. This is a brief summary to consider if you are picking a tax agent.

A new system of tax penalties will apply to tax returns filed on or after 1 April 2009.

Tax penalties are charged according to a tariff but this is modified to take into account the taxpayer’s behaviour. When it is agreed that the taxpayer has taken 'reasonable care', no penalty will be charged.

What is reasonable care?

Reasonable care means that the taxpayer has taken whatever steps are appropriate in terms of his ability and competence to ensure that his tax returns are correct. If you are a director, this may impose Additional obligations on you as you have also to sign off company accounts and returns.

A taxpayer must sign off his tax return on the basis that the information it contains is correct to the best of his knowledge and belief.

  • This means that if he does not understand something that he is expected to take advice.
  • If he takes advice he must also check that his tax agent is competent to give that advice.
  • He must check his agent’s work or advice to the best of his ability and competence.

How do you check a tax agent’s work?

HMRC expect taxpayers to judge whether their tax agent is competent. There is no actual test for competence, but the assumption is that you should try to obtain advice from someone who is appropriately qualified and experienced.

In practice, this requirement means that you will be unlikely to be taking reasonable care if you take advice from 'the man down the pub' (unless they are a qualified adviser of course).

Example

You are unsure whether you can claim for the cost of work clothing for tax purposes. If you take reasonable care you might:

1. Phone your accountant or tax adviser for advice.

2. Phone HMRC for advice (remembering to take notes of the call).

3. Reach for a tax guide book and follow the advice given.

4. Search the internet and then review the answers to ensure that the one you obtain comes from a reliable source.

If you were not taking reasonable care you might:

1. Take a guess and put a figure on your tax return.

2. Ask a friend / 'man down the pub' or other non-tax qualified individuals what they think about it.

3. Search the internet and assume that the first website to come up on the search is correct. (Top tip: many websites come top of the list because they pay to be there).

How do you check if a tax agent is sufficiently competent to give advice?

Many tax agents are members of recognised professional bodies. Many others are qualified by experience. In most cases, you will not realise that someone is incompetent until it is too late.

If you are unsure whether to use an adviser or not, try telephoning HMRC’s National Advice line and ask them what their current guidance is on this topic.

Advice given by HMRC (informally) on how you can tell if a tax agent is competent is as follows:

"You must trust your own judgement."

"Go with an adviser you believe in and trust."

“Do not trust an adviser if you become suspicious about them, or cannot contact them.”

“Check their qualifications and that kind of thing.”

Qualified tax advisers

The leading tax qualifications in the UK are:

CTA – Chartered Institute of Taxation

ATT – Association of Taxation Technicians

Some types of accountants are also qualified to give tax advice. The leading bodies are:

FCA, ACA – Institute of Chartered Accountants (England and Wales)

FCCA, ACCA – Association of Chartered Certified Accountants

There are also accounting institutes in Scotland and Ireland as well as many other national and international bodies which include solicitors, bookkeepers and other types of accountants.

Most professional bodies operate their own disciplinary schemes and have requirements for members to complete on-going learning and development to ensure that they are up to date. In addition, they are usually required to hold adequate professional indemnity insurance to provide protection should something go wrong.

A note of caution
Many qualifications can merely be purchased, or made up and require no professional standard to be attained. It may not be immediately apparent that this is the case and the only way to find out is to read through the organisation's website, or promotional literature. Failing that, apply to the body and see if you can pay to join.

A lack of letters after a person's name does not mean that they are not competent to act for you. They may be qualified by experience, or increasingly as has been witnessed in recent years, members of some accounting bodies decide that there is no point in keeping up membership with their professional body for grounds as simple as cost-saving.

Further information see choosing an accountant (external link to CCAB)

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