Clause 221 and schedule 37 are about powers to obtain working papers from tax agents who engage in dishonest conduct, about the imposition of penalties, and about the authority of commissioners of HMRC to publish such tax agents’ details.
I have a couple of points to raise with the Minister. It is has been highlighted that these are very serious matters. If someone is accused of dishonest conduct and is essentially named and shamed, as the powers in schedule 37 allow, there must be adequate safeguards in place to ensure that the procedures have been properly followed.
The clause and schedule introduce new and updated rules to address dishonest conduct. They arise from work done by HMRC and have been subject to fairly extensive consultation, which I understand began in 2009. That also included consideration of draft clauses that were published for comment on 6 December 2011.
The new provisions would make a number of changes. Where a tax agent has been determined as being dishonest, HMRC can issue a file access notice, requesting access to all the files of that agent. The agent can be fined up to £50,000, and their name can be published—they can be named and shamed, as I have said—and the new process includes clear rights of appeal.
The Institute of Chartered Accountants in England and Wales has commented on the proposals, making it clear that it would like to place on record its appreciation of the open, constructive way that HMRC carried out the consultation. However, the ICAEW still believes that the Minister should speak on record about a number of provisions.
For example, clarification is sought on how the Bill’s provisions would interact with the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003. The question arises because the provisions are potentially very serious, as I have outlined, and confirmation is sought that they would be used only in cases of absolutely clear dishonesty, where authorisation has been given by a senior member in HMRC. Will the Minister provide some information on that?
I understand that the Minister will want to keep the process and measures under review, and that an implementation oversight forum will look at the issue. Confirmation is also sought that HMRC will continue to consult tax agents on how the provisions apply in practice, and that it will publish guidance as a result. The ICAEW still has concerns about the proposal in paragraph 28 of schedule 37 on naming and shaming. It would like further reassurances that the publication rules will bed down before any decision is taken to extend those to tax agents.
A number of detailed comments on schedule 37 were provided and submitted to Ministers when the draft legislation was published. I will not go through those in detail, but will the Minister comment on the concerns that were raised, particularly on the effects of notifying individuals, the content of notices, and the power to publish details?
I thank the hon. Lady for her questions. Clause 221 introduces schedule 37, which provides for a new civil approach to tackling dishonest tax agents.
Let me remind Members of the background to the provisions. Tax agents play a vital role in the delivery of the tax system, which could not function effectively without them. HMRC’s experience, thankfully, is that dishonest tax agents are rare. The clause and schedule will ensure that HRMC has an effective civil power to take action against those few agents, helping to preserve a level playing field and ensuring fairness for all taxpayers.
We have had a productive and constructive process with agents and their representative bodies in putting together the legislation. A number have asked, however, why we are legislating. Tax agents hold a unique position of trust. Even though very few are dishonest, HMRC must have adequate powers to deal with them. It is essential that HRMC can act to protect tax revenues; even a single dishonest agent with a large client base can represent a significant risk. We have been clear that the previous regime did not work, but I know that agents and the professional bodies share my view that the tax system has no place for dishonest tax agents. If unchallenged, such agents could undercut legitimate businesses. Their clients, who might be wholly unaware of any dishonesty, would be at risk of being tainted by their actions.
I shall briefly outline how the provisions will work. The schedule has four main stages: the determination that an agent has been dishonest; access being granted to their working papers; a penalty being imposed; and if appropriate, the details of the person penalised being published. Each stage is important, raising issues both for the agent involved and any employer.
There will be concerns about reputational damage, a point that the hon. Member for Kilmarnock and Loudoun was right to raise. I know that the professional bodies have been robust in putting such points to HMRC, and that HRMC has added new safeguards as a result. In particular, the tax agent now has a right of appeal to the tribunal against HMRC’s determination of dishonest conduct. The change is important. I know that agents have welcomed it, and I am glad that HMRC has been able to accommodate it.
May I ask the Minister a quick question about how the provisions will apply if the agent is also a qualified legal professional? Will the papers that can be obtained under schedule 37 be covered by legal privilege, because that would effectively mean that some of the powers would not apply to tax agents who are also lawyers, but would apply to those who are accountants and are not legally qualified?
That, of course, goes without saying. My hon. Friend’s background is as an accountant. In respect of disclosure, an agent can only disclose when it would be legal to do so, and HMRC will not use the penalty to lever an agent into breaking legal professional privilege. I hope that clarification is helpful.
While the Minister is setting out how things will work in practice, will he also cover third-party notice provisions, where material may not be in the actual physical possession of an agent, but in the possession of a firm for which they are currently working?
Third parties now have a clear right to make representations to HMRC. HMRC will not routinely name third parties. Its aim is not to punish the third party by making the dishonest agent’s identity absolutely clear and beyond risk of confusion with another agent of the same name. In most cases, that can be done without mentioning any past or present third party; it will be necessary only in rare cases and, in such cases, HMRC will be happy to discuss with the third party how the information is published. It will always to open to the third party to issue a public statement. HMRC will work with professional bodies on that matter. The similar Financial Services Authority powers of publication may provide useful pointers.
Another key issue about third parties is the position of innocent third parties that have employed a dishonest agent and now hold their working papers. HMRC needs to have access to those papers to see how far the rot has spread, to determine the tax loss and to put that right at the taxpayer level, which will be made possible under this clause and schedule 37. There will be wide access, subject to the normal restrictions on privileged and other material. That must be right in principle because, by that stage, the agent will either have been found to be dishonest by the independent tribunal or will have chosen not to appeal. HMRC will need to make a case for such access to an independent tribunal, at which the person holding the working papers will be able to make their views known. A third party also will also have the right to appeal on the grounds of onerousness.
I am grateful to the Minister for his generosity in giving way. Does he have access to the number of dishonest tax agents who have fallen foul of the system? He has said that there are relatively few. I am afraid to say that from my experience—we have talked about the interaction between clients and tax agents—some individuals prefer to employ a dishonest tax agent.
Perhaps the hon. Gentleman and I should have a conversation outside the Committee, and I look forward to having information to pass on to HMRC. On the number of dishonest agents, there are no firm data, but HMRC expects very few cases of dishonest tax agents. Its working assumption is that the number of agents involved in dishonest behaviour at any time is about 40. [ Interruption. ]
I return to some of the questions raised by the hon. Member for Kilmarnock and Loudoun, in respect of this clause about tackling dishonest tax agents. One question was about guidance on these provisions. HMRC will publish guidance in draft for comment before implementation. The professional bodies have already offered to help to iron out any remaining areas of uncertainty and HMRC welcomes this. It is working towards publication later this year. Will the powers implementation forum continue to monitor these powers? The powers implementation forum is an independent body, set up to look at how HMRC implements its new powers and I pay tribute to its work. The forum was originally designed as a short-term measure and will come to an end sometime, but for now it will act as a medium to monitor these powers. Other HMRC forums will still be available for the tax world to discuss the use of these powers with HMRC.
As for the interaction with the Proceeds of Crime Act, this measure is clearly aimed at dishonesty. Similar provisions in the Proceeds of Crime Act allow the authorities to obtain information, but it is a separate regime and I do not want to overstate the interaction between the two. As for publication of details, no names have yet been published. The public need to know about dishonest tax agents and HMRC needs to deter agents from becoming dishonest, but we want the regime to bed down. In practice it may be some time before any agent cases progress as far as publication, but that is part of the regime. The legislation is due to come into effect on 1 April 2013 and will apply only to dishonest conduct on or after that date. It will be brought into effect by an appointed day order.
In conclusion, this clause and the schedule are designed to deal with the dishonest tax agent and protect the vast majority who are honest. Important changes have been made as a result of consultation. HMRC will continue to work closely with professionals in producing guidance to resolve the remaining issues and the legislation is a balanced and proportionate response to a problem that must be addressed.