TCRM3346 - The Business Risk Review (BRR+): Business Risk Review (BRR+) Assessment indicators: Risk Assessing Across Taxes: BRR+ for Large Tax Agents

The Business Risk Review (BRR+) for Large Business customers who act as large tax agents should include consideration how the agent complies with HMRC: the standard for agents. A BRR+ template specifically for use with large tax agent customers is available to facilitate this, found within TCRM6000.

A tax agent customer in Large Business is defined as any business involved in professionally representing or advising taxpayers with regards to their obligations and dealings with HMRC e.g. accountancy firms, law firms, and specialist consultancy/investment businesses.

A CCM will be required to assess a tax agent customer against the various elements that make up the HMRC Standard for agents.

To be able to complete this task as part of the BRR+ exercise the CCM will need to understand the following:

  • what is the size, scope, and nature of the tax advisory business
  • what internal controls, governance, and standards are in place with the tax advisory business
  • what professional body standards must the business adhere to
  • what evidence exists within HMRC or elsewhere to inform the CCM of standards within the tax advisory business

In order to develop and maintain this understanding a CCM should discuss this part of their business with the customer and have an awareness of the customer’s dealings across HMRC.

The CCM will use their understanding of the customer’s business to assess whether the customer is maintaining high standards that promote tax compliance and has high standards towards tax planning as follows;

Standards for tax compliance

Integrity

HMRC expect agents to be straightforward and honest, for example, by;

  • disclosing all relevant information
  • not suggesting or implying that HMRC endorses or regulates their role as an agent

Professional competence and due care

HMRC expect agents to:

  • maintain correct and up-to-date knowledge of the areas of tax that they deal with
  • work to prevent errors in their clients’ tax calculations or claims, taking particular care not to include figures in returns or claims which are not sustainable
  • advise their clients to take steps to set matters right where they find errors in their tax affairs (if the client is unwilling to correct matters, the agent should consider ceasing to act for them - if the agent continues to act for them, this could risk enabling tax evasion that may be subject to criminal investigation)
  • comply fully with data protection law and regulations, including keeping online access credentials safe from unauthorised use at all times
  • maintain the security of their systems and their HMRC account credentials against current threats

Professional behaviour

HMRC expect agents to:

  • comply fully with tax law and regulations relating to their professional activity, including registering under, and adhering to, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
  • ensure that their own tax affairs are correct and up to date
  • deal courteously and professionally with HMRC staff
  • have clear terms of engagement with their clients

Standards for tax planning

In addition to the above, HMRC expects agents to follow these principles when advising on tax planning.

Lawful

Agents must act lawfully and with integrity at all times, and expect the same from their clients. Tax planning should be based on a realistic assessment of the facts and a credible view of the law. Agents should advise their clients where there is a material uncertainty in the law, for example, if it is known that HMRC’s view differs or is unknown. The risk and costs of challenge by HMRC, and any resultant court case, should be made clear to clients.

Disclosure and transparency

HMRC expects any disclosure by agents to represent all relevant facts fairly.

Advising on tax planning arrangements

Agents must not create, encourage or promote tax planning arrangements or structures that:

  • set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation
  • are highly artificial or highly contrived and seek to exploit shortcomings in the relevant legislation

Professional judgement and appropriate documentation

HMRC expects agents to exercise professional judgement in applying these standards to particular client advisory situations. Agents should keep timely notes of the rationale for judgements exercised in seeking to keep to these requirements.

Assessing and recording the CCM view

The BRR+ template for Large Business tax agent customers should be used by the CCM to record their view of whether the tax agent meets the HMRC agent standards. The view is represented by an assessment of whether the business is maintaining high standards to promote tax compliance and is following the principles when advising on tax planning.

Agent Landscape

The Agent Landscape will enable the CCM to document their understanding of the Large tax agent, the coverage and influence of its tax advisory business and the controls and governance it has in place. The Agent Landscape is not a risk scoring category in its own right however it will support the CCM in determining the appropriate risk score in respect to the Agent Standards and Tax Planning categories.

In order to complete this section accurately the CCM will need information from the customer on how their own internal governance ensures there is appropriate procedures in place to meet the standards.

The CCM will equally need to understand more about the makeup of the tax practice, including information such as; the amount of tax advisory work the firm undertakes (revenues), their customer base (ideally presented as HMRC customer groups), the fields of work they are involved in, the use of contingent fees etc. CCMs may also consider any relevant third party sources of information, for example from the annual audit quality reports published by the Financial Reporting Council, to provide further context of the overall firm.

If the CCM is satisfied with the internal controls they will start from the premise that the agent is Low Risk and should only mark them otherwise based on evidence that the CCM has become aware of. Evidence of failure to meet the agent standards should be reported to the CCM from an internal source within HMRC or from the customer.

HMRC Standards for Agents

Under each heading the CCM will reflect their view as follows:

Low Risk

What Low Risk looks like

HMRC would expect tax agents in this category to be exemplars of the profession, holding their own integrity and conduct to a high standard. Internal governance is robust and reasonable care is routinely taken to correctly establish and report client’s tax position to HMRC.

HMRC would expect there to be a high level of transparency and willingness to work with HMRC and when honest mistakes are made they are identified and rectified at the earliest opportunity.

Whilst not a requirement to achieve a low risk score, a CCM can take into account a large tax agent demonstrating positive behaviours including:

  • their help to tackle tax risks upstream
  • highlighting emerging concerns that affect segments of the population
  • sharing HMRC messages with their customers to help their customers get things right
  • engaging positively in working groups and consultations

Scoring

The CCM will therefore mark the customer as Low Risk if there is no evidence to support any material concerns that the business is not meeting the standard in any area.

This scoring can also include customers where there are one or two initial concerns that are to be raised with the customer or have been raised and the customer has provided a satisfactory response.

These could be concerns raised by the customer or from within HMRC. For example, the concern could involve HMRC considering that the customer is pushing the boundaries towards avoidance however the full facts are not established. In this instance the CCM could give a low risk marking but would raise this with the customer and it be noted in the BRR.

Moderate Risk – emerging/reducing concerns

What Moderate Risk looks like

Tax agents in this category could be displaying behaviour that was opportunistic and the business is at risk of entering a higher risk category through the exploitation of ambiguous areas of legislation.

The internal controls could have become lax or were never present, returns and statements made to HMRC are sometimes incorrect, low transparency in the disclosure of complex and material matters, and low technical capability in one or more areas. A Moderate Risk score could also reflect tax agent behaviour that is gradually improving with steps being taken with the objective of achieving a Low Risk score.

Scoring

The CCM would use this category when they believe the customer meets the standards in all areas with the exception of having a material emerging concern in one or more criterion. With reference to the Agent Landscape the CCM should use their experience and knowledge of the customer, along with the severity of any risks or concerns, to decide whether the failing of more than one criterion is Moderate Risk or a higher risk rating such as Moderate - High Risk.

This scoring would include where there have been initial concerns previously raised but these have not been resolved. This could also be appropriate when the customer has had established concerns in the past but is working to reduce these.

For example, a moderate score would be appropriate when a tax agent has failed to submit accurate tax returns for a material number of their clients due to a lack of understanding of new loss reform rules.

Moderate - High Risk – established concerns

What Moderate - High Risk looks like

Tax agents in this category demonstrate behaviour that is intentional and widespread across their client base and manifests in the development and promotion of avoidance or abusive schemes and/or arrangements, consistent failures to correctly ascertain client’s tax position and the provision of false or misleading advice or information.

Below standard behaviour/activities of a specific team or individual partner within a firm can also be sufficient for a CCM to consider a Moderate - High risk score with the timing and effectiveness of the firm’s response being potential mitigating factors.

Scoring

The CCM would therefore use this category when they have material concerns the customer is failing to meet the standard in more than one criterion.

This scoring is appropriate when the concerns are reflected in formal measures directed at the agent.

For example, a Moderate-High Risk score would be appropriate when HMRC are taking steps under the Promoters of Tax Avoidance Schemes legislation (POTAS) in respect to a tax agent following the issue of a GAAR notice (General Anti Abuse Rule) relating to a scheme they have promoted.

High Risk

What High Risk looks like

Tax agents in this category are conducting activity that is illegal and often involves a dishonest element. They would likely be misusing their position of trust, engage in criminal activity and perpetuate fraud and evasion.

Whilst it is unlikely a CCM will identify evidence of High Risk behaviour being systemic or widespread within a firm, the illegal or fraudulent activities of a specific team or individual partner would be sufficient for a CCM to consider a High Risk score. Careful consideration will need to be given to the particular circumstances of each case including the timing and effectiveness of the firm’s response.

Scoring

The CCM would use this category when there is evidence that there is a serious breach in the standard.

For example, this scoring would be appropriate when it has been proven that a taxpayer has evaded tax and the tax agent helped to facilitate the evasion or failed to report the illegal activity despite being aware or strongly suspecting the evasion.

Additional information on agent behaviour is available at Agent operational guidance: poor agent behaviour.