Tax advice: Solicitors’ regulation should suffice
HM Revenue & Customs (HMRC) needs to exclude solicitors from legislation requiring tax advisers who interact with HMRC on behalf of clients to register with it and meet minimum standards, the Law Society has argued.
The measure for the Finance Bill could affect the likes of conveyancers submitting stamp duty land tax returns and discourage law firms that only occasionally deal with HMRC from handling tax matters, to the detriment of taxpayers, it said.
The society was responding to a technical consultation on the draft legislation [1], which came out of an earlier consultation whose goal was to raise standards in the tax advice market. It is planned for implementation next April.
The response said the definitions of ‘tax adviser’ and ‘interaction with HMRC’ were so broad that “many legal professionals who do not hold themselves out as tax specialists, or who are not in any real sense tax advisers, would be caught”.
The legislation, as drafted, “would encompass conveyancers completing SDLT returns and corporate lawyers drafting commercial contracts between parties or legal documents which include conduct provisions or indemnities/warranties – even though none of those activities include giving tax advice.
“Forcing all residential home buyers to seek separate tax advice will increase the cost of the conveyancing process and the time it takes to purchase a house.
“Indeed, effectively requiring separate tax advice across general practice areas would unduly impact small to medium law firms, and the private individuals and families who commonly access them.”
Rather, the Law Society said, the regime should be confined to those who routinely act as agents in relation to a client’s tax affairs, or who hold themselves out as tax advisers – solicitors’ existing regulation should suffice.
The society was also concerned by the “very wide discretionary powers” granted to HMRC to refuse, suspend or cancel registration, including on the basis of its own view of a person’s “professional standards”.
This was open to abuse if HMRC or another government body wanted to target a firm or adviser. “For example, by targeting senior managers of the firm to find arguable non-compliance HMRC could threaten the viability of the firm’s business as a whole.
“The parallels with the executive orders issued in the US to law firms are clear – a firm could be prevented from interacting with HMRC with a potentially devastating effect on the firm and its clients as a result of a decision made by a government agency, based on a relatively trivial failing by the firm or its senior managers.
“Even if the decision was appealable, damage would be done while the appeals process is running.”
The Law Society also opposed making an adviser’s personal tax position being in order part of the registration process.
This would infringe the right of taxpayer confidentiality, cause particular problems for partners in large professional partnerships – who were “likely to have complex tax affairs” – and could see a firm’s ability to advise on tax compromised by the affairs of a single person in a senior position, “who might have nothing to do with the tax services offered by the firm”.
The society argued that it would not be possible to implement the regime by April 2026 “without significant additional burden on advisors and HMRC alike”.
“The regime should be better targeted at the agents who present the greatest compliance risk. Otherwise, many law firms will feel compelled to take a safety-first approach and register unnecessarily. Alternatively, they may cease providing services in any way connected to tax entirely.”