ICAEW challenge HMRC

ICAEW has challenged HMRC’s decision to send ‘nudge’ letters directly to taxpayers who have appointed an agent to handle their tax affairs, saying this approach risks jeopardising the agent/client relationship and should be stopped report Harris & Co accountants Northampton who are the tax agents for many local small and medium sized businesses.

The institute made its comments as part of a consultation between HMRC and professional bodies to agree a protocol for use in HMRC campaigns which target specific communities or areas of taxation by sending so-called ‘nudge’ letters to encourage tax compliance.

It follows HMRC’s decision earlier this year to write to taxpayers about the remittance basis for income tax, but without informing agents of the move well in advance or copying them in on the correspondence.

As a result, ICAEW argues, some taxpayers became concerned that their agent was not sufficiently well informed to be able to represent their interests, and the relationship between taxpayers and their agents was undermined.

In a paper on the topic which ICAEW has sent to HMRC, the institute says it can see the merits of using the ‘nudge approach’ on unrepresented taxpayers and believes that this should continue.

However, ICAEW goes on to say:

‘For represented taxpayers there appears to be little benefit to HMRC of using nudge techniques. Further, the potential commercial damage caused to the agent/client relationship is more likely to reduce rather than improve tax compliance and increases costs for no obvious benefits.’

ICAEW says it welcomes the formation of the joint HMRC and professional body protocol group to review and recognise the role of an agent in the tax system, which will look at this and other topics. In the meantime, ICAEW says that as a general policy nudge letters should not be sent to represented taxpayers.

ICAEW’s report states:

‘An agent’s role is to act on behalf of the client to ensure proper tax compliance and these letters should not therefore be necessary. If HMRC has concerns about the performance of a particular agent that appears to be putting compliance at risk then it should address this problem separately through a more targeted risk assessment based approach.’