There is no protection in the legislation for taking a credible view or making a genuine error. All practitioners have to rely on is HMRC’s Compliance Handbook.
As readers will know, there are some new provisions in FA 2026 relating to tax advisers whereby HMRC can take some pretty draconian action against tax advisers who engage in ‘sanctionable conduct’. This is really important – at least for tax advisers.
If HMRC suspect a tax adviser of sanctionable conduct, they can demand the adviser’s working papers, audit files and other documents used to prepare the client’s accounts. If HMRC find any inaccuracy in the files they can charge a penalty of £3,000 per inaccuracy – and can also issue a ‘conduct notice’ with further penalties of eye-watering amounts. HMRC can also publish your name and address, your business and sufficient other information to identify you clearly. Which is probably career-ending.
No reputable adviser would expect to be troubled by this – but there is real cause for alarm when you read the definitions. Sanctionable conduct occurs where the tax adviser ‘does something with the intention of bringing about a loss of tax revenue’. A loss of tax revenue is defined (by FA 2012 Sch 38 para 3) as including:
accounting for less tax than is required by law; and
obtaining more relief than they are entitled to by law.
HMRC’s Compliance Handbook has lots of guidance on this, updated last week, in which they say (at CH176520 and CH176540) that sanctionable conduct will not include:
taking a credible view of what the law requires even where this might differ from HMRC’s own view;
making a genuine mistake or error even where the error may amount to a failure to take reasonable care.
This is very comforting – or it would be if it was supported by the legislation. Unfortunately it is not. HMRC provide a statutory reference for this statement as FA 2012 Sch 38 para 3, but there is nothing in para 3 or anywhere else that gives any authority for these words.
If you submit a tax return on behalf of a client, claiming a relief to which you believe he is entitled (or perhaps a deduction for allowable expenses) which is challenged by HMRC and you end up accepting a disallowance and an increase in the tax payable, you have ticked all the boxes for sanctionable conduct. And you are in real trouble.
There is clearly ‘a loss of tax’ because by submitting the tax return you were intending that he should account for £x in tax (which you believed to be correct) but as it turned out he should have paid more than £x. There is no protection in the legislation for taking a credible view or making a genuine error.
HMRC clearly think that these rules apply only to advisers who deliberately contribute to non-compliance intending to cause a loss of tax. The original legislation referred to an individual who ‘engages in dishonest conduct’ but this is no longer the test. It has been replaced by ‘sanctionable conduct’ by FA 2026.
The adviser is going to be at risk unless everything he submits to HMRC relating to the client’s tax affairs is correct – and is agreed to be correct by HMRC. Good luck with that.
(There is a provision for a reasonable excuse in FA 2012 Sch 38 para 25, but this only applies to penalties for failing to comply with an ‘Access Notice’ in FA 2012 Sch 38 para 22. It does not apply to anything else.)
This is really serious and all we have to rely on is HMRC’s Compliance Handbook should any innocent error or disagreement with HMRC arise. Which I guess might occur sometimes ... maybe! There is not much you can do if HMRC were to decide that the Manual is not quite correct and that they are obliged to act in accordance with the law. An application for judicial review would hardly be an adequate remedy.
I think we need (and deserve) some kind of formal statement from HMRC about this on which we can all rely.
There is no protection in the legislation for taking a credible view or making a genuine error. All practitioners have to rely on is HMRC’s Compliance Handbook.
As readers will know, there are some new provisions in FA 2026 relating to tax advisers whereby HMRC can take some pretty draconian action against tax advisers who engage in ‘sanctionable conduct’. This is really important – at least for tax advisers.
If HMRC suspect a tax adviser of sanctionable conduct, they can demand the adviser’s working papers, audit files and other documents used to prepare the client’s accounts. If HMRC find any inaccuracy in the files they can charge a penalty of £3,000 per inaccuracy – and can also issue a ‘conduct notice’ with further penalties of eye-watering amounts. HMRC can also publish your name and address, your business and sufficient other information to identify you clearly. Which is probably career-ending.
No reputable adviser would expect to be troubled by this – but there is real cause for alarm when you read the definitions. Sanctionable conduct occurs where the tax adviser ‘does something with the intention of bringing about a loss of tax revenue’. A loss of tax revenue is defined (by FA 2012 Sch 38 para 3) as including:
accounting for less tax than is required by law; and
obtaining more relief than they are entitled to by law.
HMRC’s Compliance Handbook has lots of guidance on this, updated last week, in which they say (at CH176520 and CH176540) that sanctionable conduct will not include:
taking a credible view of what the law requires even where this might differ from HMRC’s own view;
making a genuine mistake or error even where the error may amount to a failure to take reasonable care.
This is very comforting – or it would be if it was supported by the legislation. Unfortunately it is not. HMRC provide a statutory reference for this statement as FA 2012 Sch 38 para 3, but there is nothing in para 3 or anywhere else that gives any authority for these words.
If you submit a tax return on behalf of a client, claiming a relief to which you believe he is entitled (or perhaps a deduction for allowable expenses) which is challenged by HMRC and you end up accepting a disallowance and an increase in the tax payable, you have ticked all the boxes for sanctionable conduct. And you are in real trouble.
There is clearly ‘a loss of tax’ because by submitting the tax return you were intending that he should account for £x in tax (which you believed to be correct) but as it turned out he should have paid more than £x. There is no protection in the legislation for taking a credible view or making a genuine error.
HMRC clearly think that these rules apply only to advisers who deliberately contribute to non-compliance intending to cause a loss of tax. The original legislation referred to an individual who ‘engages in dishonest conduct’ but this is no longer the test. It has been replaced by ‘sanctionable conduct’ by FA 2026.
The adviser is going to be at risk unless everything he submits to HMRC relating to the client’s tax affairs is correct – and is agreed to be correct by HMRC. Good luck with that.
(There is a provision for a reasonable excuse in FA 2012 Sch 38 para 25, but this only applies to penalties for failing to comply with an ‘Access Notice’ in FA 2012 Sch 38 para 22. It does not apply to anything else.)
This is really serious and all we have to rely on is HMRC’s Compliance Handbook should any innocent error or disagreement with HMRC arise. Which I guess might occur sometimes ... maybe! There is not much you can do if HMRC were to decide that the Manual is not quite correct and that they are obliged to act in accordance with the law. An application for judicial review would hardly be an adequate remedy.
I think we need (and deserve) some kind of formal statement from HMRC about this on which we can all rely.
