HMRC makes conduct notices the mandatory step before adviser penalties

Where HMRC gathers enough evidence to determine on the balance of probabilities that a tax adviser is engaging in, or has engaged in, sanctionable conduct, it will issue a conduct noticeGOV. The previous wording said HMRC may issue oneGOV; the revised position is that it willGOV. An authorised officer must approve the decision to issue the notice.

A conduct notice is now a mandatory step on the road to a penalty: HMRC must issue the adviser with a conduct notice before it can assess them for a penaltyGOV. A conduct notice is the notification of a determination by a duly authorised officer, and it must state the reasons why HMRC thinks the adviser is engaging in, or has engaged in, sanctionable conduct.

Once a notice is issued, the adviser should be given a reasonable opportunity to make final representations before any penalty follows. At that stage the adviser may provide information or an explanation that changes HMRC's determination. Where that happens, HMRC should withdraw the conduct notice and not issue a penalty. Where the adviser offers nothing that changes the determination, or does not engage at all after the notice, HMRC should proceed to assessing the penalty.

The revised overview also addresses cases with more than one adviser. Where multiple tax advisers have engaged in sanctionable conduct in relation to a single tax loss, HMRC may use the powers against each of them. But in some cases it may be more appropriate to use the powers against the adviser who controls or has responsibility for the actions of others — for example a company whose employed advisers engaged in sanctionable conduct under the employer's instruction. Every such decision must be based on the specific facts of the individual case.

That choice turns on whether each adviser personally met the sanctionable-conduct test of intending to bring about a loss of tax revenue. Relevant considerations include the extent to which the adviser acted under another person's direction or control, the autonomy they had to exercise professional judgement or raise concerns, whether they were aware their actions would bring about a loss of tax, whether they deliberately bypassed expected processes or escalation requirements, and their role in the end-to-end process. An adviser who was merely mistaken, careless or even negligent has not engaged in sanctionable conduct.

The legal basis is Schedule 38 to the Finance Act 2012, paragraphs 4 to 6, as amended.