The government has backtracked on making it mandatory for all tax advisers to get professional indemnity (PI) insurance but said it remained committed to raising standards in the market.
In a document published on 'tax and administration day' yesterday (November 30), the government said it would not make PI insurance for tax advisers compulsory at this time, but would consult on further options for raising standards going forward.
It would also publish proposals to tackle the high cost to taxpayers of using tax agents to claim repayments.
HM Revenue and Customs first considered the idea of mandatory PI in its consultation back in March.
It said the measure would improve tax advice and provide taxpayers with better access to redress in cases where they have received bad advice.
While solicitors and independent financial advisers must have PII, it is not currently mandatory for tax advisers to hold this insurance.
However, most of the tax, accountancy and law professional bodies require their members to hold it as a condition of membership.
The government has previously estimated there are 72,000 tax advisers, of which about 70 per cent are professional body members.
This leaves around 21,000 advisers who are unaffiliated and therefore less likely to hold PII.
But there were concerns that by making PII compulsory it could drive up costs and could price good tax advisers out of the market.
Therefore HMRC considered whether it should set out minimum levels of cover, excesses and other mandatory aspects of insurance that anyone providing tax advice should hold.
HMRC warned of "incompetent, unprofessional, and actively corrupt" tax advisers when it launched its call for evidence in this area back in March 2020.
The government first confirmed it would be launching a consultation into raising standards of tax advice in Budget 2020 and in the call for evidence it said it wanted to insure taxpayers received "competent, professional and trustworthy" advice.
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