Agents are more likely to under-declare taxpayers’ income, say auditors

14 October 2010

Professional tax agents are more likely to under-declare their clients’ taxable income than are unrepresented taxpayers, according to a report by the government’s National Audit Office.

The NAO analysed a sample of about 5,000 self-assessment returns filed for the 2004-05 tax year by both represented and unrepresented taxpayers.

It found that 37 per cent of returns filed by agents contained incorrect under-declarations of tax (resulting from error, failure to take reasonable care, or evasion, as defined by HM Revenue & Customs). The comparable figure for returns filed by unrepresented taxpayers was 26 per cent.

The report admits that one reason for the difference is that represented taxpayers often have more complex affairs. But it goes on to say that “the analysis indicates that paying for professional help is not without risk for a taxpayer”.

HMRC estimates that 65 per cent of self-assessments are filed by third parties – amounting to about 43,000 professional advisers. On these figures, the NAO reckons that GBP2.6-10.5 billion of tax revenues could be lost because of underpayments by people helped by a tax adviser.

The NAO report, delivered yesterday to members of parliament, recommends that HMRC should focus more strongly on enforcing the compliance of agent-represented taxpayers, and on “better targeting of poorer tax agents”.

But the Institute of Chartered Accountants of England & Wales immediately criticised the controversial findings, which it said were not justified by the survey’s results.

Frank Haskew of the Institute’s Tax Faculty pointed out that the data used did not distinguish between professionally qualified and unqualified tax agents; and that represented taxpayers had on average 13 times the tax liabilities of unrepresented ones. Nor did the survey look at overpayments.

“Under-declarations for represented taxpayers represent a much lower proportion of their total tax liability”, noted a spokesman for the Chartered Institute of Taxation. He added that the report had failed to look at HM Revenue & Customs’ own error rate.






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