The dishonest accountant or other tax adviser is seen by HMRC as a centre of infection, whose activities must, in the public interest, be brought to an end as soon as possible. Hence SCI always take over any such cases on discovery and as a matter of priority. If it can be proved that the adviser has acted fraudulently, either in his own affairs or those of his clients, the following course of action against him will be considered:-
The aim is to bring the fraudulent adviser’s activities to an end and the decision about how this might best be achieved is taken in the light of the nature of the offence, the quality of the evidence and the willingness of the adviser to allow access to his working papers (so that the investigator can find the extent of his frauds in relation to his clients).
While TMA 1970, s. 20A empowers HMRC to call for the working papers of an adviser where he has been convicted of an offence or had a penalty imposed on him under TMA 1970, s. 99, a negotiated s. 99 penalty does not enable HMRC to proceed under s. 20A. if he refuses access to his working papers, therefore, he is more likely to have formal proceedings taken against him.
The changes made by FA 1989, s. 144 to TMA 1970, s. 20B by the addition of subs. (9)-(14) enable HMRC to have access (subject to safeguards) to an adviser’s working papers where the client is under investigation by way of a notice under s. 20(3) or (8A). In most cases, evidence of any fraud on the part of a dishonest adviser is to be found primarily in the working papers relating to his clients.
If, as a result of an investigation into an adviser suspected of fraud, it is decided that there is insufficient evidence of the standard required for a criminal prosecution, it would be unusual for a s. 99 penalty to be determined by the inspector, with any appeal then to be heard by the commissioners, because the quality of the evidence required for this penalty needs to be of a standard almost as high. Instead, the action taken would probably be to negotiate a s. 99 penalty and to settle the matter by way of HMRC getting various undertakings from the adviser with regard to his future conduct.
A distinction must be drawn between fraud and incompetence; fraud is a criminal offence, incompetence is not. For an offence to be committed under TMA 1970, s. 99, therefore opening up the possibility of obtaining access under s. 20A to the working papers of the adviser, he must have known that the information, return, accounts or other document was incorrect. If, however, the adviser is not dishonest but only incompetent, he will not, of course, have known that the return, accounts, etc. were incorrect and HMRC’s action is limited to trying to persuade him to obtain assistance, seek training or perhaps retire or cut down on the number of clients. In extreme cases, the local tax office might be advised to treat every return submitted by the incompetent adviser as likely to be unsatisfactory and to open enquiries into them all.