What is a “tax advisor”?
A tax advisor is now defined as “a firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services.”
This is a particularly broad definition. In terms of the provision of “advice”, the SRA has indicated that firms that provide information that has been tailored in any way to the client’s tax-relevant circumstances are likely tax advisors; this could impact on employment law advice and dealing with SDLT matters. So, a firm that simply tells their client to “get tax advice” is probably not a tax advisor. But a firm that sends their client a link to an HMRC website about something specific such as a tax credit and explains how this is relevant for the client is more likely to qualify as a tax advisor.
Also, according to the SRA, “material aid” covers activities such as making tax filings and payments on behalf of clients, and “assistance” refers to non-advisory services like drafting tax-related documents such as tax covenant.
Who should care and why?
Firms that previously fell outside the scope of the Money Laundering Regulations should determine whether they are now within scope of the Regulations by virtue of now qualifying as a tax advisor under the new definition. The firms that do now qualify as tax advisors will need to start complying with the Money Laundering Regulations and will need to apply for approval to carry out work within scope of the Regulations by submitting form FA10 to the SRA before 10 January 2021. These firms will need to have their Beneficial Owners, Officers and Managers approved by the SRA (which involves getting each a DBS check) as part of this process.
Meanwhile, firms that are approved to work within the scope of the Money Laundering Regulations but not as tax advisors will also need to determine whether they are now tax advisor under the new definition. Regulated firms that have become tax advisors due to the new definition need to change their anti-money laundering authorisation by submitting Form 10b to the SRA before 10 January 2021.
Firms that are required to submit either form FA10 or FA10b and fail to do so will be breaching SRA regulations. And firms that need to get their Beneficial Owners, Officers and Managers approved but do not may also be committing a criminal offense.
Given the breadth of the new definition of tax advisor, the SRA has noted that any firm that provides a service that addresses or potentially impacts the tax affairs of a client should carefully consider whether it is as a tax advisor. If your firm needs to determine whether or not it is a tax advisor, you should consult the SRA’s recent guidance on tax advisors and should even consider getting independent expert advice if necessary. But regardless of whether you ultimately conclude that your firm is or is not a tax advisor, it is important to keep notes about your decision and the reasoning behind it. That way, if the SRA ultimately disagrees with your conclusion, you can still show that you made a good faith attempt to make the right call.