As of 1 April this year, HMRC have new powers to address what they deem 'sanctionable conduct' by tax advisers. As set out below, the potentially wide scope of these powers means that anyone providing tax services needs to be aware of them.
The new rules are introduced by s250 and Schedule 22 of Finance Act 2026, and form part of a set of measures focusing on the conduct and standards of tax advisers. They amend the previous 'dishonest conduct' rules in Schedule 38 Finance Act 2012 to both widen their scope and introduce significantly higher penalties for those falling within them.
What is sanctionable conduct?
The amendments shift the focus of Schedule 38 away from 'dishonest conduct' by agents to the much wider and arguably more vague term 'sanctionable conduct' by tax advisers.
This is defined in the legislation as a tax adviser doing something "with the intention of bringing about a loss of tax revenue". This definition is then narrowed further by Schedule 38, which defines 'a loss of tax revenue' as, effectively, not accounting for the correct tax at the correct time as required under the law.
The focus of the new rules is therefore not merely on whether someone is paying less tax as a result of advice given, but whether or not they are doing so in line with the law. This requires consideration of: (a) the adviser's intention in giving the advice; and (b) whether or not the resulting loss of tax is in line with the relevant legislation.
Advising a client to claim a relief or deduction they are entitled to would not fall within the rules, even if it results in them paying less tax. But what about situations where an adviser takes a different interpretation of the law to HMRC, or makes an honest mistake which results in the client paying less tax than is due under the law?
HMRC were keen to reassure stakeholders during prior consultation on the new measures that this was not their intended scope. Despite this, the legislation (which has improved from initial drafts) remains widely drafted.
Some reassurance can, however, be taken though from comments made by the Exchequer Secretary to the Treasury, Dan Tomlinson, during the Finance Bill debates: "The powers will not affect advisers who act in good faith, or who take a credible view as to what the law requires of their clients…. They also do not affect advisers who make mistakes while trying, as the vast majority do, to do the right thing."
HMRC have also subsequently published detailed guidance on the new measures (https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch176000), which includes some examples (https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch176520). It is worth reading through these to understand HMRC's view of what does, and doesn't, constitute sanctionable conduct.
What are the consequences of the rules applying?
Where the sanctionable conduct rules apply, HMRC have the power to impose some potentially very severe penalties. These are based on potential lost revenue — i.e. the tax saved by the client. It is not based on the fee received by, or economic benefit to the adviser.
For a first offence, the penalty is a maximum of 70% of the potential lost revenue, capped at £1m, with a minimum penalty of £7,500. For repeated offences, the penalties get higher, and can be unlimited in extreme cases. There is also the possibility for those who receive a penalty being 'named and shamed' by HMRC.
These penalties are significantly higher than those which applied under the previous dishonest conduct rules, where the maximum penalty was only £50,000. However, some safeguards apply. In particular, HMRC cannot move straight to issuing a penalty, and there are certain steps which must be taken first.
If HMRC reasonably suspect an adviser has undertaken sanctionable conduct, they can (but do not have to) issue a file access notice, requesting relevant documents for those clients under suspicion. No tribunal approval is required for this notice, and fixed and daily penalties can apply for failure to comply.
Where HMRC conclude that, on the balance of probabilities, sanctionable conduct has taken place, they must issue a conduct notice before charging any penalties. This gives the adviser a final opportunity to put forward their case and demonstrate why, in their view, they have not engaged in sanctionable conduct, before HMRC move to levy a penalty. Should a penalty be charged, there is also the right to appeal this, either through asking for a HMRC review or to the tribunal.
What should advisers do?
Although the minister's comments and HMRC's guidance provide some comfort as to the intended scope of these measures, the wide ranging nature of the underlying legislation and potential severe consequences of being caught mean they cannot be ignored.
Anyone providing tax advice should therefore familiarise themselves with HMRC's guidance and look at their policies and processes to ensure they do not fall foul of them.