Private capital and mandatory tax adviser registration: widening of exclusions for in-house tax teams

The new regime: the problem for in-house teams

The UK is in the process of introducing, in phases, a regime under which tax advisers must register with HMRC in order to be able to interact with it on behalf of clients.  To be eligible to register, a business must meet various compliance-based conditions relating both to the organisation and certain of its senior individuals (e.g. they have no overdue tax or outstanding tax returns).  

A significant issue with the new regime has been concerns that its scope is too wide. Tax adviser is defined broadly - essentially a person who, in the course of their business, assists somebody else with their tax affairs – but the statutory exclusions are narrowly drawn. In particular, the exclusion that looks like it should help in-house tax teams, is drafted so that it only applies where the adviser interacts with HMRC in relation to "group undertakings".   This is potentially problematic for in-house teams in private capital businesses, as they typically get involved with the tax affairs of non-group persons e.g. executives, fund entities, investors and investee entities.  

The pause in implementation for regulated businesses

Following representations from industry bodies, earlier this year the government delayed the registration date from 17 August 2026 to 31 March 2027 for tax advisers whose:

• business consists, to a substantial extent, of carrying on one or more "regulated activities" (from a UK financial regulatory perspective), or
  
  
• whose clients are, to a substantial extent, group undertakings, where at least one of the adviser's group undertaking has a business which consists, to a substantial extent, of carrying on one or more "regulated activities".

We would expect most in-house tax teams within private capital businesses to fall within one of these categories.

This delay was to give the government time to identify where the scope of the rules needed to be clarified, and, in a welcome move, HMRC has used the pause to update its guidance to confirm further situations when an exclusion from the regime will apply.

Last month, HMRC updated its guidance on the new regime to provide further detail on its application to groups and complex business structures.

The guidance explains that the regime is seeking to catch situations where advice is provided by way of business by an adviser to a third party. Registration is not required where a true third party commercial relationship does not exist. Accordingly, in most cases that are similar to where advice is provided to a group undertaking, it is not intended that the registration requirement should apply. The guidance then sets out some examples of this principle.

A helpful example is that for a fund structure. It confirms that an exemption would apply to advice provided by a fund manager or investment advisor (or an in-house team elsewhere in the fund management business) to fund and investee entities as well as to investors:

"An investment manager provides management services to a fund structure. The fund itself is comprised of a number of different entities (fund entities) and the fund invests directly and indirectly in a number of different entities (investee entities). The fund manager or investment adviser has an in-house tax team (which may be operating in another group undertaking) which provides services to the fund entities, investee entities and investors in the fund. These tax related services are part of the wider fund management mandate.

Tax advice provided between a fund manager/investment adviser and fund entities, investee entities or investors in this scenario would be treated as in-house activity and exempt from the registration requirement. The exemption would also apply if the tax services were provided by an in-house tax team located in another entity within the wider fund management business of which the fund manager is a part."

Other examples that are likely to be helpful to private capital businesses include:

• the position of an in-house team at an LLP which, as well as dealing with partnership tax affairs, files personal tax returns for all the members. The guidance confirms that this would be treated as part of the wider in-house tax services, meaning there is no requirement to register. Although the example is of an architect business, it is hard to see why the principle should not be equally applicable to a private capital management LLP; and
  
  
• the position of an employer that provides tax support for employees posted on an international assignment, e.g. preparing personal tax returns for internationally mobile individuals who are on secondment in the UK from overseas. Again, the guidance confirms that this would be treated as part of the wider in-house tax services, meaning there is no requirement to register.

The status of the guidance

The government intends to legislate to introduce specific statutory exemptions for the types of situations set out in the guidance. The guidance is therefore transitional in that it is intended to help firms understand the type of scenarios where HMRC accepts registration is not required, pending the legislative changes.

Importantly and helpfully, HMRC says that:

• where an organisation, acting in good faith, relies on the guidance to determine that they should not register, it will treat that organisation as compliant (so will not apply sanctions or penalties); and
  
  
• this applies even where it is later clarified that the organisation should have registered. At that point, HMRC would work with and support the organisation to comply with its obligation to register within a reasonable timeframe.

The tax adviser registration regime has been introduced relatively rapidly, so it is unsurprising that the government is already having to address difficulties arising from the wide drafting of the rules. That being said, the introduction of a delay in implementation and the recent publication of updated guidance are good examples of it listening to industry and taking on board its concerns.

Although the examples do not (and, realistically, could not) expressly cover every situation in which an in-house tax team may provide tax advice to non-group entities, they give a helpful sense of what type of situations are intended to be outside the scope of the regime. We expect that, on the basis of the examples, many in-house tax teams at private capital businesses are likely to conclude that they do not need to register with HMRC.