This Blog is addressed to All Accountants. The majority of you will give ‘tax advice’, but would you care to pay your clients’ tax bill if it proves to be technically incorrect? [Under the proposals discussed below the client will pay the newly imposed bill as well so there is at least ‘double jeopardy’]. My worry is a conceptual one. Should there really be multiple punishments for the same purported ‘offence’? Would this not be disproportionate? I do not know if the words are meant to be forceful and intimidating but the ‘deterrent’ seems to envisage liabilities which could lead to the bankruptcy of professional accountants who were merely part of the ‘supply chain’. Concerned yet? Read on.
In due course, I hope to give intelligent feedback to HMRC on their Consultative Document; Strengthening Tax Avoidance Sanctions and Deterrents. In the meantime, I would like opinions from professionals (and others) to the proposals. I have an open mind, and certainly do not approve of dishonest behaviour = evasion.
However, when I was an Inspector of Taxes the next level up on the spectrum – avoidance was legal.
Initial thoughts for discussion:-
Logically, people indulging in ‘avoidance’ are obeying the law. Why should they be punished in that case? Even if incorrect on a technicality there is no ‘mems rea’.
The definition of ‘tax avoidance’ seems very vague. It is also the subject of post event review in that a court will judge – probably some years later. This makes it difficult to judge at the time of giving advice. Surely, HMRC should be encouraging independent professional advice, not discouraging it. If clients know the ‘safe harbour’ for accountants is always to advise against a tax saver, they will know they are not getting independent advice. (See HMRC document on protection against penalties).
Should it really encompass ‘any transaction’ as suggested by the discussion document?
Should advisors really be subject to such harsh penalties, which may well be orders of magnitude above their fees for client behaviour (not the accountants behaviour) which, after complex litigation, the Courts have found ‘unreasonable’ under GAAR. This means the behaviour was determined to be technically flawed but probably not illegal? This is deterrence, but deterrent to giving advice to key entrepreneurs and wealth creators in a highly complex area.
Again, initial thoughts for discussion, if the HMRC target is (as stated) a ‘small minority’. Why try to affect the general economics of professional advice? Surely, the penalty risk could have a profound impact on PI insurance costs?
Could not the HMRC objectives be achieved by:-
a) Stating that a protection from penalties (not tax) may be achieved by getting a written opinion from an appropriately qualified professional (to be defined – but relevant professional qualifications).
b) Stating that a person/firm receiving a monetary benefit/commission based on the scheme may not qualify as ‘independent’.
Surely this would be easier and more proportionate.
The ICAEW has issued guidance to its member accountants to consider when dealing with potential tax avoidance schemes for their clients.
Whilst such tax avoidance may be legal, the question of ethical behaviour is also brought into play by the guidance. The guidance probably is to some extent a response to recent press coverage regarding certain artificial tax planning schemes and their use by celebrities.
The ICAEW recommend that amongst other tools/methods at their disposal, the advisor should use their own judgement on whether the scheme is artificial or not by considering the following:
The scheme is too good to be true
Apparently guaranteed returns with no risk
Scheme Promoter lending funds
Offshore companies, trusts and tax havens are involved for no reason
Over complex arrangements for what is required
Eaves and Co recently conducted a poll on Linkedin regarding attitudes to tax avoidance and found that respondents generally view tax avoidance as acceptable, whether it is ethical or not as long as it does not become illegal. Some respondents also argued that such opportunities for tax avoidance have come about as a lack of simplicity in the legislation of the UK tax system. The poll results may not be representative of a full cross section of society.
At Eaves & Co we believe that bespoke tax planning that fits with the business’ or individual’s commercial requirements is much more appropriate than using one-size fits all tax avoidance arrangements.
With the recent furore regarding complex tax avoidance schemes, as tax specialists we thought we could share our reasons for not generally getting involved in such schemes.
For users of aggressive schemes, before the introduction of DOTAS, it was a question of hoping the scheme went under the radar, but now this is almost impossible (as shown by the rise in the number of media oustings). It is now a question of waiting for an enquiry to begin, and hoping that when it does, the scheme is water tight. More often than not the age old adage applies, that if something seems too good to be true, it is.
The majority of such schemes fail and the client is forced to pay the tax, interest and possibly penalties in addition to the high planning fee. This can leave a sour taste in the mouth for the client, with them unlikely to come back for repeat business.
With the introduction of the general anti-abuse rule announced in the latest budget, the scope for such schemes is to be narrowed even further; a point which appears to have been conveniently forgotten by the country’s media.
At Eaves & Co we pride ourselves in providing bespoke tax planning which works; this is simply not possible to achieve using one-size fits all tax avoidance schemes. Therefore with client satisfaction and value for money as our main aims we steer well clear of providing or recommending such schemes.
We find that genuine tax planning provides a robust position for the client and gives them more comfort that the planning works and will not be counteracted at some point in the future. There is less chance (although obviously the risk is still present) of costly and time-consuming correspondence and litigation involving HMRC. This is because the planning is specific to the actual facts relating to the client, taking into account their needs and commercial aims. The client has more peace of mind.
We are keen to maintain a good reputation and build on-going relationships with the tax authorities and working within the spirit of the law is an important aspect of this.