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.