What do you say when your client asks you about a tax scheme?

What do you say when your client asks you about...

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When a client has got wind of a tax scheme that they have been told is perfectly legal, has the blessing of tax counsel and that the promoters have never lost a case in court, what do you say to add a dose of reality?

The challenge is that you want to convey your own understanding of the risks and downsides as well as your commercial and positive advice. Can you do both at once without losing the client or having them succumb to the promoter's sales patter? This typically includes words to the effect that "your accountant probably won't understand all this as it's quite sophisticated and not the sort of thing that simple local practitioners can follow".

And you probably have better things to do than to look into the fine detail of every scheme that comes along - even if you do have a few clients who are prepareed to be risk-takers.

So, how do you do it? What do you say?

Replies (19)

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By DMGbus
29th Mar 2013 18:33

http://www.hmrc.gov.uk/avoidance/spotlights.htm

My policy is to state that I do NOT specialise in, or have a detailed knowledge of, artifical tax avoidance schemes.   Such schemes require very experienced advisors such as tax counsel at a cost of perhaps in excess of £250 per hour.

Also point client to relevant HMRC webpage:

http://www.hmrc.gov.uk/avoidance/spotlights.htm

with particular reference to the following very pertinent text:

Tax planning to be wary ofIt sounds too good to be true.Artificial or contrived arrangements are involved.It seems very complex given what you want to do.There are guaranteed returns with apparently no risk.There are secrecy or confidentiality agreements.Upfront fees are payable or the arrangement is on a no win/no fee basis.The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided.The scheme is said to be approved by HMRC (it does not follow that this is true).Taxation of income is delayed or tax deductions accelerated.Tax benefits are disproportionate to the commercial activity.Offshore companies or trusts are involved for no sound commercial reason.The involvement of professional trustees is claimed to guarantee that the arrangements succeed.A tax haven or banking secrecy country is involved without any sound commercial reason.Tax exempt entities, such as pension funds, are involved inappropriately.It contains exit arrangements designed to sidestep tax consequences.It involves money going in a circle back to where it started.Low risk loans to be paid off by future earnings are involved.The scheme promoter lends the funding needed.There is a requirement to take out insurance against the failure of the tax planning to deliver the tax benefits.

 

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By frustratedwithhmrc
30th Mar 2013 09:14

Investigations are inevitable...

I always point out to clients coming in with these schemes that they will inevitably be challenged by HMRC and all of the schemes customers will be subject to specific and detailed investigation as participation in such a scheme would identify my client as someone "Prepared to be involved in abusive tax avoidance or possibly tax evasion" and therefore a higher risk.

Not only will tax returns submitted during the period when my client was a member of the scheme be investigated, but earlier years may be reopened and challenged as well.

Even if the scheme is successfully defended in court, it will be years of stress and hassle as well as professional fees related to answering HMRC questions into the matter. All of this may-or-may-not be covered by the tax investigation insurance.

Equally, if the scheme is found to be fraudulent, evasion or its attempt at tax avoidance fails then HMRC will quite rightly demand payment of underpaid taxes, interest and penalties (which can be up to 200% of the tax charged where offshore elements exist).

If this doesn't stop the client from getting involved, then I simply advise them that there participation in such a scheme would result in me issuing a disengagement letter as I simply have no wish to be tainted by a clients involvement.

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By Darren Loring
30th Mar 2013 10:45

I am happy for them too seek advice elsewhere

I personally don't agree with these agressive tax 'saving' schemes - I believe people earning those sorts of amounts should be paying a reasonable amount of tax, otherwise the rest of us end up paying their share of the country's expenses for them through higher tax rates - just like we all pay a premium on our insurance policies to pay for fraudulent claims.

I tell my clients that although the schemes may be legal I do not believe they are ethical, if they wish to pursue them they are welcome to seek advice from another tax adviser.

 - I think there are enough potential clients out there that I do not need to be concerned about losing some in this manner.

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By merlyn
30th Mar 2013 17:10

My Accountant said...

My accountant told me recently that he nor his firm believe in agressive tax avoidance schemes and if I wished to use such a thing then I need to look elsewhere for advice.

I hadn't actually even thought of using one, he just mentioned it when it was coming round to year end time.

As Darren said if clients want to use such things then let them seek advice elsewhere, however make it very clear if it all goes wrong you will not be able to help them fix it.

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By Ding Dong
30th Mar 2013 20:05

they never have yet but.........

my answer would be

Good luck!

 

maybe i should add that to my engagement letters

 

 

 

 

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By johngroganjga
03rd Apr 2013 10:26

I would provide all the warnings that others have set out but if client wanted to press ahead regardless I wouldn't disengage provided I was not expected to defend the scheme in the face of an enquiry, which would almost certainly not be the case as in my experience of these schemes the promoters' fees cover dealing with the subsequent enquiry into the scheme.

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By HBTax
03rd Apr 2013 11:03

Problems for years..........

As someone who runs a specialist tax firm, I agree with the comments. I come across this all of the time with our accountancy firm clients who have a client that comes to them with a scheme "that can't fail" in the view of the provider. My advice is clear, I have been involved in trying to defend so many schemes where the provider has taken the clients money and then disappeared. Unfortunately, in these cases the clients are often left high and dry as the costs involved in trying to defend someone else's schemes are prohibitive to say the least. I saw the writing on the wall with schemes years ago and you can certainly guarantee that a scheme will leave the client with a bad taste after years and years of uncertainty. I am yet to meet a client who has been satisfied after entering into an artificial tax scheme of any sort.

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By cliveth
03rd Apr 2013 11:03

Tax Avoidance Schemes

I agree with most of what has been said. I would add that in my experience schemes are marketed on the basis of Counsel's Opinion so the first thing to ask for is a copy of the Opinion and, equally importantly, the Instructions to Counsel on which the opinion is based. Quite often the Opinion is quite narrow and only covers certain aspects of the scheme. If, having pointed out the potential risks, the client still wishes to go ahead, recommend that they put the "tax saving" on deposit until there is certainty that the scheme has worked.

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By DHillside
03rd Apr 2013 11:13

My clients are adults and I treat them as such

I would be prepared to engage with a client on any legal tax strategy but I would always point out the  various risks involved including the high possibility of an enquiry and tax charges that could arise in all eventualities. It is not for me as a professional accountant to selectively moralise on my clients behalf - after all they do pay me to minimise their tax liabilities and plan their company and personal business affairs in a tax efficient and legal manner. My job as I see it is to explain ALL of their legal options, quantify the relative risks of each of those options and let THEM make an informed decision. If I had wanted to preach morals I would have become a Priest rather than an accountant.

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By hiu612
03rd Apr 2013 11:12

Surely better

to give them some sensible questions to ask. If the client wants to do it, that is their choice, but the scheme promoters out there range from the very professional to the downright cowboys, and it would be better for your client to sign up with the former rather than the latter. Good providers will have, for example, detailed engagement letters and other printed material, setting out the risks, expected outcomes if a scheme fails, levels of cover in terms of defending HMRC attacks, and so on.

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By hiu612
03rd Apr 2013 11:12

Surely better

to give them some sensible questions to ask. If the client wants to do it, that is their choice, but the scheme promoters out there range from the very professional to the downright cowboys, and it would be better for your client to sign up with the former rather than the latter. Good providers will have, for example, detailed engagement letters and other printed material, setting out the risks, expected outcomes if a scheme fails, levels of cover in terms of defending HMRC attacks, and so on.

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By liam@adplus
03rd Apr 2013 11:12

Its the clients choice. These schemes are down to risk, along with certain other criteria, its either a hit or a miss.

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By AdShawBPR
03rd Apr 2013 11:39

Ethics and Agents View considerations

A bit simplistic for the promoter to say 'local practitioners' won't follow it.  QC and HMRC - presumably experts in the field - seem to disagree on most of these schemes and ends up being decided by a judge or three - some win, some lose.  Big firms have lost plenty of cases.  QC offers an 'opinion' which is different from being the right and only answer.

The ICAEW have a view about aggressive tax avoidance schemes and remind members to abide by their code of ethics which includes not bringing the profession into disrepute (or words to that effect).  I don't think it's quite as straight forward as setting out the risks and letting clients get on with it, though certainly necessary to do that.

In addition to the above, I'd suggest to clients that these matters can take 7 years or so to resolve and I don't know of any promoters offering a money back guarantee - though you can get the fee insured I think.

Lastly, I wonder how having clients who use such schemes will effect HMRC's dealings with particular agents going forward, especially in the light of their 'agent view'...

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By hiu612
03rd Apr 2013 12:10

AdShawBPR

I completely agree with all of that. In respect of "agent view", i would hope that advisors are not willing to be bullied into changing their working practices just because HMRC don't like what they're doing. If enough people towed that line then things as mundane as dividend payments from H&W companies would be dead in the water, and we'd all have become tax collectors with different names.

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By hiu612
03rd Apr 2013 12:10

AdShawBPR

I completely agree with all of that. In respect of "agent view", i would hope that advisors are not willing to be bullied into changing their working practices just because HMRC don't like what they're doing. If enough people towed that line then things as mundane as dividend payments from H&W companies would be dead in the water, and we'd all have become tax collectors with different names.

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By SueArmstrong
03rd Apr 2013 12:22

Being Informed

I agree with DHillside & HUI612, as a specialist tax advisor we have many working relationships with our accountant introducers and have a varied range of solutions to help limit UK taxes in a legitimate but "specialist way. This does not necessarily mean they are "tax schemes" but the may well defer tax until a later date!

Our advice would always take account of a clients attitude to risk & unfortunately tax planning has become bit tainted with these phrases highjacked for sensationalism, whereas, in reality there are very good opportunities for more sophisticated planning and many accountants won't be aware of these solutions.

There are a lot of "product providers" out there but please don't lump us all into the same boat! I, for one, am interested in a long term relationship with both clients and their advisors - surely there is room for us?

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By moneymanager
03rd Apr 2013 12:27

Evasion is illegal

I have advised many clients on the use of different schemes; sometimes to use them and sometimes to not.

A simple first question is is it defensible? To any right thinking person artifiically inflating the valeu of worthless shares to reclaim charity donation relief is not and neither was 'double dipping' of teh same films.

On the other hand plain vanilla 'Sale and Leaseback' film partnerships generally made sense for the tax deferer (many of my clients are now paying tax back at a higher rate than they deffered), the film industry that got the biz (according to how a qualifying film was defined) and UKGOV who wanted to promote said industry.

None of the foregoing stopped HMRC going hammer and tongs to disaprove elegibility for relief even where it was evident that there was no mucky business going on. And quite right to. The rules were the rules and if a scheme tripped up on its construction HMRC had a duty to collect tax due. That's why  I avoided some promoters like the plague.

 

As to the question? No scheme is a dead cert and if an adviser is asked to comment outside their competence they shouldn't do so. I refer clients all the time. If you want a brain surgeon you don't go a GP (and vice versa).

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By mike01
03rd Apr 2013 12:41

TAX AVOIDANCE-AGENT'S DILEMMA

I have one client who has recently entered what is clearly a quite aggressive scheme but my view on the matter is exactly that expressed earlier by DHillside.I have advised my client that a full-blown tax enquiry is likely but fortunately I will be able to handle same.

What does concern me however is the strong possibility that my practice will be targetted by HMRC as witnessed by the huge response this forum had to the "Dishonest Agent letter" recently posted.The problem we have as agents these days is that we can no longer" second guess" where HMRC are at.The truth is they haven't a clue either but they are deliberately trying to instil a culture of fear in the accountancy profession and any type of tax planning is now seen as being unethical.HMRC do not want accountants - they only want bookkeepers1

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By V.MURALIDHARAN AND ASSOCIATES
16th May 2013 06:06

TAX AVOIDANCE

IT IS A WELLKNOWN FACT THAT NOBODY WANTS TO PART WITH MONEY AND NOBODY

LIKES TO DONATE FOR PUBLIC GOOD. THIS IS EXACTLY WHY THE GOVERNMENT HAS

BROUGHT IN TAX LAWS AND ALSO PUNITIVE PUNISHMENTS SO THAT PEOPLE FALL

INTO THE RIGHT TRACK. THERE IS PLENTY OF MONEY FOR THE NEED OF PEOPLE BUT

NOT ENOUGH FOR THE GREED OF PEOPLE  I KNOW A COW IN A BOOK DOES NOT EAT

GRASS. THIS IS EXACTLY THE REASON WHY PEOPLE TEND TO GO TO DUBIOUS MEANS

LIKE TAX AVOIDANCE. LAWS ARE MADE WITH THE INTENTION THAT THE CROOKS ARE

BROUGHT TO THE  LAW AND PUNISHED.

NOW THE QUESTION IS " ARE THE LAWS ACTING AS DETTERENTS ?"  WHY PEOPLE DON'T LIKE TO DO WAY WITH THIER FOES  BECAUSE THEY KNOW IF THEY ARE CAUGHT THEY WILL BE IMPRISONED OR HANGED. WHY PEOPLE TAKE THE WAY TO AVOID  TAX AVOIDANCE ?  SIMPLY BECAUSE THEY THINK THERE IS A WAY OUT.

WHY DO THEY COME TO TAKE OPINIONS BECAUSE THEY ARE NOT SURE AS TO HOW

TO DO IT AND YET REMAIN  UNPUNISHED. NOW THE QUESTION BEFORE THE TAX PRACTITIONER WILL BE  HOW TO TAKE CARE OF HIS INTERESTS. I WOULD BECOME A PRIEST FOR SOME TIME AND IF THE LANGUAGE IS NOT PALATABLE TO MY

CLIENT  I WILL THINK HOW TO COME SAFE FROM THE PREDICAMENT WITHOUT AFFECTING MY INTERESTS. THE BEST WAY WILL BE TO MAKE HIM FEEL THE RIGOURS OF THE  TAXMAN'S  FISTS AT LEAST ONCE SO THAT HE WILL THINK TWICE

NEXT TIME.  IF YOU WANT TO KEEP YOUR GOOD PRINCIPLES WHAT  ELSE IS OPEN TO YOU. YOU CANNOT EAT THE CAKE AND KEEP IT IN YOUR POCKET.

THANKS FOR READING

 

 

 

 

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