Tax schemes: What do you tell clients?

The recent negative media attention on tax avoidance and tax schemes has changed the landscape for accountants and tax advisers

There are fewer tax schemes around but there remain two distinct stances that accountants tend to take:

  • “If it’s legal then it’s fair game. The government should close the loopholes if they don’t want them exploited.” 
  • “I’m uncomfortable with this concept and will tell my clients it’s not a good idea.”

Some accountants will continue to advise a client who wishes to proceed with a scheme, while others will refuse to have anything to do with what are typically considered to be abusive avoidance schemes.

A few weeks ago I posed a question in AccountingWeb’s ‘any answers’ in preparation for...

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Comments

A good summary...    1 thanks

AndyC555 | | Permalink

A good summary of the position we find ourselves in today as tax advisors.

 

The only thing I'd add is the hypocrisy of those from government & HMRC when they play the morality card.  Have any tax advisors got anywhere when trying to use that as a defence when an inadvertant error costs tax?

 

"Dear Mr TaxMan

My client MEANT to claim this and met all the requirements so can you look at this on moral grounds and overlook the missed time-limit?"

 

What response will you get from HMRC?  "The rules are the rules".

Funny how that is now expected to work only one way.

 

AndyC

 

Another good analysis    1 thanks

HBTax | | Permalink

A very fair analysis of the changing pattern Mark. I have been around tax avoidance schemes in one form or another for many years (mainly helping clients after the event) and the few that I have seen "work" have been on technicalities i.e. HMRC not raising an enquiry in time etc. etc. Another important thing to bear in mind is that of PI. I have been having conversations with large PI brokers recently who have informed me that due to a number of firms (who probably have been suing banks over the PPI saga for the past few years, interesting how you remove one letter to form a completely new business model!) entering the market offering to sue professional accountants and tax advisers for" negligent" advice to their clients when they entered into a tax avoidance scheme and thus many insurers will not want to entertain the idea of offering insurance to such firms even where they are not the "provider" of the scheme. Something to think about.......

raybackler's picture

Brilliant article    1 thanks

raybackler | | Permalink

Mark,

This is an excellent summary of what is a difficult subject to deal with.  I have had a client suggest that we should bring schemes to their attention as part of our job, but I disagree.  I always use a selection of the points in responding and now I have a much fuller list in your article, notably the legal aspect where it can take an awfully long time through the courts with large expense to defend a position.  I also ask for the HMRC Scheme Reference Number and amazingly there are schemes being promoted that do not have this in place.

Ray

It is our duty to tell our clients    1 thanks

boaters | | Permalink

Tax avoidance strategies are legal..even if it is for many thousands of pounds!

Putting a private taxi receipt through the business is evasion! 

It is our duty to make our clients aware of planning opportunities providing we have acted professionally in doing our due diligence on the providers. Also we do not sell the opportunity but rather we inform and educate the client, let them understand the risks and make their own decisions. We do not advise them to do the scheme or tell them it will work. 

Of course as individuals we have to take a view and draw our own lines but i do not think the public are at all influenced by the rhetoric in the media. My experience is the public object to the ability of multi-nationals diverting profits elsewhere to an individual reducing their tax liability via legal methods.

 

Tax avoidance    2 thanks

Carl B | | Permalink

No-one can really object to a higher rate tax payer getting back 40p from the loss of £1.  The perceived problem with many schemes is that they create a loss where one does not really exist.  Typically this requires some clever financing to inflate the costs on which relief is claimed.  If you spend your £1 and "borrow" a further £4 then you hope for £2 in tax relief on the £5 total.  HMRC understandably objects to the additional £4 finding it's way back to the investing taxpayer and, as advisers, can we really support and/or promote this kind of fiction?  If we can, then there is no moral dilemma.  If not, then Mark is right to suggest the possibility of disengagement from the client.  I personally think the days of "try it and see if we get away with it" are long gone, so we are left with some hard choices!

Tax morality

Tomazaan | | Permalink

I do not understand how a department that brought the case of Pepper v Hart can claim to have the moral high ground where tax is concerned.  They should hang their heads in shame over that one.

 

GAAR    1 thanks

michaelblake | | Permalink

I would also add that all practitioners advising clients who are contemplating the use of avoidance schemes now need to read and understand the 160 pages or so of HMRC's GAAR Guidance issued recently. See link at  

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

I spent a very instructive two hours or so reading it on a train to London yesterday. For those who cannot find the time (and if you are advising clients on tax matters you must find the time if you are not to be in breach of your PI policy and your institutes rules to keep abreast of professional developments) the following brief extract from paragraphs B2.2 and B2.3 will be instructive:

 

No man in this country is under the smallest obligation, moral or other, so as to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the taxing statutes for the purpose of depleting the taxpayer’s pocket. And the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.” 

B2.3The last quote from the judgment of Lord Clyde in the Ayrshire Pullman case epitomises the approach which Parliament has rejected in enacting the GAAR legislation. Taxation is not to be treated as a game where taxpayers can indulge in any ingenious scheme in order to eliminate or reduce their tax liability.  

 

Bothered...    4 thanks

John Snowden | | Permalink

While not being one particularly to favour of aggressive tax planning, I find myself bothered by the political, popular, media-driven and now GAAR-related demands for an ethical overlay to the tax code as far as taxpayers are concerned, to be contrasted all too often by literal and self-serving interpretations of the code by HMRC as well as often misleading headlining of budget proposals by chancellors. I am thinking here of such things as 'tainted taper' as it existed during the Brown chancellorship and the current disallowance of any capital gains tax relief on EIS shares if it so happens that income tax relief could not be claimed with any effect; not to mention rigorous application of deadlines by HMRC. It seems to me that this imbalance is plain wrong, and entirely impractical. The only lasting solution would be a radical simplification of the tax code, which is vanishingly unlikely while it is controlled in a world of democracy and the adversarial system. To which regard, I am also very bothered by the behaviour most particularly of Margaret Hodge and by the extent to which she (and others I can think of) have drawn the attention of our gullible and lazy media.

Follow the law    1 thanks

VIOLA26 | | Permalink

The correct application tax law (as any other law) should be tested in a Court of Law and not in the Court of Public Opinion.  The integrity of our legal system depends upon that basic premise.  It is outrageous for MPs to preach morality given the expenses scandal. 

The Government can change the law if its correct application proves not to work out as it had intended; indeed the new GAAR is an attempt to stem the flow of new schemes.  It might do the trick; or it might not in which case further provisions may be needed. 

There are often injustices in law, family law is littered with disgrunted ex-spouses in what the UK family law system has been defined as a Gold-Diggers Charter.  Similarly there are injustuices  in tax law - the power of democracy is that laws can be changed. 

As a tax advisor, we are to advise on what the law is and our view on its interpretation, the risks of it being held to apply differently, potentially giving a client an adverse outcome etc..  Our moral view on tax avoidance and schemes is irrelevant; our clients are entitled to(and pay handsomely for) balanced advice based upon the law without bias.

 

 

Tom 7000's picture

My view    1 thanks

Tom 7000 | | Permalink

Revenue and PBT are sufficiently high enough dealing with simple compliance work. Why stress yourself out.  If anyone asks about these schemes I give them the link to PWCs website. I am sure they may be able to assist..etc etc... 

 

I am neither for nor against them, I just think  its just more trouble than its worth, my engagement letter says I'll fill your return in....so thats what I do

 

I guess its because Im just a simple northern lad...

.

Clients..

Ian McTernan CTA | | Permalink

With the exception of stamp duty on property transactions (I am a firm believer that the SELLER should be the one to pay it, NOT the buyer who is struggling to raise the deposit and then has to find even more money), where I will point clients in the direction of scheme providers, my clients don't use any of these schemes.  That's mainly because the majority of my clients just don't earn enough to be worthwhile for the scheme providers.

On the occasions I have forwarded people to the schemes, they generally come away feeling the scheme is more to benefit the provider with enormous fees rather than to benefit the client- the charges on a lot of the schemes are huge (I know, to cover the cost of coming up with it, blah blah- never mind the yacht and mansion).

I will always consider any schemes and make clients aware of them if they fit the criteria, as that is our duty, and then leave them to make their own choice.

From the tone of your post

VIOLA26 | | Permalink

From the tone of your post and the mention of yacht / mansion, duty fuelled with the required dosage of "green eyed"  bias no doubt.  

Can't imagine that this case will get much press coverage!

bggoose1 | | Permalink

The sad case of an accountant who was subject to a professional negligence claim for not advising on a tax avoidance scheme. He lost!!

Mehjoo v Harben Barker (A Firm) & Anor [2013] EWHC 1500 (QB) (05 June 2013)

What are we supposed to do?  If you advise on tax avoidance you are running the risk of being looked upon as acting in a morally repugnant manner but failing to inform a client of a tax avoidance technique seems to leave you open to a negligence claim.  Damned if you do, damned if you don't!

Press coverage

John Snowden | | Permalink

I saw this in Thursday's Times on page 3, as a matter of fact, and it was not a three-liner either. I gather Harben Barker is to appeal.

bookmarklee's picture

bggoose1 - Don't believe the headlines!

bookmarklee | | Permalink

I have now reviewed the Mehjoo professional negligence case and conclude that summary reports thereof are misleading in the extreme. 

The reason the accountants were found to be negligent was because they failed to recognise that they didn't have sufficient in-house expertise to advise a non-dom client. What they judge actually said was they should have referred him to an expert.

I have just written an article for accountingweb that explains the situation in more detail. I hope it will be posted online in the next day or so.

Mark