Is simple best when it comes to tax planning?

I have been writing along similar lines on the TaxBuzz blog for some time about how many promoters attempt to bully accountants into the promotion of aggressive structured tax avoidance schemes. There have been articles on AccountingWeb too in which accountants are warned that they risk negligence claims if they fail to notify clients of these aggressive avoidance schemes.  I have a different view.

In my view accountants are not obligated to find out about such schemes and to then ensure that their clients are made aware of them. My rationale is quite simple (and seems to strike a chord with many who read my articles and blog posts on the subject):

Most professionally qualified accountants are precluded from advising clients on tax matters they do not understand (see para 2.15 of the Guide to Professional Conduct in Relation to Taxation - jointly published by CIOT, ICAEW, ICAS, ACCA, ATT and IIT).

So accountants who intend to promote such schemes to their clients have to first invest time and effort to ensure that they have a sufficient understanding of what is involved - recognising that they are unlikely to fully understand all of the technical issues. This takes time that could otherwise be deployed generating fees through advice and work that clients will pay for. The time spent learning about schemes and promoting them is only normally paid for if the client proceeds. Experience suggests that once fully appraised of all relevant risks only about 1 in 10 clients choose to proceed. Such a low success rate demands a heavy investment of time by the accountant. No wonder so few are keen to actively promote such schemes.

The alternative approach is to resist the approaches by purveyors of aggressive tax avoidance schemes. I tend to think that most accountants know their clients well enough to know that few would want to proceed if they were  aware of the downsides. And of course it would be negligent to encouarge a client to consider such a scheme without first taking them through all of the associated risks and uncertainties.

Mark Lee

Profit-related pay was an example. There are numerous others. The most egregious example was when exchanges of land were brought into Stamp Duty as regards both legs. Mr Nelson for the government announced in Parliament how to ensure that only one leg was caught: by selling Greenacre for a consideration comprising cash equality money plus Blueacre. The transfer of Greenacre was stamped ad valorem on the cash alone and the transfer of Blueacre at 50 pence. Under SDLT both legs are taxed. So avoidance is OK when promoted by the Government. The intellectual dishonesty of this ambivalence makes me puke.

And I have never advised anyone to do anything that relied on HMRC not seeing all cards face up on the table. No, not even in pre-Ramsay days. What goes on a tax return is a complete HMRC monopoly. If they prescribed something outside their powers in theory only judicial review could overturn it. In nearly all cases it will be easier to comply. I fail to see why any one would advocate in general the routine provision of information not actually requested.

Under self-assessment there has grown up the rather dubious practice of making white space disclosures not intended to help the taxpayer by helping HMRC but to preclude HMRC from enquiring after the window closes though low-key enough not to attract attention.  In a world where HMRC refuses to give advance clearance for a host of matters but will do so on others I am not completely unsympathetic. For example you can obtain a marvellous service from the Small Companies Enterprise Centre about whether a company will be a qualifying company for EIS relief but not on other aspects and share valuations are excluded from all types of advance clearance. Unless you are setting up an EMI share incentive scheme. So set one up to find out!

An obsession with sin may be a legacy of Catholicism but we have never lacked for advance rulings of what sin was. Now we are moving towards a tax system where evasion and avoidance are merged into a metaphysical concept not unlike sin and presided over by the saintly Hartnett (a cross between Cardinal Newman and Uriah Heap) whose minions often decline to confirm in advance whether something is a sin or not.