What the government isn’t telling accountants about their tax policy
Mike Warburton, a speaker at this year’s IRIS World 2010 conference for accountancy practices, offers his views on the government’s plans for tackling tax evasion and what the reforms will mean for the accounting community.
As a tax director who specialises in providing advice to a range of high net worth entrepreneurial clients and frequently appears in court on forensic tax litigation assignments, one would expect Mike Warburton to revel in the complexities of tax law – after all, without it, he wouldn’t have much of a job! This couldn’t be further from the truth, however, as the Grant Thornton director is passionately opposed to over complex legislation and supports the government’s new Office of Tax Simplification. Despite this, he’s not quite so keen on their latest plans for tackling tax evasion and avoidance, as he explained to us this week.
Q: What’s your opinion of the government’s renewed focus on tax simplification?
Mike: There is (quite rightly) a big change going on at the moment concerning how tax policy is set. Accountants see the end result of this legislation but don’t always get to see how it’s arrived at, and I think it’s important for accountants to know what happens behind closed doors in terms of the way policy is arrived at. Tax legislation has become far too complicated and it needs to be simplified. The Office of Tax Simplification is a step in the right direction and John Whiting, who has been appointed to head it up, is the right man for the job.
Q: What’s your opinion of the government’s new £900m plan to tackle evasion and avoidance? Do you think they will recover the £7bn a year by 2015 they are projecting?
Mike: Every government says they’re going to tackle avoidance and every government should tackle evasion because that’s illegal and there’s absolutely no justification for it. The previous government did a good job of tackling avoidance with their disclosure regime. However, I’m a bit sceptical about whether there is an additional £7bn a year to be found – I don’t think that scale of tax avoidance is going on. It’s a wild overestimate of the actual situation.
Q: Does HMRC have the resources to recover the projected amount of tax being lost through evasion and avoidance?
Mike: Pressure from the Treasury will see cuts in expenditure at HMRC along with other departments, but HMRC is already stretched and could encounter difficulties with the extra burdens being placed upon them.
The root problem is that successive governments have created a tax system that is too complicated. The volume of tax legislation doubled under the previous government and that’s a big legacy to live with. HMRC and accountants are having to cope with this.
Q: Many commentators in the accounting and business communities have complained about the conflation of evasion with avoidance. Do you see this as a problem?
Mike: Evasion and avoidance are two entirely different things: One is legal and one is not. The last government said there was ‘acceptable avoidance’ and ‘unacceptable avoidance’ and then used this idea of ‘unacceptable avoidance’ to treat avoidance and evasion as if they were one and the same, but they’re not.
However, it’s important to be sensitive about the current situation. At the moment, there are massive cuts going on, people in the public sector are losing their jobs, VAT is going up and so I can well understand how politically sensitive this subject is. There is a moral argument for people who – albeit legally – take steps to avoid their taxes to be questioned about this and of course the government is entitled to change the law if there is evidence this is going on. The ‘catch me if you can’ sentiment is not good message for tax advisers and firms to putting out – after all, we are responsible citizens like everybody else. However, the scale of it is being completely overstated and it’s not going on in the way that’s been suggested. I don’t recognise those numbers at all.
Q: We are likely to see lots of reform over the next 12 months as the new government beds in – what should accountants be preparing their clients for?
Mike: As well as amendments to specific tax legislation such as entrepreneur’s relief and capital gains, accountants should be aware that tax litigation against accountants is increasing. This always happens after a recession, and as tax legislation has become more complex, clients have grown increasingly litigious and lawyers have been keen assist in such areas, the number of cases has increased. In my talk, I’ll be flagging up a few warning signs to show how easy it is for accountants to finish up on the wrong side of a court case, based on my experience as an expert witness.
One common theme in this area is the use of emails. Many accountants are not aware of the increased risk this type of communication presents, so in my talk I’ll be offering tips on how to handle communications with clients so as not to expose yourself to risk.
Mike Warburton is speaking at IRIS World 2010, a series of events for accountancy practices offering an insight into the latest trends and issues affecting businesses today. The one-day programme will be taking place in London on 5 October, Birmingham on 14 October, Leeds on 19 October and Glasgow on 20 October. To find out more about the event and reserve your ticket, visit www.irisnews.co.uk/irisworld/index.php