Tax avoidance 2019 style
The Imprudent Accountant examines the latest tax dodge to hit the headlines: selling invoices at a knock-down price to reduce VAT burdens and business profits.
These days, I seem to get most of my best tax avoidance ideas from broadcast media. On Saturday, in a story briefly inserted between what felt like dozens of conversations with politicians talking about the latest way to sabotage a smooth exit from Europe, there was a short, sharp investigative piece regarding a sophisticated new tax avoidance scheme.
This involved a clandestine interview with a gentleman offering a solution that he seemed confident was pretty much guaranteed to beat the depleted forces of HMRC.
I thought that I had heard it all but this one was new to me. Rather than merely inventing expenses, which none of our clients would ever dream of doing but everyone else’s seem to manage on a regular basis if what he says anything to go by, the promoter had a much simpler and more credible plan.
He attempted to sell the reporter £10,000 worth of absolutely legitimate purchase invoices for a mere £800.
As we were to learn, these could be doubly beneficial because not only would they reduce the purchaser’s VAT burden but they could also be offset against business profits.
Ignoring obvious questions such as where this gentleman (please forgive me but this is apparently not yet a gender-neutral trade) had managed to acquire the invoices, this latest scam raises many other important issues.
Whenever I express doubts about the validity of tax avoidance arrangements, there is always a group of readers who will attack me and point out that tax avoidance is legitimate. I wonder whether any of them would like to suggest that this arrangement is acceptable?
Is it that different from putting through an expense claim for dinner with friends on the basis that it helps to relax someone and make them more efficient, thereby increasing profits? None of us would ever do that but I’ll bet that some of our clients have considered such an approach.
Changing tack, now that every reader of this column (and BBC junkies) is aware of this technique, is it incumbent on accountants to interrogate clients in order to satisfy themselves that the accounts which they submit to HMRC are complete, correct and valid.
Would it be a concern if you (or HMRC) discovered that accounts and tax returns submitted under the imprimatur of your firm were fraudulent? The answer should realistically be “yes” but what are you doing to ensure that this is not the case?
These days, accountants also have obligations to notify the authorities if they have a suspicion that any untoward activities are going on. Once again, I fear that not all of us are quite as diligent as we might be in this respect and, if push came to shove, might well struggle to defend ourselves against accusations that we had, at least to a degree, knowingly witnessed dubious potentially criminal activity from which our clients or other associates benefited without making the obligatory reports.
At the moment, we live in an increasingly chaotic world and have far too much red tape to fight our way through, ignoring any headaches that are wonderful parliamentarians throw in our direction.
Even so, perhaps it is time to tighten up procedures with regard to certain “tax avoidance” arrangements, particularly those that might be regarded by the authorities as abusive if only to ensure that we can sleep soundly at night.