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Accountants can help reduce tax gap

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22nd Sep 2016
Freelance journalist
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Accountants can help reduce the UK’s £34bn “tax gap” by making company accounts clearer, including their clients’ foreign transactions, and educating small and medium-sized enterprises about paying the right amount, the Association of Accounting Technicians (AAT) has said.

SMEs account for £16.5bn of the tax gap − the difference between what HMRC says it should collect in theory and what it actually collects.

Mark Farrar, chief executive of AAT, said that although accountants are already playing an active role in educating and supporting SMEs about the importance of paying the right amount of tax, they can do more.

Accountants can be more vocal about their “ethical stance” on tax, he said.

AAT requires all members to employ only appropriate and responsible use of arrangements to mitigate tax due.

One of the benefits of the recent glut of news stories about tax avoidance is that there is a greater understanding of the public benefits of the tax system, Farrar said.

AAT research of 2,000 UK consumers found that:

  • Seven in ten say consumers said that their purchasing decisions are influenced by a company’s ethical behaviour
  • 43% said that whether a business avoids tax would be an important consideration when deciding whether or not to use its goods or services
  • Consumers also said that transparency about company accounts (36%), a strict ethical code about their supply chain (39%) and being careful with sensitive client data (43%), were also ethical considerations when they were deciding which businesses to buy products or services from
  • And the research also found that consumers were willing to pay more for a product or service provided by a company that was open and treated its employees well

“Having a strong ethical code and not engaging in aggressive tax avoidance can result in increased profits for businesses, as well as a reduction in the tax gap because consumers are displaying an appetite for engaging with companies who are good corporate citizens,” Farrar said.

In 2015, a survey by CIMA found that finance managers were under pressure to compromise their ethical standards.

The main pressures affecting management accountants’ ethical conduct in the UK occurred when they were working with colleagues from different functional areas within the organisation (20%) and when facing reporting deadlines.

“Many finance professionals are facing pressure to condone poor practice of their colleagues or to behave unethically themselves,” said Tanya Barman, CIMA’s head of ethics.

“The report highlights that we are still struggling to work our way through a crisis of culture within business, and we need to maintain our focus. Our study shows that we can no longer afford to think of ethical performance in business as just a compliance issue.”

Replies (8)

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By Tim Vane
22nd Sep 2016 13:50

Um, surely the businesses that engage accountants are the ones who are already likely to be paying the correct tax.

Is it not the majority of businesses that don't have an accountant that make up the bulk of the tax gap? I thought that was HMRC's conclusion and ultimately why they are bringing in MTD?

Not sure that accountants' ethics have much to do with that debate.

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blue sheep
By Nigel Henshaw
23rd Sep 2016 11:15

Have to agree Tim

and I am quite certain that 7 out of 10 people who engage the local plumber to fix the leak dont give a rats [***] whether he pays his taxes correctly or not

"before I decide whether to hire your services or not can you please confirm that your latest accounts are fully transparent"

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By richardterhorst
23rd Sep 2016 11:43

One I believe in paying the tax legally required too. Not a "fair" amount. The right amount of tax is the legally liable amount.

Two, I do not work for HMRC but for my client.

Three, I am very ethical but not PC (I leave that for the lefties)

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By petestar1969
23rd Sep 2016 12:45

Tim

I have dealt with several clients who don't declare everything they earn and know of others who use other accountants.

Clients in the building trade are notorious for doing cash jobs that don't go through the books.

I've done over 100 SAR's reporting clients for such practices but [***] all gets done.

I try and educate my clients as to what they should do but if they are determined to pull a scam its really hard to stop them.

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By Jack Spratt
23rd Sep 2016 12:47

"Accountants can help reduce the “tax gap” by making company accounts clearer, including their clients’ foreign transactions"

Oh yes? Am I supposed to tell my clients to disclose in their accounts all sorts of things that are nor required by law or even recommended by good practice?

And as for "educating small and medium-sized enterprises about paying the right amount" of tax they pay me to work out how much is due and then they pay it.

If "the right amount of tax" is the amount the law requires that is what gets paid.
The problem is that "the right amount of tax" is too often what the law should require but doesn't. See press articles about Apple, Google, Vodaphone, etc, etc etc.

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By gordo
23rd Sep 2016 22:00

I fear the writer has been swayed by the propaganda coming out of HMRC.

The CIOT wrote an article pointing out that according to HMRC's tax gap, fraud and error accounted for six times the amount of alleged tax avoidance. Remember by definition tax avoidance is legal and the figure for tax avoidance produced by HMRC is just a wish list, it's them saying if only the law had been written differently. Bear in mind that HMRC recently changed its published objectives from collecting the right amount of tax to "maximising revenues...", look them up. How would your behaviour change if your objectives were purely to maximise revenues?

HMRC are no longer interested in collecting the right amount of tax. They hire behavioural psychologists with taxpayers money to influence taxpayers behaviour, hoping to encourage them to pay tax that may not be due and hasn't been tested in the Courts. Meantime HMRC pump out APN's that they know to be estimated and unproven, but Debt Collection will press for bankruptcy if the APN is unpaid.

The alleged tax gap of £2.7bn is one 100th of the deficit for the year to March 2015 per the published whole of government accounts which show the loss for one year of £260bn. Which is what percentage of gross tax income? Yes we are up [email protected]#t creek, but to blame tax avoidance is to fall for the propaganda of the Government and their lapdog behavioural psychologists who don't seem to care that their 'nudges' are not being used for good. Did they actually draft this article?

Making Tax Digital is also all about reducing costs and accelerating receipts.

I think the writer has made a real mistake implying that Accountants need to think about THEIR ethics.

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Replying to gordo:
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By twickers
24th Sep 2016 11:08

the writer appears to be naive about tax and the profession
regrettably due to the training received which nowadays is
too loose and too fragmented. All major companies have tax departments/ and sole traders now do their own tax returns ?/

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Replying to gordo:
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By Jack Spratt
25th Sep 2016 10:42

"Making Tax Digital is also all about reducing costs...."

True but is could be better put as "MTD is also about reducing HMRC costs by transferring a large amount of cost to the taxpayer"

Has HMRC said anything about the additional costs (software, time, professional fees) that this will make fall onto taxpayers? And it will be the small businesses that suffer as most larger business will have the systems etc to deal with it.

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