MPs to scrutinise 'tax abuse' accountants

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The tax profession’s role in aiding tax avoidance and evasion will come under scrutiny after the Treasury sub-committee launched an inquiry into tax avoidance and evasion.

As the boundary between what is acceptable and unacceptable tax planning attracts increasing public attention, the Treasury sub-committee will hold to account those who design and sell such schemes, as well as investigate what has been done to reduce the amount of tax lost to avoidance and offshore evasion.

Announcing the inquiry the chair of the Treasury sub-committee MP John Mann made no bones about putting accountants who facilitate these schemes under the spotlight.

“We’ll be pressing those who seek out loopholes to get out of paying tax and the organisations that help them to give answers to Parliament about the revenue that we are all losing out on,” he said. “We’ll be holding all those involved to account to make sure that no one — however wealthy — can dodge paying the tax they owe.”

HMRC’s approach to evasion and avoidance will also be examined; in particular, the inquiry will explore whether HMRC has the resources and powers to curb aggressive tax schemes and review the tax gap.

‘Tax abuse is a public concern’

As tax havens remain headline news, with cases like the Panama Papers revelations attracting criticism from MPs and the media alike, the inquiry wants to identify any shift in avoidance and evasion since 2010, what progress HMRC has made in preventing non-compliance and the role the UK’s Crown dependencies and overseas territories play.

Mann added: “Tax avoidance and evasion remain matters of serious public concern. HMRC has been given additional funds in recent years to address the issue, yet the tax gap for avoidance and evasion is still billions of pounds.

“The sub-committee will look into how well HMRC has used these additional funds to close the tax gap, whether its strategy to reduce avoidance and offshore evasion has worked, and whether HMRC’s resources are sufficient.”

The tax abuse hearings are part of three tax inquiries announced: the Treasury will examine the burden of VAT and HMRC’s “sweetheart deals” will come under question when the sub-committee explores the conduct of tax enquiries and the resolution of tax disputes.    

PCRT governs the tripartite relationship

The public’s frustration towards aggressive tax avoidance prompted the shadow chancellor to suggest that large firms should take a Hippocratic Oath. Echoing ICAEW’s chief executive Michael Izza’s response to John McDonnell, the CIOT’s John Cullinane highlighted in his response to the parliamentary reviews how the Professional Conduct in Relation to Taxation (PCRT)  governs the conduct of tax professionals.

“We believe the PCRT Standards for Tax Planning make it clear to any of the small minority of tax professionals who are tempted to facilitate and promote tax avoidance schemes that this behaviour is not acceptable,” said Cullinane.

HMRC endorsed the PCRT as an acceptable basis for dealings between members of the bodies and the tax department and used it as a guideline to constructing the Standards for Agents.

Perception trickles down

ICPA chair Tony Margaritelli is hopeful that the inquiry will change the perception of an accountant, especially for smaller firms.  

“When tax avoidance and evasion gets on the front pages it does repeat the perception of the accountant as someone who facilitates certain people to not pay their taxes. That is what percolates down,” he told AccountingWEB.

“I don't know who is responsible but we look to our leaders, they've got a higher duty of care because they are the Big Four, and they need to explain what was their logic and their thinking behind what they did or they didn't do in this respect.”

But there is another side to this story that Margaritelli doesn’t want lost in the furore over high-value individuals not paying tax. “HMRC has been cracking down on small and micro businesses all the time, harder and harder as they seek to close this supposed tax gap. And that's not been picking up the coverage that it should be,” he said.  

Have your say

The Treasury is now seeking evidence. The deadline for written submissions is Thursday 31 May 2018. You can make a written submission here.

About Richard Hattersley

Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.

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29th Mar 2018 10:49

These MPs frankly don't have the intelligence or expertise to properly question these tax accountants (usually Big 4 types). I saw them questioning one Big 4 head of tax bloke and the MP clearly understood next to nothing about how international VAT/tax works. Even worse, Lin Homer kept describing "permanent establishments" as "permanent residence" about 10 times when she was questioned (I could see her colleague Jim Harra look quite embarrassed about that).

Then again, how can they be expected to know anything when tax law is so ridiculously complicated (which is the main cause of the problem i.e. it's mostly the MPs' own fault in creating such a confusing, opaque and illogical tax system (that allows such abusive tax planning) in the 1st place).

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By DJKL
to Justin Bryant
29th Mar 2018 11:12

I do not really blame our elected representatives, we have a tax system that has evolved from a time when international aspects to trade were much simpler.

What IMHO is needed is a complete reappraisal of how tax on income is to be levied in the 21st century and because of international aspects no country is an island re such changes, we likely need a complete rewrite of international tax rules rather than the current approach of piecemeal sticking plasters over gaping wounds.

Whilst I am no great exponent of tax, and certainly not of international tax, it appears to me that the key change needed is to bring transactions into the charge to tax based on location of the customer (which itself can be difficult to pinpoint) and to seriously consider whether taxing transactions rather than profits would actually be more sensible in the world as it is today. (In effect son of VAT)

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to DJKL
29th Mar 2018 11:29

They can certainly be blamed for making it ever more ridiculously complicated, confusing and unfair (they do not even properly review, let alone understand each year's Finance Bill), and when has UK taxation ever become simpler in any year? Never is the answer (I think it was last year when even HMRC's computers could not calculate people's income tax bills correctly due to the increasing complexity).

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29th Mar 2018 20:33

Surely it's the civil servants employed at the Treasury who make the detailed rules and inscribe the principles in law and statute.
The Politicians are more well versed in accounting irregularities, tax avoidance goings on and tax implications and principles than you think.
I have corresponded with the Rt.Honourable Margaret Hodge M.P
Who has recently been giving HMRC executives a grilling on their poor performance in collecting the due quantum of tax. I personally have witnessed a few millions of pounds lost in tax to fraud in my capacity as in house accountant and finance controller posts. In 1997 I was main witness for the HMRC at a well known Crown Court and I assisted them gaining £400000 plus interest . The penalty was 18 months jail. My reward was £24000

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03rd Apr 2018 19:59

I'd rather hope the committee would question the role of the parliamentarians who continue to make tax ever more complex with changes at every budget without looking at reappraising the whole system or even at the simplifications that the OTS has proposed. It is no wonder there are so many loopholes that can be exploited and the solution is in their hands: they write the law.

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04th Apr 2018 13:09

OK, yes but one reason the law gets more complicated year on year is to combat the ever increasing skill of those looking for loopholes in the law. Face it, things are just going to get more and more complicated. The legislators and the avoidance guys feed off each other. A massive reset on a quite different basis might seem a good idea but will never get off the ground for reasons that have been gone over many times. The beneficiaries keep quiet and the losers moan like hell.

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By ShayaG
to I J Lessels
09th Apr 2018 13:43

GAAR sorted that out. Aggressive loophole exploitation is no longer a viable.

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to ShayaG
17th Apr 2018 12:24

How sure are you of this? I don't think it has actually been taken out of the cupboard very much. Maybe because HMRC suspects that it may be challenged in the Courts and its test (that an arrangement entered into "cannot reasonably be regarded as a reasonable course of action") might prove to be of no legal worth.
Also, a panel drawn from the tax profession has also to give its consent to HMRC using it before it can be used to challenge a taxpayer. Are those the people you would pick for that task?

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09th Apr 2018 10:05

It's well known in economics that low taxation boosts the economy (and boosts long term tax revenues) and vice-versa … it's also well known that as tax rates lower so does avoidance and evasion. According to the Adam Smith Institute the effective (real) rate of UK tax in 2017 was 44.65% (including indirect taxes and duties)

This is a ridiculously excessive rate that both encourages people to seek a fair rate (avoidance) and damages the economy. If the politicians really want to get rid of avoidance and to help remove poverty then they should start reducing tax rather than demonising those people who take steps to lower their excessive tax bills

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By chatman
to lesrobinson
09th Apr 2018 12:35

lesrobinson wrote:

It's well known in economics that low taxation boosts the economy (and boosts long term tax revenues) and vice-versa

Have you got any evidence to support that claim?

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By DJKL
to chatman
09th Apr 2018 17:17

Presume it is a reference to the Laffer Curve though "low" taxation is likely a misnomer, it is more that there is expected to be a sweet spot.

The catch with phrases like low and high with taxation is that like beauty, they tend to be in the eye of the beholder.

I prefer to consider tax in the light of VFM, this often tends to the conclusion that all tax is too high as frankly vast swathes of it regularly is wasted by parties of all hues reinforcing their doctrines by chop change policies rather than policies for the long haul.

There is a reason say Germany is economically relatively successful,the complexion of its politics tends to involve compromise so that major policy ideas are run for the longer term- the problem with the UK is short term thinking, and our electoral system is part of that problem. (How many education initiatives or NHS structures have we tried since say 1990?)

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By chatman
to DJKL
09th Apr 2018 17:45

DJKL wrote:

Presume it is a reference to the Laffer Curve though "low" taxation is likely a misnomer


Exactly: a total misreading of the Laffer curve.
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to chatman
17th Apr 2018 12:29

Funny how Laffer Curve enthusiasts always reckon the tax rate needs to come down. Has anyone ever seen a Lafferist argue that a tax rate should go up?
Anyway, I think the evidence is that tax rates are too low
In their paper entitled 'Top marginal taxation and economic growth' Santo Milasi and Robert J. Waldmann argue that there is a positive correlation between high rates of economic growth and high marginal top rates of tax. In their opinion:
The [estimates] suggest that the marginal effect of higher top tax rates becomes negative above a growth-maximizing tax rate in the order of 60%.

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09th Apr 2018 11:48

Methinks the focus is wrong. I recently heard from a tax lecturer that less than 2% of the so-called "tax gap" is down to offshore avoidance. About half of the rest is down to fraud, mostly by small businesses (cash jobs) and the remainder is down to errors made by small businesses.

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