The recent negative media attention on tax avoidance and tax schemes has changed the landscape for accountants and tax advisers.
There are fewer tax schemes around but there remain two distinct stances that accountants tend to take:
- “If it’s legal then it’s fair game. The government should close the loopholes if they don’t want them exploited.”
- “I’m uncomfortable with this concept and will tell my clients it’s not a good idea.”
Some accountants will continue to advise a client who wishes to proceed with a scheme, while others will refuse to have anything to do with what are typically considered to be abusive avoidance schemes.
A few weeks ago I posed a question in AccountingWeb’s ‘any answers’ in preparation for this article.
When a client has heard of a tax scheme that they have been told is perfectly legal, has the blessing of tax counsel and that the promoters have never lost a case in court, what do you say to add a dose of reality?
The challenge is that you want to convey your own understanding of the risks and downsides as well as your commercial and positive advice. Can you do both at once without losing the client or having them succumb to the promoter's sales patter?
This typically includes words to the effect that: "your accountant probably won't understand this, as it's quite sophisticated and not the sort of thing that simple local practitioners can follow".
You probably have better things to do than to look into the fine detail of every scheme that comes along, even if you do have a few clients who are prepared to be risk-takers
So, how do you do it? What do you say?
Most of the responses came from accountants who are uncomfortable with the concept of such schemes.
A couple of specialist tax advisers defended the concept of playing the ‘game’ and one accountant expressed concern that his practice may be targeted by HMRC because a client had, against his advice, entered “what is clearly a quite aggressive scheme”.
The number of comments from ‘uncomfortable’ accountants suggests a huge shift in attitudes over the last few years.
When I was last in practice in the earlier part of this century, I was frequently asked to provide an independent view of tax schemes.
Even then I was frequently doubtful as to assurances provided by the promoters. There were often disturbing gaps between the instructions to counsel and the opinions being paraded to prove the scheme was legal.
I was also concerned that court decisions suggested the future outcome of then current schemes was less certain than ever before. I had been closely involved in decisions around the introduction of the Disclosure of Tax Avoidance Schemes (DOTAS) legislation and regulations.
I don’t recall ever confirming that a scheme was likely to prove successful. I stressed the risks, the consequences, the costs and the downsides and as a result I doubt that anyone who approached me went ahead with the schemes that had been punted to them.
They left disappointed but content with their decision. The time it took to review, understand and explain my conclusions of such schemes was probably uneconomic.
This is why I have long maintained that there is no obligation on accountants to investigate new schemes; it’s not a good use of time unless someone is paying for it.
Some of the schemes back then emanated from Big Four firms. Most though came from niche tax practices or were being pushed by financial advisers. Typically such advisers were great at sales but did not really understand the tax system. I suspect such advisers still exist today.
Other discussion threads on AccountingWEB, such as this one, reveal that there are also some accountants who are happy to “help our clients to be tax efficient, using any legal means available”. Some of the comments though suggest a degree of naivety, for example: “if these schemes are legal, why doesn’t the Government shut them down?”
The point often overlooked is that there is a difference between the legal right to try to reduce one’s tax liability, within the law, and the likely outcome of such efforts.
It may be legal to take part in an avoidance scheme, but that doesn’t mean the scheme will be effective. The effectiveness of a scheme will not be known with certainty for between five and 10 years, or longer. Anyone suggesting otherwise either doesn’t understand our tax system or is deliberately trying to deceive.
We are all aware of the double standards that apply when anyone references morals in the context of tax avoidance. It’s wrong for big companies and for rich people but ok for everyone else to find legal ways to pay less tax. It's also okay to evade tax by not disclosing cash in hand receipts or by claiming personal expenditure as deductions from business income or to falsify business, or MP’s, expense claims.
Really? Sadly we cannot challenge everyone who moralises about tax avoidance about their own tax affairs.
What we cannot ignore is the potential reputational damage being caused to our profession by the media attention that is now shifting towards demonising the ‘clever' accountants. We are being maligned by reference to tax schemes that 'we' devised and for helping clients claim tax reliefs, i.e. the patent box regime.
It’s a travesty of the truth given the way that most accountants have done nothing dodgy or underhand. I recommend this thread started by Rebecca Benneyworth last year for a full discussion on the topic.
Returning to the topic of this article, here is a summary of the comments from the any answers thread on which I asked my question:
- Check out the list of ‘tax planning to be wary of’ on the spotlights page of HMRC’s website
- Ensure clients who want to proceed understand that they will be challenged by HMRC and all of the schemes customers will be subject to specific and detailed investigation. Participation in such a scheme would identify my client as someone "prepared to be involved in abusive tax avoidance or possibly tax evasion" and therefore at higher risk.
- It will be years of stress and hassle as well as professional fees related to answering HMRC questions. All of this may or may not be covered by any tax investigation insurance.
- If the scheme is found to be fraudulent, evasion or fails then HMRC will demand payment of underpaid taxes, interest and penalties, which can be up to 200% of tax charged where offshore elements exist.
- If a client participates in such a scheme I would issue a disengagement letter as I have no wish to be tainted by a clients involvement.
- Although schemes may be legal I do not believe they are ethical, if clients wish to pursue them they are welcome to seek advice from another tax adviser.
- I have been involved in trying to defend so many schemes where the provider has taken the client’s money and then disappeared.
- Clients are often left high and dry as the costs involved in trying to defend someone else's schemes are prohibitive to say the least.
- It is not for me as a professional accountant to selectively moralise on my clients behalf, after all they do pay me to minimise their tax liabilities and plan their company and personal business affairs in a tax efficient and legal manner
- The scheme promoters out there range from very professional to the downright cowboys.
What would you say?
Mark Lee is consultant practice editor of AccountingWEB and writes the BookMarkLee blog. This is for accountants who want to stand out and be more successful in practice, online and in life. He is also Chairman of the Tax Advice Network of independent tax experts.
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