Stuart Jones posted a comment on my piece called 'Do small businesses evade tax?'. He said:
I'm sorry Richard but there are limits:
" ‚Ķ‚Ķthe profession is a key supplier of services that at least assist taxation abuse and that greed is the motivator ‚Ķ".
I assume by "the profession" you mean qualified accountants ie the majority will be ACCA & ICAEW.
Most of that group are decent law-abiding people. If anything they don't do enough to minimse their clients' liabilities! It is the businesses which commit the crime by not declaring the income not the accountants.
Your views are becoming less and less objective by the day.
I could have posted the reply in the comments section, but I'm aware that these are less well read, so offer it here instead:
Stuart
I simply disagree with you. I wholly stand by my assertion, because it is objective.
I could of course mention the words Enron, Andersen, KPMG and so on. I don't need to though. The argument is based on much more widespread evidence, and in this case you supply some yourself.
First of all I am not accusing 'professional' accountants (and it does not really matter to me of which institute they are a member) of breaking the law. What I am saying is that whilst these people think that it is their duty to minimise their client's tax liabilities by whatever means possible they will remain dedicated to tax avoidance, which I consider abusive. The reason is simple. You cannot ethically seek to avoid an obligation imposed by law. This is where we disagree. There are several reasons:
1) By encouraging avoidance accountants expose their clients to the risk that they will evade tax. This is inevitable because no one knows where the dividing line between avoidance and evasion is.
2) By concentrating on the question of avoidance accountants are ignoring the bigger picture which their ethical guidelines do impose upon them. This is to ensure that their client's tax return is as far as they can determine correct. But you, I note pass the responsibility for this to the client. I accept that legally this is so. But ethically the accountant has a duty not to be associated with such returns. That buck passing is not therefore allowed under the ethical rules of the professional institutes.
3) The accounting profession is wrong to think that (and here I quote Dennis Howlett) 'The hard fact is professional accountants are not in business to dispense, arbitrate or take decisions based upon social conscience.' Sorry, but that's exactly what they are required to do. They get their professional status under a charter granted by society which allows them to effectively charge a premium to operate. That charter requires them to operate ethically. Abusing the society which gives them the charter by promoting tax avoidance is not ethical conduct. I'd go further. I call it unethical. I call it tax abuse. And I suggest that the accountants that do it are motivated by greed.
I know what accountants will say. It is that tax avoidance is legal. And my answer is 'So what?' So are a lot of things that people take ethical exception to. The law and ethics are not the same. Accountants have a duty to be ethical which requires them to operate at a level higher than that imposed by law. Only when accountants promote tax compliance and seek in doing their work to ensure that clients pay the right amount of tax (and no more) at the right time in the right place will they reclaim the right to be considered both ethical and a profession. We might then see a significant fall in the number of returns which do include evasion, because right now the prevailing attitude of accountants simply does not encourage them to look for this. That is wrong. They should.
So, sorry Stuart. I'm not losing my objectivity. I just refuse to accept that the perversion called tax avoidance should dominate my thinking as an accountant. I genuinely think the time will come when this will no longer be the case generally. But it looks like there's a long way to go.
Richard
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Richard we still disagree. Tax avoidance is legal, tax evasion is illegal.
Tax avoidance does not “seek to avoid an obligation imposed by law” it works within the law to minimise tax liabilities.
I am aware that my views may be old-fashioned and not politically correct but I do not condone tax evasion of any sort, be it complex tax schemes or not declaring income. I do, however, believe that ONE of my duties is to minimise my clients tax liabilities within the law (normally I wouldn’t add the last three words as I regard them unnecessary because I would NEVER minimise the tax liabilities outside the law).
One interesting aspect to this is that one of the people who is currently telling everyone that they ought to be paying the “right amount of tax” (whatever that means) is a proven tax EVADER.
I speak here of (Red) Dawn Primarolo, who refused to pay her (lawfully demanded) community charge. Unless of course, you take the view that it is lawful to not pay a tax that is “iniquitous”.
Comments on a postcard to HM Treasury.
Richard,
As you know I firmly believe that the UK tax system is too complex and the best way to deal with ‘avoidance’ is to simplify it, however, this government has made it more complex, so I have to assume on some level they are happy to encourage ‘avoidance’.
What you talk about though is actually bordering on a ‘police state’, if a client wants to arrange their affairs in the most tax efficient way, why shouldn’t they?
And I furthermore believe that if this is what the client is looking for then the duty of care the accountant owes his client is to arrange the affairs in such a way, no more, no less.
Accountants, Tax advisers and IFA’s are easy targets Richard, it’s too easy to say you are all complicit in this mass ‘avoidance’ of taxation.
If a fair tax system is what you really want to see achieved, then it has to start and stop with government policy, and I don’t mean the bully boy tactics of the Revenue, I mean a rethink and rewrite of UK tax legislation and not by the likes of PwC.
Richard, as long as the UK and other countries have complex (and even more so thanks to Gordon) tax systems and there exists those who are clever enough to see how the tax legislation can be legally used to minimize their clients tax liabilities, then in short, as we are still a free country (just) it is their right to chose this route, you don’t have to like it!
PS As far as not declaring income, then I think we all know that is evasion, and on that score I think the law is too soft!
Jason and Stuart
Jaso first – as I argue here often, I’m all in favour oif simplification – by the use of a general anti avoidance principle. I cannot see another way to go forward that can achieve a better result. A motive test is vital as part of simplification. So we’re on something of a wavelength there.
And I happen to think Stuart and I are closer than he thinks. Try using the language of compliance Stuart and we’re on a wavelength. I do not want anyone to pay more tax than the law requires (here is no voluntary contribution box on a tax return anyway). But I disagree about the use of the term ‘avoidance’. If this simply means paying into a pension, claiming an enhanced capital allowance or deducting expenses clearly allowed by law – then that’s actually compliance. The government intends that those reliefs be claimed. I know of no one who would challenge that.
But avoidance is different. It seeks to reactegorise transactions.It involves less than full disclosure. It might involve trade off of one tax system against another. It has built into it the logic that tax is theft. It isn’t.
Tax compliance works within the law to ensure no more tax is paid than is due, and gives a client certainty, a practitioner restful (as opposed to sleepless) nights and provides long term security from shock for both, which is vital for business success. And it recognises that to prosper business needs government as much as government needs business. Constructive relationships will lead to better tax systems.
Changed attitudes lead to constructive relationships.
That’s the nub of my argument.
Richard
I guess the term compliance is one you don’t hear much these days with terms like avoidance being more fashionable, schemes that exist i.e. Film partnerships, Charity Shells and the likes, how you categories them Richard?
Richard
Is not one of the isssues that should be discussed in relation to tax avoidance is the inbuilt anomalies and illogicalities that exist in the tax sytem.
Some are deliberate others accidental.
For example why is there a different deductibility rule between employed and self-employed other than revenue raising. What is the inherent logic?
Another government sponsered anomaly was encouraging everyone to set up limited companies and take dividends. This was the followed by a change of heart and increased taxation.
Simar problems were created with SIPs. Now you have the relief now you dont!
We see the problems HMRC cause by taking cases such as Artic systems. Honest people taking advantage of a known relief then falling foul of the Revenue.
Therefore lets not always knock “tax avoiders” lets also look at some of the issues within the system itself.
I like that – “tax compliance” rather than “tax avoidance”.
Saving clients tax by making the best use of available reliefs? I like that idea.
The question is, where do you draw the line? I’m thinking here of incorporation. Thousands upon thousands of micro businesses incorporated when the £10,000 Nil Rate Band appeared, to save themselves tax by paying low salary and high dividends. Even now that the NRB has gone, a business will still pay less to HMRC if it’s a company, because companies, unlike unincorporated businesses, do not pay NIC on their profits.
What would you call incorporation to save tax – tax compliance (because it’s perfectly legal and may well also have good business reasons) or tax avoidance? If a business incorporates and one of its main reasons is to pay less to Gordon, is it short-changing the Health Service?
M
Emily
Exactly the point I was trying to make. the tax system itself has anomolies (sometimes even incentives). Should these be ignored and the maximum tax paid to fund the miracle economy?
[…] Several people have challenged me about what tax compliance might be in comments in other postings on this blog. So I thought I’d better tackle the issue again. […]
“You cannot ethically seek to avoid an obligation imposed by law”.
“The law and ethics are not the same. Accountants have a duty to be ethical which requires them to operate at a level higher than that imposed by law.”
Two quotes from your blog. I am going to assume that you can’t see the contradiction? But perhaps you can throw some light on who will be the arbiter of what constitutes the “higher level” to which you refer.
Alastair
Where is the contradicition? One sets a minimum standard, the other that to which we should aspire. Do you only work to minimum standards? I hope not.
If you don’t you know the answer to the second question. You are the arbiter of that higher standard. This is your professional judgement at work.
Isn’t that what clients pay you for?
Richard
Richard
The first quote is self explanatory – compliance with the law. The second quote seeks to impose on Accountants a requirement to operate in accordance with a (unspecified) code – “higher than” or perhaps “above” the law. I guess it is in this context that you present your follow up (and rather trite) comment about minimum standards?
The contradiction arises from the fact of two standards, law and code, which inevitably will often be in conflict. Particularly if you accept that code is a construct related to the belief set of an individual or group of individuals, whereas law is a concrete (albeit changing) body of rules and interpretations.
Clearly your view is that a code of ethics will allow the professional to manage the contradictions inherent in this stance (apologies if I have misrepresented your view). Unfortunately you continually present evidence that this is not the case. You seek to paint these professionals in a negative way, but in fact they are mostly simply managing the ambiguities inherent in a complex system to the benefit of their clients. Some people choose to call that tax avoidance, although that is a term that has no legal definition. You are seeking the moral high ground – they are simply working within the mostly inconsistent and hugely ambiguous legal framework.
To answer your follow up question, my clients mostly pay me for my advice (as it happens I don’t sell tax advice!). I am happy to stand up for my moral and ethical convictions, but I don’t charge for that.