The joint tax institutes of the UK have issued new professional guidance to their members today. It includes the following statements:
Tax avoidance is legal and is to be distinguished from evasion, which is illegal. All taxpayers have the right to arrange their affairs under the law to minimise their liability to tax.
Where a member is considering arrangements which may be viewed as artificial by the tax authorities, he should consider carefully the risks and merits. He should do this in the light of the client’s wider interests because of the risk that the arrangements may be challenged by the tax authorities.
The language is not that I would have used. But this does not seem - semantics aorta - that far removed from discussion of the difference between tax avoidance as I describe it ( seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes) in the first paragraph and tax avoidance as I describe it in the second paragraph.
And it is good that it is made clear that there is a choice implicit in the difference. That's welcome.
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Should “and tax avoidance as I describe it in the second paragraph” have read “and tax evasion as I…”?
It seems interesting that they have decided to issue new professional guidance to their members at this time. Perhaps they are concerned that this whole debate is heating up and they might be the next targets of UKUncut. I am probably reading too much into this but to a layperson it is quite a coincidence.
@Teresa Harding
I suspect this took two years to negotiate – having some insight into how these things work
So I very much doubt UK Uncut are the reason!
@Teresa Harding
Oh it’s certainly a coincidence Teresa.
I sat on the working party and we actually had our last meeting over a year ago. There’s been a little tweaking since then and we had hoped to publish last October but the co-ordination required across the seven ACCOUNTING and tax bodies delayed things a few weeks longer.
And Richard is correct, The first meeting of the working party that produced this update first met in 2007!
Thought I’d flag another related comment that appears in the guidance too:
“Members should ensure that clients are fully aware of the risks of undertaking transactions that HMRC
may regard as ‘unacceptable’ and that such transactions may be subject to litigation or possible changes
in law”
@Mark Lee
Dear Mark
In addition to the paragraph you quote, you will of course be aware of the paragraphs that follow the ones you quote. The dicta of Lord Hoffman may not sit easily with the approach to these matters that Richard (and you?) may prefer. Even so the approach summarised by Lord Hoffman is probably very close to the position taken by HMRC in respect of tax avoidance. That is, successful tax avoidance means the tax law does not impose tax on the transaction or arrangement (even if HMRC initially thought that the tax law did or even should have imposed such a tax liability), unsuccessful tax avoidance means the advisors/tax payers applied/understood the tax law incorrectly.
The paragraphs are as follows:
“HMRC may object to arrangements which they consider are set up for no purpose other than to avoid tax. They see such artificial arrangements as fundamentally different from choosing one commercial approach which generates a lower tax bill than another, or the mere organisation of a taxpayer’s affairs in such a way as to minimise the tax liability. This is a difficult and controversial area, where the approach of the courts has changed over time. Members may find it helpful to bear in mind the dicta of Lord Hoffman in MacNiven (HMIT) v Westmoreland Investment Limited3 [2001] STC 237 at page 257:
“If the question is whether a given transaction is such as to attract a statutory benefit, such as a grant or assistance like legal aid, or a statutory burden, such as income tax, I do not think it promotes clarity of thought to use terms like stratagem or device. The question is simply whether upon its true construction, the statute applies to the transaction. Tax avoidance schemes are perhaps the best example. They either work (HMRC Commissioners v. Duke of Westminster [1936] A.C. 1) or they do not (Furniss v. Dawson [1984] A.C. 474). If they do not work, the reason, as my noble and learned friend, Lord Steyn, pointed out in HMRC Commissioners v. McGuckian [1997] 1 W.L.R. 991, 1000, is simply that upon the true construction of the statute, the transaction
which was designed to avoid the charge to tax actually comes within it. It is not that the statute has a penumbral spirit which strikes down devices or stratagems designed to avoid its terms or exploit its loopholes.’”
By referring members of the relevant Institutes to these dicta of Lord Hoffman, the guidance continues to acknowledge the existence of a class of tax advoidance behaviour that even if labelled “artificial” and subject to perhaps agressive investigation by HMRC is still an area of legitimate advice. Do you agree?
Regards
Gregory
@Gregory
I think that it all needs to be read in the context of the previously highlighted extracts.
It’s a fact that it’s not illegal to provide such advice BUT, and my personal view is that this is a BIG BUT:
What the guidance makes clear is that if a member intends to provide such advice they should first ensure they are aware of and “consider carefully the risks and merits” of the tax avoidance scheme/behaviour. They should then only actively advise on such matters if prepared to “ensure that clients are fully aware of the risks of undertaking transactions that HMRC may regard as ‘unacceptable’ and that such transactions may be subject to litigation or possible changes in law”.
I think this is a welcome and significant change in emphasis although the previous (2006) guidance made similar points. I have long questioned on the TaxBuzz blog the justification of accountants who advise clients to enter into tax schemes that they don’t understand – a position some accountants have been tempted into by the commissions payable by the promoters of tax avoidance schemes.
@Mark Lee
Dear Mark
If I understand you correctly, you are suggesting that the latest guidance is offering something along the following lines:
1. do not provide advice in respect of matters on which you are not competent; and,
2. be aware, be very aware, that on occasion HMRC’s assessment of the tax base captured by part of the tax code might be different from the assessment made by a competent advisor.
If so, the guidance is less about addressing the morality or otherwise appropriateness of engaging in tax behaviour which in Richard’s words is:
“… tax avoidance (sic: I think Richard must mean “evasion” as suggested earlier and not “avoidance”) as I describe it in the second paragraph”
and more about prudential self interest focussed on reducing professional negligence claims.
Are you minded to agree?
What would be of interest is if a member failed to suggest that a client consider an arrangement which had tax advantages (and which was not a matter for dispute by HMRC) because the member was too incompetent to recognise that the arrangement was appropriate. For example failing to advise a non UK domicile on overseas capital and income accounts etc or failing to advise a UK company implementing executive incentive arrangements about joint ownership of shares.
These are two examples of arrangements that a member should be aware of and offer to clients in appropriate circumstances and yet would possibly fall with Richard’s concept of “tax evasion”.
Your views would be of interest.
Regards
Gregory
@Gregory
I meant what I wrote
And I think you are promoting concepts of abuse that you suggest are the duty of members of the tax institutes that are ethically unjustifiable
If that continues I will not permit your comments
@Richard Murphy
Dear Richard
My reply is not an expression of an opinion one way or another on whether your view of tax avoidance is justified or not.
Rather, having read the guidance to members, it seemed to me that what the guidance offered was an expression of how to avoid professional negligence actions and did not offer a comment on the ethics or otherwise of certain types of tax advice.
I actually thought that you would make more of this approach by the Intitutions. In effect the Institutions are offering the same old distinction between tax evasion and tax avoidance but suggesting to members that they refrain from engaging in some forms of tax avoidance advice because of the risk of (i) professional negligence claims for incompetence; and/or (ii) annoying HMRC.
This is a very self serving approach to tax avoidance and is not the same as the moral approach advocated by you and others.
Given that I am perhaps being more critical of the guidance than you are, why would this be a reason to forbid my comments?
Regards
Gregory
@Gregory
There’s only so much I can do!
I welcomed what I thought was a step forward
I was not offering a critique of all aspects of it
And so what if the approach is self serving is it is also cautious and promotes tax compliance? Who said a tax practitioner had to be sued? How they conduct their business is their own affair so long as they make the client aware of their own risk aversions and that they will not be offering what they consider to be tax avoidance
There is no duty on a tax adviser to take the law to its limits
To me that’s completely different Geoffrey. I’d refer instead to the opening pages and the fundamental principles which include this clear statement:
“A member must carry out his work with a proper regard for the technical and professional standards expected. In particular, a member must not undertake professional work which he is not competent to perform unless he obtains help from an appropriate specialist.”
I personally have gone further in the past in advice I have given to accountants on my blog and elsewhere. In August 2009 I set out on the TaxBuzz blog what I call the Five Facts you need to know about tax avoidance schemes:
1 – Accountants should only promote such schemes if they are confident that they understand ALL of the risks and consequences for their clients;
2 – Accountants do NOT have to advocate structured tax avoidance schemes;
3 – Accountants who promote such schemes honestly will find that typically only around one in ten clients will proceed once they understand all of the risks;
4 – Accountants do NOT have to notify all clients that such schemes exist;
5 – Accountants are NOT at risk of successful negligence claims if they fail to alert clients to such schemes.
I would stress that there is an enormous difference between failing to give clients conventional tax planning advice and failing to advocate and advise on a structured tax avoidance scheme. It is to the latter that I am referring. And I stand by my view.
In response to comments on the blog post I added:
Let me be absolutely clear, in the context of this piece, THERE IS NO DUTY on practicing accountants and tax advisers to make themselves aware of or “to inform clients of the opportunities available.”
http://taxadvicenetwork.blogspot.com/2009/08/five-facts-all-accountants-need-to-know.html
And, for the record I added:
Whilst I am not a lawyer I have acted as an expert witness in professional negligence cases. I also research, write and lecture on the subject.
The standard to which accountants are held is that of being “reasonably competent”. In my view any reasonably competent accountant would refuse to advocate and advise on complex structured tax avoidance schemes unless they understood them and could provide full advice including the inevitable caveats and risks. It is often uneconomic to devote the time necessary to get to this level of understanding and it would be negligent to advise a client without such knowledge.
I would gladly act as an expert to support anyone being challenged in this regard.
@Mark Lee
Dear Mark
Thanks for the response. I will ask you a specific question.
If a non domiciled UK individual went to a member of say the CTA or the ICEAW for tax advice, and the member accepted the non UK domiciled individual as a client on the basis of providing tax advice, assumiong that the non UK domiciled individual has sources of income and capital outside the UK, is the member obliged to inform the client about the use of different offshore bank account which can be used to keep separate capital and income?
The information provided might not be relevant to the non UK domiciled individual or the non UK domiciled individual might not be interested. But is the tax advisor in such circumstances obliged to provide the information?
If he does not provide the information and the non UK domiciled individual remits income and not capital has the member providing the advice been negligent?
As with many such cases, assume it is an insurance matter and does not go to court.
I would not categorise such advice as structured tax avoidance schemes even though advice to a non UK domiciled individual on overseas bank accounts would appear very artificial and structured to many.
What do you think?
Kind regards
Gregory
@Gregory
I think it only fair that I ask you to disclose your identity in more detail when asking such questions and reason for asking
I can see your email address and think it only reasonable you disclose why you are concerned – and what use you might make of answers
@Gregory
I don’t think this is the right place to be asking such questions. It’s neither professional nor ethical.
If you think my opinion is of value you are welcome to approach me directly although I should stress that I am no longer available to act as an ‘expert’ as I stopped renewing my practicing certificate when it ceased to be relevant to my business activities and portfolio career.
@Mark Lee
Completely reasonable
@Mark Lee
Dear Mark
Apologies. Based on an earlier response where you provided the Five Facts, I thought you were making yourself available to respond to comments and I wondered what your views were about a particular example, hence my questions.
I would not have asked the question if you had not indicated that you were knowledgeable about what “reasonably competent” meant.
I will send you a direct email instead of communicating in this very public manner.
Kind regards
Gregory
@Richard Murphy
Dear Richard
Thank you for your reply.
I have sent you and email marked Private and Confidential.
Kind regards
Gregory