By Yen-Pei Chen, ACCA’s Corporate Reporting and Tax Manager
Reading news report about tax avoidance, one might be forgiven for thinking that tax practitioners, unhappily repeating the mantra that tax avoidance is not illegal, are opposed to the government and HMRC’s efforts to fight tax avoidance.
But the truth is most tax practitioners – and certainly ACCA – fundamentally agree with the lawmakers that aggressive tax avoidance needs to be tackled. Yes, we believe that all individuals and businesses have a responsibility to pay their fair share of tax. And yes, tax practitioners have a responsibility to act in the wider public interest: this includes working hand-in-hand with tax authorities to counter unethical tax behaviour.
Indeed, tax practitioners are some of HMRC’s most important allies in tackling tax avoidance. They advise clients on tax planning opportunities, and as such, are the first line of defence in warning clients against aggressive tax avoidance. Without tax practitioners disclosing information to HMRC, many tax avoidance structures would not have come to light. This was why the UK’s tax and accountancy professional bodies, including ACCA, worked with HMRC in updating the Professional Conduct in Relation to Taxation (PCRT), specifically to clarify the tax practitioner’s responsibilities around tax avoidance.
However, it was with trepidation that we received HMRC’s consultation document, ‘Strengthening Tax Avoidance Sanctions and Deterrents’. Our concerns extend beyond the realm of tax, to wider issues of public interest. So to ensure a full response we collaborated across the tax and regulatory teams and with our Global Forums for Taxation and Ethics.
The proposed measures cast a wider net over all those ‘design’, ‘market’, facilitate’, and ‘promote’ tax avoidance arrangements, by levying penalties on each agent, adviser and intermediary involved whenever an arrangement is ‘defeated’. Besides punishing those who enable tax avoidance, the consultation document also proposed corresponding penalties on the taxpayers who use such defeated tax avoidance arrangements. Our three main concerns are:
- For an arrangement to be defeated, a penalty does not need to be charged on the taxpayer. This means that HMRC could deem an arrangement to be ‘defeated’ simply by reaching ‘an agreement with the taxpayer […] that the arrangements do not work’, without a case going through Tribunal. Given the line between legitimate tax planning and aggressive tax avoidance is still blurred, this reliance on moving goal-posts could put off tax practitioners from providing ordinary tax planning advice;
- The proposed trigger for penalties, without considering the taxpayers’ or tax practitioners’ motives, means that penalties are likely to be both disproportionately high, and disproportionately expensive for HMRC to administer;
- HMRC seems to favour an approach where tax practitioners, other intermediaries and taxpayers are guilty until proven innocent. Their intention, it seems, is to get everyone into the net from the start, and then put the onus on each accused party to appeal against penalties. Granted, ‘fairness’ in tax is a difficult and divisive concept, but such a move does appear to us to be fundamentally unfair.
The bottom line is this: regulatory burden can become so great that compliance becomes impossible given the resources available. The proposed measures follow a whole raft of recent measures in the UK: General Tax Avoidance Rules, Disclosure of Tax Avoidance Schemes, and Promoters of Tax Avoidance Schemes. The existing rules oblige tax practitioners to tell HMRC about tax avoidance schemes; the new rules threaten to punish the same tax practitioners for the tax avoidance schemes that they tell the HMRC about. Some practitioners, particularly in small and medium practices, may be driven out of the tax advisory business by the cumulative and often contradictory effects of recent regulation. At the same time, unethical and aggressive tax avoidance behaviour will continue underground which no one wants to see.
Our one message to HMRC is: work with us, not against us. In order to fight tax avoidance effectively in the long-term, HMRC needs to build a relationship of trust with tax practitioners. The way forward is to work with the profession to strengthen and improve ethical standards, not by adding another layer of regulation.