By Adrian Henriques, Professor of Accountability and CSR – Middlesex University

Traceability matters

‘How far can you trace your responsibilities?’ is not only a difficult philosophical and moral question, it is also a practical and even a commercial one. Before looking at the commercial issues, it is worth a very quick detour to think about the moral philosophy: everything we do both relies on and also sets off an endless chain of consequences. It is very hard to trace the consequences of our actions very far, but in so far as we can, we are held morally accountable. And of course, we are also held accountable for what we intend to do and the consequences we try deliberately to bring about.

What has this got to do with the commercial world? Quite a lot, since the expectations of the public regarding what companies are responsible for has been rising inexorably over recent years. Driven in part by consumers, but also by environmental concerns, companies are these days expected to take responsibility not only for what they buy and the associated supply chains – but also for what they sell and the associated ‘demand chains’. In short, the entire value chain is fair game.

Where the consequences are most serious, these expectations have also been codified in law. The recent Modern Slavery Act in the UK and the Dodd-Frank Act in the USA are examples. While the Acts focus on transparency, they provide a powerful incentive for companies to change their supply chain management processes.

More widely, without knowing where the parts of a product come from – and where they go after manufacture and use – it is not possible to put in place fully robust processes to determine what their impacts may be. And without that, in addition to the increase in commercial risk, corporate strategies for responding appropriately to environmental and social impact become haphazard.

Where customer health and corporate reputation are at stake, traceability is taken seriously. For example, a significant part of the fresh produce sold by supermarkets can be traced back not only to the farm where the plants were grown but sometimes to a small number of rows of plants in a particular field.

Other industries also currently go to great lengths to trace their products in use, especially when they are expensive. Rolls Royce knows where its thousands of engines are located at any point in time. That is largely because the engines are extremely expensive and incur great costs when they are idle or out of service. Similarly, for radioactive products, the impacts can be very severe, so tracing may go right through to ‘final’ disposal.

Unfortunately, the globalisation of world trade has compounded the problem of tracing supply chains for many products. As a result, very few products or their components can, in fact, be traced fully to their raw material source – or to their final disposition after use. This lack of traceability exposes businesses of all kinds, from primary producers through to retailers, to compliance, reputation and financial risks.

Assessing traceability

Currently, there is no feasible, credible and widely accepted framework for assuring the source or destination of materials, components and ingredients throughout a value chain. Indeed the length and complexity of the global supply chains of the modern world may seem to make the task of achieving full traceability impossible.

Since traceability systems almost by their nature require co-operation and communication across organisational boundaries, standards have an essential role to play. Yet the overall picture of traceability standards is fragmented.

There is a considerable degree of standardisation around the marking of products (through bar codes, for example) which enable traceability. However organisations that have a measure of vertical integration in their operations may develop proprietary traceability systems. And sometimes different industries each have their own traceability systems. While this may be a valid response by the organisation concerned, it deepens the overall global fragmentation.

In some areas, such as aspects of the IT systems needed to support traceability, there are more general standards. And there are plans to develop an ISO ‘chain of custody’ standard. These, however, focus on specific kinds of operational implementations of traceability, not on the full picture. A chain of custody standard, for example, may set out the various ways in which a sequence of owners of goods should relate to each other in order to capture the identities of the product’s owners as the product progresses through the supply chain. But it is not designed to answer the question ‘how far can you trace the product along the value chain?’, except in a rather roundabout way.

On top of that, new technologies are being deployed (or old ones re-purposed) that can dramatically help with traceability. These include DNA testing, RfID techniques and isotopic analysis. But without a framework to understand the traceability implications, it will be hard to make best use of them in a value chain context.

So to sum up, what could a general traceability framework or standard do? The value of a general traceability standard or framework would arise from:

  • The need to compare and facilitate the integration of the existing traceability landscape into a demonstrably effective traceability system
  • Cost-savings over the implementation of traceability independently in new areas
  • As part of due diligence, the assessment of the level of traceability achieved by a given traceability system
  • The economic and social benefit derived from sharing good practice and encouraging traceability across increasing areas of economic activity.

Adrian Henriques is Professor of Accountability and CSR at Middlesex University, UK



By Jason Piper, ACCA’s Senior Manager, Tax and Business Law

Those of you with long memories (or chronic insomnia) may remember a blog I wrote in 2011 on the topic of HMRC’s approach to discovery assessments. To recap, the worry was that HMRC were using discovery as a backstop to try to cover up their own administrative failings, trying to claim that some technical deficiency in the taxpayer’s documentation entitled them to the longer time limits of what is meant to be a reserve power used only in rare cases.

Well, this week I read another case report, and they’re still at it. Like one of the earlier cases, the taxpayer had been using a reportable “DOTAS” arrangement, and the question was whether they had properly alerted HMRC to the structure so that HMRC could challenge it inside the usual 12 month window. What sets this latest case apart and makes it particularly relevant is that the debate only arose because of an issue in the taxpayer’s software package.

The details of the case turn on fine technical points of law, but the fundamental issue was whether the taxpayer had deliberately caused a loss of tax. For this to be the case, they needed to have consciously entered the relevant entries where they did in the return. In fact they had only put the entries where they did because a shortcoming in the software prevented the “correct” disclosure – all the right numbers were there to create the intended result, and there was clear notification in the “white space” of what had happened and why.

Neither the taxpayer nor his advisers appreciated that strictly the boxes they had used created a subtly different legal groundwork for the desired liability, with an immediate and inevitable loss of tax, rather than the creation of a freestanding credit which as a matter of choice had been set against the relevant income.

The practical upshot was that because the taxpayer had not deliberately created a loss of tax, HMRC could not apply the 20 year limit for claims that they would have needed to rely upon by the time they got around to trying to sort things out properly. Now, none of this goes to the rights and wrongs of the underlying scheme – but what it does illustrate is that the tax law and the software that purports to implement it are inextricably linked.

How *does* the law deal with situations where the software doesn’t quite align to the legal requirements? On the basis of this case, the answer to that would appear to be “slowly and painfully”. If it were only the users of esoteric avoidance schemes finding that the software can’t quite reflect the reality of their tax affairs in strict accordance with the minutiae of the 19,000 pages of UK tax law then it may not be such an issue.

But HMRC’s brave new world of Making Tax Digital beckons, and in this new legislative wonderland of interim reports, revised record keeping requirements and The Death Of The Tax Return, the Tribunals, taxpayers and HMRC alike will be finding out for the first time just how well the software developers have been able to predict what the final shape of the clauses passed in Finance Act 2017 will turn out to have been.

The new software packages haven’t been written yet – but then again neither have the rules that they’re supposed to implement. As Raymond Tooth and the Commissioners for Her Majesty’s Revenue and Customs, 2016 UKFTT 723 TC05452 illustrates, the ability (or otherwise) of the software to accurately reflect precisely the requirements of the Taxes Acts can be fundamental to whether a tax liability even exists – and that’s too important an issue to rush. There’s a line to be drawn between agile development and clairvoyance; developing the process and software for MTD before we know what the legal basis is for it runs the risk of falling the wrong side of that line.


Fight hard but fight fair

accapr —  27 October 2016 — Leave a comment

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.

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 Taxations 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.

Read ACCA’s full response here

Making tax digital

accapr —  1 September 2016 — Leave a comment

By Jason Piper, ACCA’s Senior Manager, Taxation and Business Law

If the only tool you have is a hammer then every problem looks like a nail. If you spend your whole time focused on just one topic, you can sometimes lose sight of the importance of other areas. Some topics though are too important to ever ignore completely, and when it comes to the relationship between business and society, one of those areas is tax. Every business should pay its correct share of taxes, in full and on time, both as a matter of law and as a point of principle.

But HMRC staff, who spend their whole lives engaged in just the one field, must remember that there is more to the world than tax returns.

One of the first things I was taught as a young tax trainee in practice was never to let the tax tail wag the commercial dog. It’s a sentiment HMRC subscribe to as well, especially when trying to ascribe motive in what may be an avoidance scheme. But what we’re at risk of seeing in MTD is the administrative tail not so much wagging the commercial and social dog as dragging it, unwilling, into a morass of unwanted and unfamiliar process changes.

HMRC’s own research indicates that 400,000 businesses would rather disengage totally from reporting their taxes than transmit their information over the internet to a government body. For those prepared to give it a try, the outlook is “challenging”.

The rollout programme currently envisaged by HMRC would see a huge spike in conversion to the new processes between April 2018 and April 2019, with taxpayers having to make the changeover at a rate of more than 1 every 9 seconds, day and night, week in, week out, with no break for Christmas, Easter or HMRC’s “software upgrades”.

Around 40% of them will need assistance with the new systems – or to put that in real numbers, about 1.5m. With a staff not much more than 50,000, that leaves every HMRC staff member an allocation of around 30 taxpayers to hand-hold through the process – or pass the burden onto friends, family, neighbours and Citizens Advice. Of course, helpful acquaintances may not know enough about the system (either the tax or the technology side) to really help out – while charities with experience in the sector have warned of the risk of exploitation of vulnerable taxpayers if they have to rely on third parties to handle this aspect of their financial affairs.

HMRC’s MTD proposals for big business would allow for a longer, later conversion period and provide a less pressured environment for the HMRC staff. It may be sensible to do the first tests with some volunteer big businesses, for even their (more complicated) systems are likely to suffer significant disruption. But some businesses would relish that opportunity. If they and HMRC could work together to understand how this might all be made feasible, then it’d pay dividends for everyone. In any event, some of the issues facing taxpayers (poor broadband, unfamiliarity with the internet) will heal themselves while a robust and workable system is developed for wider rollout.

The digitally disenfranchised are a poor target market for merging two of the things that many people find hardest to understand – tax and modern technology. The additional delays introduced by the Referendum vote, not to mention the related uncertainty about the future of VAT, give weight to our calls to rethink at least the timetable – and with it the chance to maybe revise the substance.

Tax systems exist for the benefit of society, not the other way around. At a time when there are concerns about the whole of the rest of what society gets up to, breaking the bit that pays for it all is the last thing we need.

By Manj Kalar, ACCA’s Head of Public Sector

The momentous decision that was taken by the UK on 23 June to leave the EU will no doubt reverberate for a number of years. Dismantling all the legislation, government funding frameworks developed over 40 years will take quite some time to fully unravel.

It will call for the public sector to use all their expertise and skills and develop many new ones to achieve a successful transition. Some of the key areas where there will be an impact are outlined below:

Change in focus?

Over the last 6 years the key focus has been austerity so that a public spending surplus would be achieved by 2020. A tough Spending Review settlement was agreed by the public sector, providing certainty over funding over the next 4 years continuing the efficiency agenda to 2020.

Many leading economists including the influential Institute for Fiscal Studies were questioning whether the ongoing scale of cuts to government spending could be achieved before the result under two weeks ago. After the result it became a whole lot more difficult: Government lost its triple A rating. Why does this matter? Although the UK government has net liabilities over £2 trillion per the latest UK Whole of Government Accounts; it has, by and large, maintained the triple A rating which has translated to lowest level of interest payable on government borrowing. The Office for Budget Responsibility’s ready reckoner suggests that in general a 1 percentage point increase in both gilt rates and short rates in each of the next five years would increase central government debt interest spending in 2019–20 by £5.3 billion (in 2019–20 terms). This will make achieving the agreed public sector spending reductions even more difficult.

EU funding

In 2015 the UK Government paid £13bn to the EU budget which is net £5bn of the instant rebate; the EU spending in the UK was £4.5bn; so the net contribution was £8.5bn. Therefore, in theory, there will be additional funding available for the many demands including:

Cost of dismantling EU legislation and Regulation

EU funding has been channelled to support many areas of spend across the UK. For example support for agriculture through DEFRA. Farmers receive funding through the Common Agricultural Policy (CAP), In 2015, UK farmers received almost €3.1bn (£2.4bn) in direct payments, according to the NFU. There is no doubt that similar levels of funding or potentially more will be sought to supplement what they will no longer receive from the EU. It may surprise some to note that one of the biggest recipients of the CAP funding is the National Trust (almost £12 million in 2015). Similarly those receiving support as a result of the Common Fisheries Policy will be seeking the same assurances and/or relaxation on fishing quotas. UK has 16% of total EU fish processing jobs, the highest of any EU country. These may be easier to identify and potential solution for a way forward. However, there are many other areas where unravelling the web of EU funding may not be so easy.

Take for instance the significant sums provided for regional development funding and infrastructure investment such as road networks and rail. European Investment Bank loan investments in the UK economy came to €29 billion over the 5 year period 2011-2015. This was €7.8 billion in 2015:  energy projects accounted for 24% of total investments, while transport and water claimed 22% and 21% respectively. In Northern Ireland funding has been negotiated to support the development of the road network. The Northern Powerhouse was going to receive funding to supplement government investment in bringing the high speed 3 rail network and in London the cross rail project (£1bn) linking the west of London to the east of the UK. Some of these are underway and funding has been committed and others negotiated. A departure from the EU will require all of these to be assessed. Will the projects underway continue? One would assume so. But what does this mean for those in the discussion phase? Given changes in interest rates payable this will change the original business cases for the infrastructure investment.

Another significant area is the cost of dismantling the legislation. The number of Acts of parliament and statutory instruments over the last 43 or 44 years that refer to EU legislation will all need to be reviewed and potentially amended.  This raises potential capacity issues as it will require more legal experts to consider what elements of EU directives and regulations should be retained in UK law. The number of lawyers across government have fallen as the public sector has contracted by 15% since 2010 as a result of civil service reform and meeting the spending review efficiency targets. The civil service is now smaller than at any time since the end of WW2 and stands at 406,140 according to the latest figures available. This is before the Parliamentary timetable to considered legislative changes is considered. This will impact on the timing of legislative changes and the impact on Parliament’s capacity to consider and debate issues unrelated to the impact of the EU referendum.


Linked to foreign travel is the EU passport. Questions that will need to be addressed include will a new UK passport be required? What about the EU passports in circulation? Will there be a period of grace before these are withdrawn or will there be a cliff edge cut off point? One has only to think back to the summer 2014 when there were significant backlogs to processing passport applications. Of the 56.1 million usually resident population of England and Wales in 2011, 76 percent (42.5 million) held a UK passport. Any change to the current approach therefore has the potential to be significant

Not all these decisions can be made unilaterally and in devising policies around this will require interaction with the EU as well as making practical changes, requiring upfront investment by the UK Passport Service into technology as well as staffing to manage the transition.

Foreign and Commonwealth Office is another department that has seen a significant reduction in embassy staff. This was part of the efficiency drive under austerity and was possible due to sharing these duties and support from other government departments (DFID, NCA and BIS). This will need to be reversed to meet the growing need to ensure the embassy network is fully functioning.


There are many practical questions around health ranging from staffing to travel. Currently, there is the E111 to guarantee medical health care provision if UK citizens fall ill when in an EU country. Will this still service still be available? Will UK citizens need to take out travel insurance to cover any medical bills? Or will government be required to pay this back? What will the service look like, and how will it work, will need to be developed. Presently, the Department for Health reported £434m payable for UK travellers requiring medical treatment in the EEA and received £50m for EEA travellers requiring medical treatment in the UK. Will they need increased administrative support to invoice and chase non-payment?  This will potentially (inevitably?) create an additional overhead.


There has been EU funding for teaching hospitals and the ERAMUS programme, an exchange programme that fosters mobility for talent flows. Higher education institutions will be seeking assurances to ensure new rules allow for such cultural exchange and talent transition to continue.

There are many demands on the £8.5 bn funding that ‘would have gone to the EU’ and more will be required to consider the impact on trade negotiations. As noted in the newly created Brexit unit, ‘bringing together the brightest and best’ across the civil service to be headed by Olly Robbins, a significant proportion of resources will need to develop policies and procedures to ensure the UK has the trading relationship it seeks from the EU and other countries. Given the time taken to negotiate TTIP and other trade agreements (e.g. the EU-Canada Comprehensive Economic and Trade Agreement has taken almost 8 years to agree) any changes will undoubtedly require time and expert negotiation skills.

The risk is that government spirals into inertia as the focus is on the impact of Brexit. But service improvement, continued public service delivery and savings delivery plans need to remain in focus if public services are to be delivered effectively, efficiently and economically to meet plans to meet the public spending reductions.

Therein is the challenge how to focus on ensuring a successful transition and extraction from the EU and maintain government finances which are likely to come under severe pressure. The Governor of the Bank of England has already allocated £250bn to support the banks if there is another repeat of the 2008 situation. The level of government support is £1,174.5bn (short term £235.2bn and long term £939.3bn) in the 2014 Whole of Government Accounts (an increase of £78.4 billion on the previous year.) This will come at a cost – increased interest payments.

As Gus O’Donnell remarked this is what the civil service does best and will manage but based on the projected costs it will be a number of years before the benefit of the ‘additional’ £8.5bn is going to be felt if at all if there is a cost associated with keeping access to the EU.

This article first appeared on Politics Home.