According to Jolyon Maugham, the Bar Standards Board has “a real appetite” for the fight but faces significant difficulties both in establishing that a barrister’s conduct has fallen below the regulatory standard and in putting together the evidence against him or her.
Maugham, who was delivering the 2014 Hardman lecture at ICAEW on Tuesday on measures to tackle tax avoidance, says that at the moment barristers that endorse tax avoidance schemes only owe a duty of care to the “house” that comes up with the scheme and not to the end user (the taxpayer).
“Typically a marketed avoidance scheme is put together by a house,” he explained. “It then sells that scheme to taxpayers via those taxpayers’ advisers. Those advisers may be IFAs, they may be accountants, banks, tax advisers, solicitors.
“The scheme is sold on the strength of an opinion from, typically, leading Counsel who has said that it – or something similar to it – delivers a tax advantage of 100.
“But who has Counsel said that to? The answer, almost invariably, is to the house. The house tells the adviser that it has Counsel’s advice that the scheme delivers an advantage of 100. The adviser tells the taxpayer that the house has been told that it delivers an advantage of 100. But no one tells the taxpayer that it delivers a tax advantage of 100.
“Indeed, typically the house is explicit that it is not giving tax advice to the taxpayer. And that the taxpayer cannot rely on what the house has been told.”
The only way a taxpayer can avoid the risk of receiving a penalty calculated by reference to the 100 is to get someone to tell them that they get 100 of relief before they claim it on their tax return, Maugham said.
This will make it much less attractive to join in a tax avoidance scheme because of the cost to the taxpayer of such advice – which will be high because “it’s a serious thing to tell someone liable to transact that a scheme works”, and upfront before they even know whether there will be a saving.
“What will the house do? Its response will be to arrange for the barrister who gave the initial advice to repeat it to potential clients.
“The barrister’s done the work so he just has to press ‘print’ and deliver his opinion. The costs can be kept manageable.
“But if the barrister gives that advice he will owe the client a meaningful duty. He will need to be careful – he will need to be careful – to ensure that that advice is correct.”
This is what needs to happen, enabling the taxpayer to bring proceedings against the barrister for negligence if necessary, Maugham said, and it lies in the hands of HMRC.
As far as the regulator is concerned, there are issues, not least that the tax bar is small (around 50 “serious players” in total). “An adequate understanding of the technical material will be even more closely held. And not all of those practitioners would be prepared to prosecute, defend or hear regulatory matters.”
Then the evidence is normally confidential between client and barrister – “I see this stuff because I have a litigation practice. I might be able to persuade them to give it to the BSB when the tax litigation is settled. But while it’s ongoing, I can’t ask my client to say (in effect) this planning is so obviously wrong that the barrister’s conduct falls below a regulatory standard”.
And although the BSB would like to be able to tackle the problem, he warned, it was important not to underestimate the difficulties.