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19 Sep 2014 11:00am

ICAEW members in Catch 22 over tax avoidance

ICAEW members are coming under intense pressure from clients to endorse tax avoidance schemes they have heard about, often from independent financial advisers or the scheme promoters themselves

Some general practitioners have even been threatened with losing their clients or being sued for negligence if they refuse to help, according to the ICAEW Tax Faculty.

At a recent meeting at ICAEW, faculty head Frank Haskew told Public Accounts Committee chairman Margaret Hodge that clients were often fed misinformation by tax scheme promoters about schemes or indeed about the responsibilities accountants have in giving tax advice.

They can’t afford to lose clients and they can’t afford to be sued. Yet they risk reputational and financial damage if they do get involved

Schemes are regularly described as investment opportunities while the High Court decision in Harben Barker v Mehjoo – which awarded £1.4m in damages to Iranian businessman Hossein Mehjoo after finding the accountancy firm liable for failing to advise him about certain tax avoidance schemes – is often cited, without mentioning that it was overturned in the Court of Appeal.

“Our members hate these schemes but they feel really under pressure,” Haskew said. “They can’t afford to lose clients and they can’t afford to be sued. Yet they risk reputational and financial damage if they do get involved.

“They are damned if they do, and damned if they don’t.”

Faculty chair Rebecca Benneyworth agreed. She said that tax avoidance promoters were still out there and making large sums of money. “All the tax avoidance promoter needs is the signature of a leading tax QC attached to the scheme to create a highly marketable – and lucrative – product.

“There is a view among certain barristers that you can sell a scheme probably 250 times before HMRC spots it which means that the numbers can be huge. You know it’s going to have a limited shelf life so you sell it as fast as you can and then by the time HMRC has found it, you are out of there.”

According to tax reformer, barrister and blogger Jolyon Maugham, the fees that can be generated for bringing a planning idea to market are substantial. Writing in his blog, Waiting for Godot: musings on tax avoidance, he says that he is aware of instances where a single planning idea has generated fees of about £100m for the “House” (seller of tax planning ideas).

“But without barrister sign-off, you have nothing to sell.

“This fact creates predictable temptations for the Bar. If you are prepared to sign off a planning idea, the House will pay you handsomely – in some instances, hundreds of thousands of pounds for a few days’ work.”

He says there is a very small group of tax counsel who are involved in signing off such schemes but as long as they continue to owe a duty to their client and not to third parties (taxpayers), their position is virtually unassailable.

"Most of my colleagues at the Revenue Bar act properly and scrupulously. But it saddens me that a number – whose names are well known to us all – do not. Their behaviour makes victims of the general body of taxpayers whose tax take is reduced... It makes victims of those taxpayers who are mis-sold to. And it besmirches my profession."

One possible way of stopping barristers' involvement in tax avoidance scheme sign-off, he suggests, would be to require all tax barristers to base written tax advice on reasonable factual and legal assumptions rather than rely on representations of the client or others. In the US, tax advisers are bound by such rules under IRS Circular 230.

Hodge said that she had long argued that the government should look at where the liability for tax avoidance schemes lies and that the role that some barristers played in perpetuating aggressive tax avoidance was an important area for investigation.

Realistically though, the law is unlikely to change in the short term. Now that the future of Scotland has been settled, political parties will be focusing on party conferences and the general election in May next year.

The Tax Faculty recognises that a number of its members are in severe difficulties and says that it is considering ways of helping them. In between times, it points to the code of conduct in relation to tax that was updated in February this year. The update was designed in part to address public concerns over aggressive tax avoidance.

“The guidance doesn’t say ‘Thou shalt not’ but suggests that members act very carefully,” Haskew says.

He adds that he is aware of increasing numbers of reports that professional indemnity insurance is becoming more difficult to get hold of if there is a suggestion that practitioners are involved in tax avoidance schemes. This, he says, will ultimately make it harder for the promoters to lean on ICAEW members.

Benneyworth also wants to see better dissemination of information to the public and improved education. She believes that many people – including celebrities like singer Gary Barlow – were missold tax avoidance schemes as investments.

“Promoters or financial advisers will say ‘Look, here’s a scheme which has been set up because the government wants people to invest in x, y or z’.

“A good example was the Christmas trees scheme which was sold on the basis that the government had given special tax rating for trees. So everyone went off and bought vast tracts of land and planted Christmas trees. They thought it was an investment, but then the government abolished the relief and everyone was caught. Terry Wogan got his name in the papers over it.

“It’s the same sort of thing now only you have to be a lot cleverer.”

She adds that she personally turns down work if it involves anything to do with schemes.

Julia Irvine

 

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