Protecting decent tax advisers

Richard Murphy comments on a potentially tougher approach by HMRC on non-compliant taxpayers and their advisers, and suggests a way of improving relationships between HMRC and 'decent' tax advisers.

{mosimage}The Revenue has announced another tax amnesty. I think it's a pretty fair bet that it will be their last for a long time to come. I will wager another thing: this time they will get tough with those who do not comply and they will get tougher still with those advisers who they think might have helped those people.

Anyone who thinks otherwise is, I believe, both sadly deluded and in for a rude awakening. It is obvious that the Revenue got pretty good quality data as the basis of the last amnesty, and also now know who did not pay up. They might not have the data yet, but you can sense they are confident that they can repeat the trick this time. If they do then despite all the faults in the tax agent database it's not going to be difficult for them to compare the list of those tax evading offshore with their registered agents and form an opinion as to which agents are, at the very least, turning a blind eye to offshore activity.

Should you be worried? Yes, is my answer, and to some degree I think that's true whether or not you expected to appear on the list of reprobates. My logic is this. When the Revenue know that there are tens of thousands if not hundreds of thousands of accounts being held offshore and that the number of suspicious activity reports issued with regard to them both in the UK and in the Crown Dependencies and elsewhere is pitifully small they have reason to doubt the probity of all tax advisers whether they work in accountancy, law firms or banks. Just put yourself in their position and wouldn't you do just that?

The risk for those who might be caught is substantial. I suspect that prison will be awaiting some. But, until their identity is known all tax advisers suffer from the prospect of being tarred with the brush of suspicion.  That is what I don't like.

Now I know that in every profession there is bound to be a rogue element. Nothing will ever change that. Many will now say that those advisers who will be caught as a result of the data the Revenue intend to capture will just be the "bad apples” of the tax profession. The trouble is that I am not so sure. I have three reasons for saying so. 

First I was senior partner of a firm of chartered accountants for more than a decade. In that time we never took a client offshore. There was good reason. We did not believe it served a client's interest to work in the unregulated secrecy that tax havens permit. I suspect that some clients paid more tax as a result, but many more slept better at night. It was a trade off we and they were willing to make.

Second though, I am aware of how unusual that policy was for a firm of the size I managed. I am not saying we did not deal with offshore work; we did, but we acquired it from other firms, usually with a host of problems attached, many created through a lack of consideration for the overall best interests of the client or a simple lack of appropriate caution. My fear, therefore, is that thre will be many more firms on that list the Revenue might generate, than we in the tax profession would like to imagine.

Third, and perhaps most important, right now we have no way of identifying those who are the rotten apples. It is this that really worries me. The Revenue is talking about creating a new code of conduct for taxation right now. I wholeheartedly support such codes, have even prepared one of my own ( which you can access here http://www.taxjustice.net/cms/upload/pdf/AABA-TR-Code_short.pdf ), and have discussed it with HMRC. But what the Revenue is coming up with is, in essence, something we can beat them with. Now I am the first to say that we all have occasion when we want to beat the Revenue, but I'm really not sure that such a code is going to be in the profession's best interest. It's a part of what we need, but it's not all that we need.

What we could really do with is a code that advisers and their clients can subscribe to, explicitly, and expect to get a benefit from. This turns something which right now looks like a performance standard for HMRC into something from which tax agents and their clients could secure a real cash benefit from if (and it is an important if) they really are tax compliant.

How could that be done? Well first of all tax compliance would have to be defined. It is something distinctly different from simply avoiding tax evasion, because that word avoidance sits in between the two. Tax evasion means you break the law. Tax avoidance means you get round the law (and don't kid yourself that it means anything else; think what you do when you avoid a place or someone: you go round them). Tax compliance means seeking to pay the right amount of tax that the law requires, but no more, in the right place and at the right time where 'right' means that the economic substance of the transactions that you or your clients undertake matches the form in which they are reported for taxation purposes.

I suspect that a majority of tax advisers in this country are tax compliant. I will go further. I will be extremely disappointed if they are not. But I am also quite sure that a substantial minority take a more aggressive position and it is in that community that the tax evaders are likely to be found. Any experienced practitioner knows that after a while you can smell the noncompliant client: you get an instinct for it. These advisers are choosing not to use their noses.

So what I want is a code of conduct that lets those practitioners who are willing to say they're willing to be tax compliant and who will not act for clients who are not, to be identified and to secure as a result two advantages. The first, presuming that the Revenue are happy with their claim (and I would give the Revenue the obligation to say just that, and to deny a firm the right to subscribe if they are not up to scratch) is that their submissions to the Revenue will be presumed to be of lower risk, and so face lower probability of enquiry. This will inevitably provide those firms with a competitive advantage and I see no reason why those who want to work in this way should not have that advantage.  Second I want those practitioners who are agreed by the Revenue to be compliant in this way to be able to all advertise that fact to the public. That's a second competitive advantage.

Suddenly being tax compliant would be a way for a practitioner to make more money. Doesn't it make sense for the Revenue to encourage that simple and obvious state of affairs?

I know the Revenue want a new relationship with practitioners. Countless practitioners tell me they want a new and constructive relationship with the Revenue. I think that's possible and I think it should pay both parties if it is. But are both sides willing to take the risk to promote tax compliance as economically preferable conduct and break the habit of decades when the reverse has been the case?

Article Added Sunday, 14 September 2008

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