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Patrick Stevens, president of the Chartered Institute of Taxation, considers the ramifications for the tax profession at large in light of recent high-profile tax avoidance cases.

Introduction

Over the course of my career as a tax adviser, I’ve worked for firms of all sizes - small, medium and large. Throughout, I have been proud of what I do. I am sure most other tax professionals are of a similar mind.

It seems to me that our job relies on the tax system working reasonably well. We tell clients what the law enables them to do and what it doesn’t. We ensure they are compliant with the law as laid down by Parliament. That is what our profession is about.

However, there is another area of activity which dresses itself up as technical tax but is really a way to get people out of paying tax - until HMRC finds it and shows that it does not work. This activity has been much in the news of late.

This activity undermines the rest of the profession’s work.

Drawing the Line

When individuals receive large incomes and pay little or no tax, this is instantly viewed as unfair by the vast majority of the public.  Many tax advisers may similarly be uncomfortable with the result, though they will of course have a better understanding of some of the entirely valid and sensible ways of reducing tax bills.  But where is the dividing line between the valid and sensible, and the ‘morally repugnant’?

Appealing to people’s moral judgement will only get us so far. Most taxpayers are not well known names and do not rely on public goodwill to earn their living.

Fundamentally, tax bills must be based on the law, not on a possibly arbitrary view or decision.

So what can be done to defend the integrity, and the perceived integrity, of our tax system?

Remedies

A general anti-abuse rule is, of course, already on the table. If a GAAR can stop abusive practices without preventing legitimate tax planning or introducing damaging uncertainty that will be a positive step.

I have three further thoughts.

First, we need to make better (and preferably simpler) tax law. We are improving but as we have seen time after time, it is really difficult to write simple law and be fair to everyone.  Proper consultation is clearly part of the answer.

Second, we must properly resource HMRC to track down abuses and apply the law in all cases – as well as giving a good service to taxpayers generally. At the CIOT we have been pleased at the way HMRC have been visibly increasing the focus on evaders and criminal gangs – we had worried that they seemed to be being forgotten in HMRC’s pursuit of avoiders. But the process all too often moves all too slowly. Some delays in pursuing cases are inevitable but well-sourced reports of unresolved schemes going back a decade and more (predating DOTAS) that will take 28, or by some suggestions, 38 years to get through at current rates are surely unacceptable.

Thirdly, we need to consider the sort of aggressive and abusive tax avoidance schemes that have appeared in the press recently. For the most part, not only are they schemes that most of the public would agree should not work, but when put under closer analysis they actually do not work. The ones I am thinking of will probably not even get to Tribunal. After some real investigation and challenge on some technical and practical areas it becomes clear that the arrangement never worked and the taxpayer simply has to pay up – plus whatever penalty is appropriate. Various people I have spoken to in the Private Client field tell me that this applies to a majority of the arrangements that claim to "wipe out all your Income Tax" currently on the market. Also, as we all know, many of the SDLT arrangements sold over the last couple of years fall into the same category. It just takes a while for them to be tracked down.

Conclusion

In the main, whatever their morality, most taxpayers thinking of buying such arrangements will have little idea whether they work or not. Until they don’t. And there is no comeback on the promoters and salespeople behind the arrangements that have no realistic chance of working. It is open to the taxpayer to sue them but in real life, they don’t. The only thing they could sue for would probably be the penalty. It seems to me that it would help if the sellers of such arrangements could be made subject to something like the financial services mis-selling rules in the same way as if a pension or insurance policy were being mis-sold. This would have no effect on giving real tax advice and most practitioners would be entirely unaffected assuming such regulations were properly written.

Tax advisers should be proud of the job that we do, providing businesses and individuals with expert advice and helping them pay the right amount of tax, in full compliance with the law. As HMRC acknowledge, without tax advisers compliance rates would tumble and the system would risk collapse. When the tax system is brought into disrepute, it harms our work and undermines our profession. Hasty, knee jerk responses will help no-one, but carefully designed, considered reforms like those set out above could place the emphasis back where we all want it, onto giving real advice on real tax law.