Tax taskforces: Why lawyers and not accountants?

by Calum Fuller

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21 Sep 2012

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Investigation

ANOTHER ROUND OF TAX TASKFORCES has been announced by HM Revenue & Customs as it continues to pursue those it perceives as evasion and avoidance risks.

As always, the department lives in the hope that its threat of potentially invasive investigations, announced and/or unannounced visits and, ultimately, criminal proceedings will be enough to ferret out most with outstanding liabilities.

Previously, the taxman has gone after stall-holders in London, taxi operators in Yorkshire and the East Midlands, restaurants across the Midlands, and property rental businesses in East Anglia, the north-east, Yorkshire and London, among others.

This time, though, it has targeted lawyers in London (among various other industries and geographies) – much to their chagrin. Quite why the profession has been identified has mystified both legal practitioners and analysts, with many seeing the move as somewhat arbitrary and one that has little prospect of the taxman gleaning anything.

Ostensibly, there is not much scope for a lawyer to engage in the kind of tax dodging seen in the other industries the taskforces have patronised. Many of them – this time, groceries and retail in north and south Wales; hair and beauty in the north-east; restaurants in the south-east and Solent; and the motor industry in Scotland – take cash payments, something that almost never happens in legal work.

Then there are the inherent risks that lawyers, solicitors and barristers face in engaging in tax dodging, not least among them the threat of being struck off and losing their livelihood.

So what has prompted this focus on the legal profession?

HM Revenue & Customs' position is that they should – and do – treat lawyers in London just the same as they would treat mechanics in Scotland, or indeed any other walk of life.

They will also point to the cases such as that of QC Rohan Pershad, who is awaiting trial for an alleged £600,000 VAT fraud charge; an accusation he strenuously denies. What is more, the Revenue fully expects to bring in £3m from investigating lawyers, and £20m in total from this latest exercise.

Few would dispute that treating all industries the same is fair enough, but a significant number are unconvinced and suggest the reasons run deeper, although they stop short of seeing it as an attack on all solicitors.

One of the potential reasons for HMRC's interest in London lawyers put forward by tax advisors is that tax schemes, such as film partnerships, might have enticed barristers and solicitors to invest.

Given that some would have knowledge of tax law, and perhaps might have advised on their design, it is not unreasonable that individual lawyers may have entered into some tax schemes, according to commentators.

There is also the long-standing and generous expenses culture in the legal sector, which could conceivably provide a fertile hunting ground for the taskforces.

The Bar Council, for its part, has expressed "concern" over the way HMRC has conducted itself.

The taxman won't be drawn on its particular reasons for targeting lawyers, or whether accountants are on its radar. Suffice to say it believes it has enough information to allow it to home in on a subset of the legal profession, and it is clear that HMRC doesn't have the resources to target everyone at once.

It would be a huge leap to suggest that law is a sector where tax avoidance or evasion is particularly rampant, and for many it is debatable whether £3m is significant enough a figure to justify a sustained investigation into the profession's tax affairs.

There are those, though, who warn that the same reasons that drew HMRC towards the law sector could also lead it to accountancy. The proceedings against accountant Christopher Lunn are a case in point.

The taxman might have achieved one aim already, however, in demonstrating that it will pursue anyone and everyone. If lawyers can and will be targeted, then a taskforce is likely to head accountancy's way.

Indeed, given the industry's knowledge of tax schemes and the facilitation of them, HMRC will no doubt be interested in testing the water, even if there is a similarly narrow opportunity to dodge taxes in accountancy as there is in law.

Image credit: Shutterstock

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