Practitioners left in difficult position over clients' tax affairs

IF ARGUMENTS AROUND TAX AVOIDANCE were not already creating an almighty din, the noises coming out of this week’s Public Accounts Committee hearing ensured the tax profession’s ears were well-and-truly bleeding by the end.

And not – as you might suspect – because of the committee’s abrasive style, or indeed criticisms that some of its members are not well-versed in tax rules.

The message was clear: HMRC should “test the law” with “show trials” of big-name businesses, committee chair Margaret Hodge said, in its pursuit of greater tax yields from large businesses, while fellow committee member Austin Mitchell told HMRC’s directors they were “supine” in their attitude to collecting tax from multinationals.

Whether or not the taxman heeds that edict is unclear, but the amount of pressure on HMRC to crack down on all forms of avoidance activity is higher than ever – to the point where Hodge bizarrely called on the taxman to attempt to collect taxes from large companies beyond those provided in law.

For their part, HMRC’s tax assurance commissioner Edward Troup reminded the committee the taxman’s job is to collects tax that law provides for.

For practitioners, then, it might be best to steer clear of implementing low-tax structures. In particular, law firm Farrer & Co recently offered a legal opinion holding that “it is not possible to construe a director’s duty to promote the success of the company as constituting a positive duty to avoid tax”.

Although specifically discussing corporations, there is tension between those findings and those of the Mehjoo ruling from the High Court in June, which found that advisers must draw clients’ attention to avoidance schemes if they are available to them, and failure to do so could be negligent.

It’s a powerful pincer effect for practitioners to deal with, seemingly with little sign of any answer any time soon. Indeed, as one Accountancy Age reader eloquently put it in a recent comment: “Err. Help.”

As far as guidance from the institutes goes on the matter, it seems to place particular emphasis on the letter of engagement between practitioner and client, urging caution not to “over-promise” on the advice provided.

That is easier said than done, especially if the client is pre-existing; how might they feel if a letter of engagement is re-issued, after years of custom, with the terms altered? It may affect the client’s trust.

To that, advisers say, it’s better to be safe than sorry, and a second opinion should always be sought if issues arise that are not in line with typical areas of work. If necessary, refer clients on.

Not particularly satisfying for some, but until the climate changes, advisers and institutes maintain it is best to err on the side of caution.