Accountancy firms in eye of the storm on avoidance

MORAL COMPASSES up and down the country’s newsrooms have been spinning wildly since the story of Jimmy Carr’s tax-planning scheme broke this week.

The public’s interest was stoked from listing-to-mild to truly piqued after household names finally became involved.

The fact that the news of the 8 Out of 10 Cats star’s K2 scheme was swiftly followed by members of pop group Take That’s tax arrangements gave some indication that the story will not simply fade and die. It will rumble on.

The prime minister’s damning assessment that Carr’s activities were “morally wrong” only heightened the furore. That, and Carr’s amazing hypocrisy on Channel 4 show 10 O’Clock Live, where he infamously lampooned Barclays for paying just 1% corporation tax in 2009 while taking part in an avoidance scheme that was shut down by ministers for being “completely contrived”.

Carr, though, has managed the situation well. He has recognised his “terrible error” and expressed contrition. Now, he will taste his own medicine; administered gleefully by the people making jokes about him on Twitter. He is, of course, used to media attention – albeit not on this level or with such ferocity.

The spotlight, though, has not yet turned to the people providing such aggressive schemes: the accountants themselves.

As further schemes are highlighted and the scale of tax-mitigation practices becomes clearer, people will inevitably ask about the firms providing and advising on tax facilities.

When that happens, firms need to be prepared. The “we don’t sit in judgment on our clients” defence, used by Saffrey Champness accountant Ronnie Ludwig on the Radio 4 Today programme, simply will not wash for the man on the street.

In order to effectively limit the damage inflicted by association with avoidance, a reaction plan must be drawn up as soon as possible, with senior management and partners ensuring it has definitive information on which to act. The worst thing a firm could do would be denying or denouncing tax avoidance only to later be exposed as a provider of such schemes.

Indeed, the first accountancy firm to become embroiled in this publicly risks an association with tax avoidance similar to BP’s association with massive oil slicks.

As such, honesty is the best policy so as to avoid the massive reputational damage a denial would surely bring if such arrangements had indeed existed. Vigilance is the key here.

The clock is ticking to put these measures in place. The story will inevitably move on, with more celebrities implicated and more artificial tax schemes exposed. As it continues, the inquisition will become increasingly wide-ranging. It will not end here.

However, in firms’ defence, avoidance is legal tax-planning, while evasion is against the law. Confusing the two could cause quite a few problems.