‘Advisers make half their fees from avoidance,’ says taxman

HMRC building

HMRC believes half of tax advisers’ fee income is earned from tax avoidance.

The astonishing claim, which advisers said showed the taxman was ‘living in
cloud cuckoo land’, emerged from details of its ‘tax gap’ calculations, released
on Budget day last week.

In a paper written in April 2005 and released following a Freedom of
Information request, HMRC
split tax advisory work into three types: tax computations, tax planning and

Using an unspecified ‘detailed methodology’,
HMRC concluded: ‘The
result is that some 50% of total fees are earned from avoidance.’

On the assumption that for every £1 paid in avoidance advisory fees to an
accountant, £10 is avoided in tax, total tax avoidance costs around £10bn.

Grant Thornton’s Mike Warburton said: ‘We certainly do tax planning work, but
we are not spending half our time doing schemes. They are living in cloud cuckoo
land if that’s their idea.’

Deloitte partner John Cullinane said: ‘None of the categories seem to pick up
most of our advisory work on commercial transactions.’

A spokesman for HMRC said: ‘The figures for the tax gap in the 2005 study are
highly speculative which is why we were reluctant to release them. The use of
artificial avoidance schemes has become less attractive in recent years because
of action by the Government, which would be consistent with a decline in the
proportion of fees arising from ‘avoidance work’.

Related reading

Life Belt with Computer Folders