In the light of recent media reports related to ‘selebs’ tax affiars and their use of K2, icebreaker and other ‘legal’ tax avoidance schemes, some accountants may find the ten facts highlighted below to be of value.
As I explained in my last blogpost, (“Why weren’t all accountants promoting those tax schemes?“) the media reports are misleading when they imply that structured schemes are pretty straightforward or ‘easy’. The only other people who perpetuate this myth are either investing a fortune in developing the schemes or earning a commission by promoting them. Either way they can hardly be relied on to be objective.
Implicit in most of the recent media reports about the use of ‘abusive’ tax avoidance schemes is the idea that they are only for the wealthiest of taxpayers. This is partly due to the level of fees payable before a client can utilise the scheme. Leaving this to one side there are ten things accountants need to understand and remember about tax avoidance schemes:
- Accountants should only promote such schemes if they are comfortable doing so and are confident that they understand ALL of the risks and consequences for their clients;
- Accountants do NOT have to advocate structured tax avoidance schemes;
- Accountants who promote such schemes honestly will find that typically less than one in ten clients will proceed once they understand all of the risks and downsides;
- Accountants do NOT have to notify all clients that such schemes exist;
- Accountants are NOT at risk of successful negligence claims if they fail to alert clients to structured ‘abusive’ tax avoidance schemes;
- Encouraging a client to undertake a specific structured tax avoidance scheme is much like encouraging them to make a specific investment – is it something a professional accountant can do if integrity and independence are important qualities;
- It takes a fair amount of time to get to grips with all of the relevant details of a structured tax avoidance scheme and even longer to compare one with another;
- HMRC may announce a change in the law at any moment – leading to rushed (and perhaps botched) attempts to revise the scheme by the promoters. It is only a matter of time before the long-threatened retrospective changes are introduced to negate the hoped for tax advantage;
- Even after an accountant has committed loads of time to learning about a scheme they must still resist any temptation to act unprofessionally and to persuade a client to ‘invest’ if they might not otherwise choose to do so;
- If, some years later, the scheme is ultimately held not to work the client may sue the accountant for failing to adequately highlight the associated risks.
Together these ten facts should provide support for those accountants who choose not to advise clients on structured avoidance schemes. This list is an updated version of such lists that were previously published on the TaxBuzz blog.
I’d be very happy to explain or expand on the ten facts above and also to receive and debate comments below if you have a different view.
Related posts about tax avoidance schemes can be found on the TaxBuzz blog:
- Tax avoidance schemes – a simple guide
- Naive promoters of tax avoidance schemes
I was interested to note that in the Telegraph an unnamed accountant was claiming that we had to promote structured tax avoidance schemes to our clients:
“Many accountants have been sued by their clients for not getting them into such schemes,” he said.
“Some advisers are very worried about being hit with a professional negligence claim for blocking a client’s entry into a scheme. I know of two such cases at the moment, one for around £500,000.
“We’re damned if we do, and damned if we don’t.”
Is this true? Have you heard of anyone being sued for not offering their clients structured tax avoidance schemes?
The unnamed accountant is WRONG and is either being misquoted or is intent to mislead as, I would imagine, he/she earns their living promoting ‘abusive’ tax schemes. It is thus in their interest to scare accountants into thinking they are at risk if they don’t promote schemes to their clients. What rot!
As someone who used to act as an expert witness in professional negligence claims and who still lectures on ‘How to avoid negligence claims’ I know a thing or two about such issues.
I doubt any accountants have been sued for failing to advise clients about ‘abusive’ schemes. The barriers to succeeding in such a claim are VERY high. The claimant would need to prove that:
1 – Their accountant did not do what a reasonably competent accountant would have done. In my view, reasonably competent accountants are well aware of the generic risks and downsides of ‘abusive’ schemes and do not present them to clients as so few end up actually proceeding through to completion
2 – That the client would and could have done all that would have been required to undertake the scheme
3 – By not doing so they have suffered a quantifiable loss that can be attributed to their accountant’s neglect.
Sorry, but I don’t see it happening and dispute the implication that any reasonably competent accountant has been successfully sued for failing to encourage a client to enter into an ‘abusive’ scheme.
Thank you, Mark. I thought the unnamed accountant was probably scaremongering for one reason or another!
Most of these schemes are extremely complicated, therefore for the general practioner in a small/medium practice, it is just too risky to consider.
The risk and stress of the schemes outweigh the tax advantages and any referral fees.
As regards point 1 I always think that the test that Mathew Hutton mentioned at a lecture years ago is a very good one – applied to all tax planning but it would apply equally to aggressive avoidance schemes
“Would you recommend this planning to your grandmother?”
I was at a seminar recently where I was all but told “You have to promote [such] schemes or you are not doing right by your clients and they could and should sue you for not offering the best advice.”
It is very reassuring to hear the opposite view. I really dislike people trying to undermine my confidence and professional integrity by trying to blackmail me into their schemes that I fundamentally do not like or have the time for. I am a sole practitioner and for that reason I want to keep my book of clients reasonably straightforward and low risk – as I explain to them all before I take them on.
Thanks for these comments.
I share your frustration Lydia, and take every opportunity I can to point out how misleading are the views expressed by self-interested promoters of tax schemes when they make such comments in press, online or when I’m in the room.
You usually find that the “aggressive” tax avoidance pedlars disappear when it comes to adequately defending their “investors” or they demand a second slice of the pie to defend something that they should do for free if they have sold somebody an investment.