A tax advisor's professional responsibilities

10 April 2015

The government’s recent stance on tax evasion and avoidance is clear: it needs to be significantly reduced and the public purse should benefit from taxes being paid. There has been great attention to the various new measures announced by the government around last month's Budget which seek to target both those who persistently enter into tax evasion or avoidance and their advisors. A new strict liability criminal offence for offshore evaders was introduced as well as a new offence of corporate failure to prevent tax evasion or its facilitation, along with new civil penalties, which would expose advisors to the same level of financial penalty as the perpetrators themselves. 

However, for accounting professionals, paragraph 3.19 of a joint government and HMRC proposal which discusses this issue, is also pertinent. It stated that, “The government also announced it is asking the regulatory bodies who police professional standards to take on a greater lead and responsibility in setting and enforcing clear professional standards around the facilitation and promotion of avoidance to protect the reputation of the tax and accountancy profession and to act for the greater public good.”

Members of the accounting profession who provide advice on avoidance schemes therefore need to be aware they may face scrutiny and potential sanction in more ways than one. The exact details of how HMRC expects regulators, particularly accountancy regulators, to amend their current practices or guidance in light of this statement are, at present, unclear. The ICAEW has already considered this issue. Frank Haskew, head of ICAEW Tax Faculty, told economia that, "ICAEW already has a professional code of conduct in relation to tax advice, which is revisited and updated on a regular basis. We are keen to work with government to ensure that the code continues to be fit for purpose and retains public and political confidence.”

What is clear from the government’s stance, however, is that there will be greater focus on accountants who provide tax advice to individuals or corporations. HMRC may increasingly refer complaints to accountancy regulators for investigation, when they suspect that an accountant has provided advice on a tax avoidance scheme which it deems to be contrary to the “greater public good”.

If ICAEW or another accountancy body receives a complaint from the HMRC in relation to an individual member or firm, it will be expected to investigate thoroughly. Further, if it is felt that the actions fall below the standards expected as detailed in their Code of Ethics, then the member could be exposed to the full range of sanctions available under the disciplinary scheme from a reprimand, to sizeable fines, to an exclusion from membership, in the most serious cases.

ICAEW members will be aware of their duties under the current Code of Ethics and Code of Conduct in relation to tax advice, which include acting with integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. In addition, members must keep in mind the overarching principle of acting in the ‘public interest’. Under the definition of the public interest in the current Code of Ethics, a member must take into account the legitimate interests of a number of stakeholders, including clients, government, investors and the business and financial community. This means accountants should also take into consideration reasonable and informed public perception in deciding whether to accept or continue with an engagement or appointment. The interpretation of the ‘public interest’, as recently demonstrated by the FRC’s decision in the MG Rover appeal, can be difficult to define. If a complaint is made against a professional ICAEW will take into account whether the member has complied with his ethical responsibilities under the Code, and whether, in doing so, he has met his public interest responsibility.

The government and HMRC’s stance demonstrates a blurring of the lines between tax evasion and avoidance. Tax evasion is clearly illegal. However, in recent years, there has been a shift towards a ‘zero tolerance’ attitude regarding tax avoidance; the stance is that although the schemes fall within the letter of the law, they are contrary to the spirit of the legislation. The government’s current focus on the role of tax advisors, and on the regulatory responsibility of accountancy regulators, reinforces the message that those advising on tax avoidance should think carefully about the advice they are giving and whether it is in the public interest. This in turn may have a bearing upon whether the advisor is meeting his or her regulatory responsibilities.

What then is the next step for ICAEW? Certainly it will continue to act upon any complaints received from HMRC in relation to the role one of its members has played in providing advice on tax avoidance or evasion. It is likely that the number of such complaints will rise and ultimate disciplinary decisions may attract greater media coverage.

The outstanding question is whether the ICAEW and other regulators will be expected to update or clarify their Code of Ethics or amend their investigatory practices. In the meantime, regulated members should familiarise themselves with the Code of Ethics and Code of Conduct in relation to tax advice and keep in mind their regulatory responsibilities when giving advice. Members should also contact the ICAEW ethical helpline, or seek legal advice, if they are unsure about whether advice to be given may fall foul of their requirements. Doing so may mitigate the chances of future legal proceedings.

This article first appeared on Economia in April 2015. 

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