AML: HMRC flexes enforcement muscle to the tune of £7.8 million
The Financial Reporting Council (FRC) has banned and fined an ICAEW member for his role in a £46m tax avoidance scheme involving the Cup Trust. Mr Mehigan, who was a director of the corporate trustee of the charity, has been excluded from membership of ICAEW for 10 years.
The FRC has also fined and reprimanded another accountant and an accountancy firm in relation to the audit of the charity.
The Cup Trust was registered as a charity in 2009, however it was heavily criticised by the Public Accounts Committee (PAC) in 2013. The PAC found that the Cup Trust had been set up as a vehicle for tax avoidance and that it had sought to abuse gift aid rules.
The FRC investigation, which commenced in December 2013, found that Mr Mehigan had breached the ICAEW’s Fundamental Principles of Objectivity and Professional Competence and Due Care. While the FRC had regard to the fact that Mr Mehigan did not personally benefit from his conduct, they did find that he had long standing business ties with an associate who did benefit substantially from the scheme. The FRC has stated that the lengthy period of exclusion reflects the seriousness of the failure to exercise independent judgment.
This is the first time that the FRC has issued substantial fines and bans in relation to an abusive tax avoidance scheme. The FRC has emphasised that:
‘The administration of charities, and the operation of tax avoidance schemes, are both matters where professional accountants should be aware of the heightened level of public interest in their work, and consequently the importance of complying scrupulously with ethical and competence standards.’
Scrutiny of accountants and other professionals involved in tax schemes is likely to increase further with the government’s proposals to introduce new penalties of up to 100% of the fee charged for “enablers” of failed tax avoidance arrangements. While these proposals were dropped from the Finance Bill 2017 to allow the Bill to be passed before Parliament dissolved, they are expected to make a reappearance in a future Finance Bill.
In addition, the Criminal Finances Act 2017 has introduced a new corporate criminal offence of failure to prevent the facilitation of tax evasion in the UK and abroad and the Finance Act 2016 introduced civil penalties for enablers who assist, encourage or facilitate someone else's offshore tax evasion or careless non-compliance. See our related blogs here: https://www.kingsleynapley.co.uk/insights/blogs/criminal-law-blog/hmrc-continue-to-clampdown-on-aggressive-tax-avoidance-schemes and https://www.kingsleynapley.co.uk/insights/blogs/criminal-law-blog/criminal-finances-act-2017
More so than ever accountants involved in financial reporting and tax schemes need to be acutely aware of their professional obligations. Not only is the FRC increasingly taking steps to ensure this area is meeting standards, but there can now also be criminal implications.
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