Does recent guidance set clearer parameters for taxation loopholes?

9 December 2016

Private Client analysis: The UK’s accountancy and tax bodies’ latest guidance to tax advisers and agents, particularly in relation to avoidance schemes, is examined by Julie Matheson, a partner in the regulatory team at Kingsley Napley who specialises in financial regulation.

Original news

Professional Conduct in Relation to Taxation—guidance by professional bodies

The leading UK accountancy and tax bodies have drawn up five new standards expected of tax advisers and agents which will be included in the forthcoming update of their Professional Conduct in Relation to Taxation guidelines, to take effect from 1 March 2017. In particular, the update will make clear that the bodies’ members must not seek results that are contrary to the clear intention of Parliament in enacting relevant legislation or that are highly artificial or highly contrived. The guidance was prepared jointly by the Chartered Institute of Taxation, the Association of Taxation Technicians (ATT), the Association of Accounting Technicians, the Association of Chartered Certified Accountants, the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Scotland and the Society of Trust and Estate Practitioners.

What is the background to this guidance?

It is evident from press and government commentary that tax evasion and tax avoidance are matters of concern. Tax evasion is clearly illegal. The boundaries in respect of tax avoidance schemes have, in the past, been somewhat blurred.

In order to provide guidance to professionals who advise on tax schemes to ensure that they stay within their ethical and legal requirements, the Chartered Institute of Taxation, in conjunction with a number of other bodies, has, for more than 20 years, published guidance on the standards expected of tax advisers and agents. Several iterations of the guidance have been published in the last two decades, which have contained guidance on a number of topics—the guidance has been amended to incorporate legal change throughout that period.

How and why has the guidance been updated?

As part of the spring 2015 Budget, various new measures were announced by the government, which sought to target both those who persistently enter into tax evasion or avoidance and their advisers. A new strict-liability criminal offence for offshore evaders was introduced, along with a new offence of corporate failure to prevent tax evasion or its facilitation. New civil penalties were also announced, which were intended to expose advisers to the same level of financial penalty as the perpetrators themselves.

Notably, for accounting and tax professionals, a joint government and HMRC proposal that discussed the issue 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’.

In response to this call to action, the accountancy and tax regulatory bodies combined forces to prepare guidance that seeks to address challenges faced by professional advisers. The guidance clarifies the behaviours and standards expected of members when working in tax. Previously the guidance indicated that high-level ethical principles must be adhered to and that advisers must act with integrity, objectivity, professional competence and due care, must respect confidentiality and must demonstrate professional behaviour. The latest version of the guidance clarifies the behaviours expected under those five core principles by adding five new standards for tax planning which members must observe. These include a standard which states that ‘members must not create, encourage or promote tax planning arrangements or structures that set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation or are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation’.

This makes it clear that promoting tax-avoidance schemes will be viewed unfavourably by the professional bodies.

To whom does the guidance apply?

The guidance applies to all members of the accountancy and tax regulatory bodies set out above. The principles of the guidance also apply to all members of those bodies who practise in tax, including those :

  • working for HMRC or other public sector bodies or government departments
  • dealing with their own tax affairs or those of family members, colleagues, charities etc, even if the work is done for no payment, and
  • employees attending to the tax affairs or a client or their employer

What does this mean for private client practitioners and their clients?

For the majority of practitioners who practise firmly within the parameters of the law, the guidance will not be difficult to adhere to. However, for those who previously sought to identify and utilise taxation loopholes, the guidance sets out clearer parameters as to what behaviours are unacceptable to the professional body of which they are a member. A failure to adhere to the provisions of the guidance may lead to an investigation by their regulatory body.

Clients may also find that professionals are wary of any schemes, which may fall foul of the code, and may tailor their advice accordingly.

Although professional bodies have thus far shied away from bringing disciplinary cases in relation to tax avoidance, it is likely that this situation will change, given the enhanced spotlight being placed upon the design and implementation of these schemes.

Interviewed by Robert Matthews.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor

This article first appeared on Lexis Nexis on 22nd November 2016.


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