Thursday, October 15, 2009

The beginning of the end for structured tax avoidance schemes?

Last month I referenced a watershed speech given by the Financial Secretary to the Treasury which made it clear that: Tax cheats need to think again.

I suggested that the debate is moving to consider whether those who do the deliberate and severe bending of the tax rules are just as much 'tax cheats' as those who consciously evade taxes and break the rules.

It comes as a great delight to note that the editor of Taxation magazine has just published a hard hitting editorial that further evidences the way this debate is moving. Mike Truman makes his view very clear that:
"It’s time to stop defending artificial pre-packaged avoidance schemes".
Regular readers of the TaxBuzz blog will know I am no fan of what Mike also calls "aggressive packaged schemes". And I have long disputed the view, put forward by some advisers, that accountants are at risk of negligence claims if they fail to make their clients aware of such schemes. It simply is not necessary to do this in my view.

Expect to see more debate on this subject and a draft General Anti-Avoidance Rule emerging in the not too distant future. It's inevitable in my view. Such a rule is easier to draft in theory than it will be to finalise and to apply in practice without introducing significant uncertainties in all fields of tax planning advice. I only hope that the Government consults effectively on this rather than rushing ahead with inadequately defined legislation as has occurred too often in the past.

Earlier relevant posts:
- Bending vs breaking tax rules
- Tax avoidance is a card game - the metaphors multiply
- Tax avoidance - what are you allowed to do? A simple guide.
- Tax avoidance schemes - a simple guide
- Naive promoters of tax avoidance schemes
- Five facts all accountants need to know about tax avoidance schemes
- Five more facts all accountants need to understand about tax avoidance schemes


  1. Whilst I accept that, morally, we must all pay our share to keep society functioning in the way we wish, but there is no morally correct amount of tax.

    Tax is just one cost of doing business and every efficient business (and individual) will seek to minimise it through planning, in much the same way we organise other financial matters, such as mortgages, TV packages, car purchases, pensions, etc.

    Unless the tax rules are clear and concise, there will always be planning to reduce the tax cost. A general rule is going to be unworkable, as was found with a "simple thing" like income shifting.

    It would be better to focus on the existing legal drafting than adding new genaral rules on top.

    Just saying "no" to structured planning is not an option, in my opinion.

  2. Just saying "no" to structured tax planning is very much an option. My engagement letters make it clear that I will not advise on any such schemes and not a single client has objected.

    I take the view that the promotion of aggressive schemes is unethical and, while I accept that I'm almost certainly in the minority, I wish more of my professional colleagues would do the same. It's not just government that's responsible.

  3. Nick...Does your engagement letter say to customers that you are going to decide what is unethical and what is ethical for them?

    I held the same opinion until about 2 years ago and then decided it was not for me to decide it was for the customer to decide.

    Otherwise, where do I draw the line? Are those debts really doubtful? Has the customer provided me with their mileage log so I can check private proportions? etc etc

    Every now and again a general avoidance rule gets discussed (before pre budget and budget generally) and nothing ever happens. As anonymous said, better to concentrate on getting the law right first time or you end up with the mess that is the income shifting rules or the so called "loop hole" that was the 0% Corporation Tax rate.

  4. Thanks for comments to date on this thread. A nice mix.

    A related question concerns those accountants who simply accept the figures as presented by the clients and those who ask Qs in an effort to ensure that client is not 'trying it on'.

    I've never heard of anyone inserting and later removing such a clause from their engagement letter before.

    Were I still in practice I would want to adopt the approach described by Nick. The first para of his comment is quite clear. The only reason I can think of for removing such a clause is if one has been seduced by the promise of commissions for promoting schemes. Or objections from new clients I suppose.

  5. Just to be clear - we have never had such a clause in our engagement letter. After qualifying CTA I decided tax schemes were not for me. After some sole searching I changed my mind.

    I could not decide where schemes started and good planning stopped...

    Is paying small salary/large dividend instead of commercial salary or even minimum wage acceptable?

    What about if a customer says they are not declaring dividends so they generate an overdrawn director's loan account and can claim Working Families Tax Credit acceptable?

    What about advising a customer to include his wife as a second shareholder or partner to defer income even though she is not "involved" in the business?

    I'm not convinced it is for us to decide only advise and make sure the customer is fully aware of their options. Bit like if you went to the doctor you would expect him to tell you all the options not make your mind up for you.

  6. Thanks for clarifying Simon.

    Greater minds than ours struggle with the distinction too. It's one reason why my blog posts and articles generally refer to structured or packaged avoidance schemes. They are pretty easy to spot - especially as they usually involve a fee being paid to a third party promoter, detailed consideration of a Counsel's opinion that was not prepared by ref to one's own client and so on.

    I don't accept that one has to advise on such schemes just because one is willing to give good tax planning advice where no packaged solution is involved.

    I'll ponder the doctor analogy. My first thought is that it's a good one.

    Assume I went in with a cold and the the doctor started telling me about this amazing new medicine that could get rid of my symptoms. I'd be interested. The medicine is costly but worth it as I'll be quickly cured. Later he explains (or maybe omits to tell me) that the medication is experimental, gives some users severe headaches and that it can be years before they stop. Oh - and by the way your cold could come back.

    The doctor knows that hardly any of his patients would want to take the medicine if he gives them the full picture. So he chooses not to waste his time or theirs by talking about it. I think that's a perfectly reasonable approach.