Quality of guidance and ‘menagerie of schemes’ was criticised when leading tax experts were questioned over government plans to crack down on tax avoidance promoters
Members of the House of Lords Finance Bill Sub-Committee questioned leading tax and business experts about government plans to tighten up the rules on promoters of tax avoidance focus adding a criminal offence to the disclosure of tax avoidance scheme (DOTAS).
The committee wanted to assess what HMRC could do to stop tax avoidance, what the repercussions would be if the government were to criminalise it and if the fears of a wider impact on the accountancy sector were ‘legitimate’.
Lord Liddle, chair of the committee, asked the witnesses: ‘You’ve all as part of your work highlighted tax avoidance schemes, why do you think these schemes continue to be marketed and what could HMRC do under its existing powers?’
Alice Jeffries, head of tax policy at the CBI said HMRC guidance was making it difficult for advisers to do their job properly.
‘HMRC should look to update some of their own guidance and keeping it up to date because a lot of advisers are relying on that guidance to make decisions and to inform their clients,’ Jeffries told the committee.
‘HMRC guidance is quite often either too woolly, too specific, too generic, or anything in between and it’s quite helpful if it’s updated in line with case law, which is something that often does not happen.’
She also said HMRC should be focusing on stopping noncompliance at the source, recommending they work more closely with the Advertising Standards Authority to stamp out rogue advertisers.
‘In all areas we’d like to see HMRC focus on upstream compliance, by that I mean the activities that take place to stop the noncompliance from occurring in the first place.
‘The Advertising Standards Authority can also get involved, if you were to apply advertising standards policy codes to most advice, to tax avoidance schemes… Is it legal? Is it decent? Is it honest? Is it truthful? No, they are mis-selling products.
‘They could be stopped by advertising standards applying things to advertisers and to the platforms that they advertise on more aggressively than they currently do.’
In his response, Mike Lewis, director of TaxWatch, said professional bodies should take a more robust position on members involved in promoting tax avoidance.
‘The number of people engaged in this activity and the menagerie of schemes out there are a bit wider than HMRC’s focus,’ said Lewis, ‘but we would take issue with the idea that this is a marketplace that continues because it’s totally divorced from the professional bodies or the regulated professions.
‘The conveyer belt that those professional standards were supposed to put in place between schemers and not being able to stay within the respected professions, that conveyor belt isn’t working.’
Committee member, Lord Leigh of Hurley, a chartered accountant himself, asked what the repercussions would be if the government criminalised tax avoidance promoters.
The only witness from an accountancy firm up before the committee was Chris Sanger, tax policy leader at EY. He said: ‘It is worth reflecting on when DOTAS was created and actually what a success it has become. It was intended to create a massive funnel to take in a whole series of things which allow HMRC to sieve out the tax avoidance.
‘That was a really good idea at the time, it created a market where people didn’t want to have anything in DOTAS, so it has been very effective. The danger of doing any of these things is that if we criminalise the non disclosure you end up flipping the switch the other way around where everyone wants in.
‘I used to call it “doubtastas” [meaning: disclosure of usually benign transactions and some tax avoidance schemes], it was that big funnel.
‘If we end up going down a criminalisation route we will lose all that benefit, I do think there is a real downside with going down this provision.’
Impact on accountants
Lord Liddle then asked if the fears of a wider impact for the sector were legitimate.
Sanger said that changes to the law could lead to accountants leaving the profession due to risk of criminalisation.
‘In my view if you’ve got that criminal offence hanging over you, you’d want to work out whether you want to be advising in that market,’ Sanger said.
‘It’s not just the firms themselves, if you believe that legal professional privilege means that this does not apply to you, then anyone wanting to advise on that will not want to be in an accountancy firm, they will want to be in a law firm.
‘Even if you did not know if it was going to work, you would leave for the law firm because it gives you another defence, as an advisor you’ll sleep better at night knowing you were at a law firm rather than an accounting firm, so it distorts the market.’
Pictured Alice Jeffries, head of tax policy, CBI