U.K. Tax Adviser Code Cracks Down on Tax Avoidance Planning

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By Ben Stupples

Nov. 1 — The U.K.’s tax advisers have received a clear warning against encouraging or engaging with tax avoidance schemes under new guidelines from the country’s top tax and accountancy bodies.

Tax advisers must not create, encourage or promote tax strategies that achieve results contrary to the intention of U.K. tax laws or seek to exploit loopholes within existing legislation, the U.K.’s seven leading tax and accounting bodies said in a Nov. 1 statement on the updated tax adviser code.

Officially known as the Professional Conduct in Relation to Tax, the revised guidelines follow the U.K. government’s call last year for the country’s tax and accounting regulator bodies to take more responsibility with establishing and enforcing standards around the promotion of tax avoidance.

Expectations “in relation to tax planning have evolved significantly in recent years,” the statement said. “Fundamental professional obligations to act with integrity and uphold the reputation of the profession and of clients would not be met if our rules did not also change to recognize this.”

The updated code of conduct takes effect March 1, 2017, with disciplinary action to follow should any member among the seven U.K. bodies break the professional standards.

“Even if someone is affected, it’s clear what they need to do, and they’ve got a few months to get their house in order,” John Cullinane, tax policy director of the U.K.’s Chartered Institute of Taxation, one of the seven tax and accountancy bodies, told Bloomberg BNA in a Nov. 1 telephone interview. “We haven’t outlawed intellectual technical analysis, which is not the same as promoting schemes.”

Tax Adviser Scrutiny

Along with the challenge to the U.K.’s tax and accounting bodies announced with the 2015 Budget, tax advisers have faced further scrutiny from the British government over the past couple of months.

Individuals who design, market or facilitate avoidance schemes—referred to as “enablers”—face sanctions of up to 100 percent of the underpaid tax, Her Majesty’s Revenue and Customs said in an Aug. 17 consultation document.

These individuals face too little exposure to the risk of financial penalties for their tax avoidance schemes. Introducing sanctions will provide a response by minimizing the financial rewards they would otherwise enjoy, HMRC said.

Overseas Tax Planning

Taxpayers with unpaid U.K. tax liabilities from overseas activity may be forced to reveal any tax advisers involved in their tax planning if the individual hasn’t paid the liability by the end of September 2018, HMRC also said in an Aug. 24 consultation document.

The September 2018 deadline coincides with the implementation date for the Organization for Economic Cooperation and Development’s common reporting standard, which it developed with the Group of 20 countries in order to fight tax evasion through the automated exchange of financial information between tax authorities worldwide.

Small Minority

Only a “small minority” of the U.K.’s tax professionals continue to promote and facilitate tax avoidance schemes, said the Nov. 1 statement from the seven tax and accounting bodies.

In August, a U.K. Court of Appeal dismissed a six-year tax avoidance dispute involving EY and Greene King Plc, the U.K.’s largest pub retailer. The decision marked a victory for HMRC over the country’s top four accounting firms, tax practitioners said, but EY’s tax avoidance scheme dated to 2003.

“This is a welcome change. Any tax planning of the kind the new guidance forbids is now anyway open to attack under a variety of anti-avoidance rules,” Tom Wesel, a partner at London-based Milestone International Tax Consultants, told Bloomberg BNA in a Nov. 1 email about the revised standards.

“And because HMRC has endorsed this new set of professional standards for tax advisers, it should also agree not to impose its proposed fines for enablers of tax avoidance where advisers comply with these new standards.”

Tax avoidance involves engaging with “the letter, but not the spirit, of the law,” involving a manipulation of the U.K. tax system that the country’s lawmakers did not intend to happen, according to the U.K. government’s guidelines.

“What it does show is that there’s no going back to the bad old days,” said CIOT’s John Cullinane about the revised guidelines in reference to when tax avoidance schemes were popular throughout the early 2000s.

“It’s quite right that our standards should reflect public expectations,” he added.

The seven professional bodies signed up to the PCRT are:

  •  Chartered Institute of Taxation;
  •  Association of Taxation Technicians;
  •  Association of Accounting Technicians;
  •  Association of Chartered Certified Accountants;
  •  Institute of Chartered Accountants in England and Wales;
  •  Institute of Chartered Accountants of Scotland; and
  •  Society of Trust and Estate Practitioners.

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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