Fiducia Wealth Management
Posted in Guest Editor, Tax Planning on 08.10.12

Geraint Jones – Reeves Accountancy

Complex tax arrangements are once again in the gun sights of Government, with the Treasury announcing plans to force financial advisers who promote “aggressive” avoidance schemes to surrender a list of their clients.

In short, it is intending to name and shame those guilty of tax avoidance. This is cause for concern on several fronts, not least because tax avoidance is legal. It is wrong to punish people based on the subjectivity of morality rather than the objectivity of the law. Tax evasion is what is illegal, and Her Majesty’s Revenue and Customs, HMRC, already has the power to name and shame anyone guilty of evading more than £25,000 in tax.

The scale of the problem is arguably smaller than the noise that surrounds it. Last year, HMRC collected £474 billion in tax. The tax gap, the difference between what is owed and what is collected, is about £35 billion. Tax avoidance, as opposed to evasion, accounts for about 14 per cent of that gap, or £5 billion. This figure is probably amongst the lowest in the world, because contrary to the more inflamed claims, the vast majority of wealthy people pay their dues. In fact, the top one per cent of individuals pay 26 per cent of all income tax.

But obviously some advisers do fly too close to the sun, and the Government does seem to be trying to draw a distinction between avoidance, and evasion. The problem is that the Treasury has not produced any clear definitions. Instead, the talk is about “artificial structures that aggressively exploit reliefs contrary to Parliament’s intended purpose through contrived, artificial schemes,” and circumstances “where the tax consequences of an arrangement are so clearly contrary to the intentions of Parliament, where the nature of the arrangements so clearly lack a commercial, non-tax rationale and where the results look too good to be true.” But says who and about what exactly? The definitions are worryingly woolly, something the Government has to its credit acknowledged. The Treasury will be spelling out with some precision, we are told, what constitutes legitimate tax planning and what crosses the line. After all, in some cases it is the taxpayer who is exploited by unscrupulous advisers, and they need protection as well.

But at the heart of this attempt to claw back revenue is the question of handing over client lists. Whether the Government has power to legislate that advisers pass on names is itself a moot point. The Supreme Court is due to consider in November whether the same legal privilege cherished by lawyers, which broadly protects them from disclosing their business dealings with clients, should be extended to chartered accountants, who have never had the same protections and think that they should.

Meanwhile, what should the honest taxpayer do with guns, politically, to the Left of him and guns to the Right? The answer is a combination of due diligence and common sense. There are many ways to optimise tax affairs, some more risky than others. Most tax avoidance schemes are extremely complicated and are way beyond the technical expertise of the people selling them. The only issue interesting some advisers is closing the sale and receiving often substantial commission.

This creates problems for taxpayers as they are completely dependent on the integrity of their adviser. Ultimately, the sensible way forward is to find an adviser to trust. There has never been an excuse for evading tax, but avoiding it is going to require considerably more skill in future. Choose carefully.

Geraint Jones is a private client partner and tax planning specialist at accountancy firm Reeves


The views in this article are that of the author’s and do not necessarily reflect those of Fiducia Wealth Management Ltd.

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Fiducia Wealth Management
Posted in Guest Editor, Tax Planning on 08.10.12