At last week’s Conservative Party conference, within the broad framework of seeking to achieve a ‘fairer economy’, the Prime Minister reiterated the government’s pledge to stamp out tax avoidance with this warning: “If you’re a taxdodger, we’re coming after you. If you’re an accountant, a financial adviser or a middleman who helps people to avoid what they owe to society, we’re coming after you too. An economy that works for everyone is one where everyone plays by the same rules. So whoever you are – however rich or powerful – you have a duty to pay your tax. And we’re going to make sure you do.”
The reference to accountants, IFAs, or middlemen echoes proposals for sanctions (including civil penalties and ‘naming and shaming’) against those who design, market or facilitate the use of tax avoidance arrangements that are defeated by HMRC. The proposals (which also lists other possible enablers as ‘company formation agents, banks, trustees and lawyers’) are set out in the government’s consultation paper published on 17 August 2016 ‘Strengthening Tax Avoidance Sanctions and Deterrents: A discussion document’1. The closing date for comments was 12 October 2016 and the government is now analysing the feedback that it has received.
While one might ask why successive previous governments have not legislated effectively against avoidance before now, or what is meant by ‘paying your fair share of tax’, there are more immediate questions for businesses, the insurance market, and professional advisors:
Companies will need to consider even more carefully and seek specialist advice on what may or may not be permissible tax planning.
Insurers and their insureds will need to consider whether claims by current/former clients of the insureds whose tax mitigation strategies fall foul of new anti-avoidance legislation are covered by applicable policies.
Professionals who have been engaged in the design, implementation, or promotion of tax mitigation strategies will need to consider whether they have sufficient D&O and PI insurance cover.
Whether legally privileged material forming part of the tax mitigation strategy documentation will be made the subject of disclosure applications by competent authorities/third parties on the basis that the iniquity exception applies.
Those in possession of tax mitigation documents should decide whether to put in place emergency response procedures for dealing with search and seizure processes that are part of anti-avoidance investigations.
Tax experts are concerned that current proposals for what will constitute ‘enabling’ tax avoidance are too vague and ill-defined as they may apply to advisors providing perfectly legitimate and acceptable tax planning services. It is also not clear whether the legislation will have retrospective effect and apply to tax planning undertaken many years previously. Earlier this week the Chartered Institute of Taxation published its comments on the government’s consultation paper which identifies these concerns2. The Institute of Chartered Accountants of England & Wales, while supportive of reasonable measures to tackle “highly dubious tax avoidance schemes” and those who promote them, has previously identified similar concerns for its professional members3.
Until we know how the new Finance Act will give effect to the current purge on enablers of avoidance, and whether it will only target tax planning that is ‘aggressive’, the full implications are not obvious. However, if uncertainties which industry experts see as problematic are not addressed, unjust outcomes seem inevitable. This could also prompt increases in the number of disputes between professionals and their clients (as to what tax planning services should have been provided) and levels of compensation that are claimed. How far the concept of fairness will reach remains to be seen.