HMRC’s intention to farm its dirty work out to tax advisers and effectively turn them into spies could have an adverse effect on the increased compliance it is trying to achieve, ultimately resulting in more work for the taxman.
Tax experts have scrutinised HMRC following a recent consultation in which it proposed that tax advisers should be made to write to their clients informing them of their obligation to tell the taxman about any offshore assets.
The consultation itself – which began on 1 February 2016 - wasn’t published on HMRC’s website, and originally only allowed for 12 days to gather responses, before pressure from tax experts ensured the consultation period was extended to 22 April 2016.
HMRC claims this was due to time constraints. But the sheer haste in which it attempted to force its proposals through, and the fact that it wasn’t made public, go to show that the proposed measures weren’t given proper care and consideration.
Least of all for the tax advisers themselves, who HMRC appears to be more than happy to wedge between a rock and a hard place. Respondents to the consultation, which proposed penalties for failing to comply, have already flagged up the potentially damaging impact that the measures could have on the relationship between advisers and their clients. After all, no tax adviser wants to be perceived as a HMRC stooge, but that’s just the tip of the iceberg.
It’s obvious that a client with any remotely questionable arrangement will naturally be very reluctant to speak to their adviser for fear of being reported to HMRC. The outcome of this is a potential rise in non-compliance, an almost certain increase in errors on behalf of the client, ultimately generating more work for HMRC.
And that’s only taking non-compliance on behalf of the client into account. For all of the by-the-book advisers, there are those that are willing to bend the rules every now and again. Implementing strict reporting requirements is only likely to see these advisers turn to offering ‘back street’ advice.
And tell me who’s going to offer more aggressive tax planning advice: The tax adviser in the ‘black economy’ who is speaking to a client entirely off-the-record? Or the tax adviser who isn’t forced to report back to HMRC and so still has a sensible working relationship with their client?
Then there is the risk that more clients will unwittingly engage in tax avoidance schemes. By seeking out an adviser who they perceive can save them tax, it’s very easy for taxpayers to be peddled a tax avoidance scheme masked as tax planning.
If tax avoidance is still as prevalent as HMRC thinks it is, despite all of its efforts to clamp down on it, it might just be because those who commit and supplement tax avoidance have too much nous about them to reveal themselves to the taxman so easily.
Forcing tax advisers to identify less compliant clients and force them to surrender themselves to the taxman is going to do little to change the current state of affairs – unless it’s for the worse.