Intimidating tax advisers is not the best way forward

Tax advisers are in the firing line as never before. All year, the Inland Revenue and Customs & Excise have been hacking away – with mixed success – at advisers’ perfectly legitimate tax schemes. Shadow Chancellor Gordon Brown joined in when he slapped a gagging order on KPMG’s tax advisers in May and roundly vilified honest practitioners. And, in last Tuesday’s Budget, the Chancellor officially declared war on the profession by unveiling the fiercest assault yet on legitimate tax planning.

This attritional campaign has, in truth, been operating for longer than the past 12 months. Over the past 20 years, the Government has been trying to blur the distinction between avoidance and evasion. But it is only recently, as anticipated public revenues evaporated in the face of an oncoming election, that any sort of tax planning which restricts the Treasury’s take has become seen as fair game for investigation. That Kenneth Clarke’s speech lumped smugglers and benefits fraudsters in with multinationals as birds of a feather shows just how aggressive the Treasury has now become.

Yet despite the bluster, the Government’s Spend to Save initiative may prove no more than an expensive damp squib. For all the investigations launched, and the inconvenience and additional business costs incurred, eminent tax practitioners believe Government will be disappointed with the extra money squeezed from its prime suspects, the multinational set.

There is even a school of thought which maintains companies are currently over-paying their taxes to the tune of 15% – the Government’s heightened emphasis on tax might well alert some corporations to their unnecessary largesse.

The better Government response to countering nasty and unexpected tax shortfalls is threefold: clearer tax legislation from Parliament in the first place; a better understanding of the European tax legislation that ultimately calls the legal shots these days; and wider, earlier consultation with the tax community in order to avoid messy and embarrassing fiascos like the recent three-year-limit VAT rumpus (non-executive directors on the Revenue Board would be an enormous step forward).

As we all know, the Tax Law Review Committee has been invited by the Revenue to consider how the tax system should best aim to minimise or prevent avoidance. Fixed at the forefront of its collective mind, the committee should always focus on the fiduciary duty every finance director owes his shareholders to explore all legal opportunities to reduce the tax bill. Tax is a business cost, and like every other cost needs to be managed. This is a long way from offensive tax planning, yet not, it appears, in the Revenue’s thinking.

Creating a culture whereby companies are intimidated into disregarding legitimate opportunities is a bully-boy tactic to be condemned wherever it surfaces. Blanket-bans by the Revenue help inculcate this unhealthy culture in which businesses do not know where they stand. Only carefully targeted and worded anti-avoidance measures should be issued – at least with these, businesses know where they are. This is an essential pre-requisite to ensure the right of companies to plan their tax affairs with confidence.

The Revenue should tread carefully lest it goes too far in denying this legitimate right.