Tax planning, evasion, avoidance

Question 1

Tax planning

Answer 1

A tax advisor is expected to act in their client’s best interests. Tax planning involves using the tax legislation as it was intended to legitimately minimise the client’s tax bill.

Question 2

Tax Avoidance

Answer 2

A form of tax planning

Involves acting within the law, but exploiting the loopholes in the law to minimise the tax liabilities of the client. e.g. spouse exemption, ISAs

GREY AREA - morally suspect. It follows the letter of the law, but not the intention of the law.
Careful not to follow abusive tax arrangements with highly artificial/contrived steps

Question 3

Tax evasion

Answer 3

Tax evasion is using ILLEGAL means to reduce a tax liability.

This usually means deliberately either understating income or overstating expenses.
Misleading HMRC to pay less tax.
This can lead to criminal prosecution.

Question 4

Agent

Answer 4

Prepares documents for client e.g. submits tax return

Act on clients behalf (low risk)
client responsible for accuracy

Confidentiality KEY - cannot disclose info unless authorised by client
Unless - Money laundering suspicions, court order, HMRC exercise statutory power to obtain information

Question 5

Principle

Answer 5

Provide tax advice on consequences of actions

Accountant is responsible for advice on tax consequences if incorrect - high risk

Question 6

PII

Answer 6

Must be held by all accountants in practice (helps to defend against cost of settling / defending claims of negligence)

Minimum level is gross fee income < £600,000
Higher of:
£100,000
2.5 x gross fee income

Otherwise minimum = £1.5 mill

Must be held for 2 years after retirement ideally 6

Question 7

Error by HMRC e/g/ incorrect repayment of tax

Answer 7

Check EL / ask client if you have authority to act
Warn client to disclose error
Mention legal consequences of not (criminal offence, fines , penalties)
Keep written record of all correspondence and actions taken
Advise that if not disclosed / consent not given to contact HMRC you will cease to act
Inform HMRC in writing you no longer act for the firm (don’t disclose why)
Consider MLRO report if constitutes tax evasion

Question 8

Conflict of interest - potential secondment to HMRC

Answer 8

Avoid COI situations:
Not be involved with matters relating to his employer or employers clients
After secondment should not be involved with affairs of any taxpayer the secondee worked with whilst at HMRC

Question 9

Safeguards for COI

Answer 9

Use separate engagement teams
Information barriers - e.g. firewalls
Issue guidelines to team members re: security and confidentiality
Use confidentiality agreements for partners/employees
Independent 3rd party to regularly review safeguards (e.g. Independent partner)
“If the conflict cannot be resolved consider not accepting/resigning from one
engagement.”

Question 10

COI Actions

Answer 10

1) Notify relevant parties of actual / potential COI
2) Obtain consent from relevant parties to act - if given, follow safeguards
3) If consent is refused, cease to act for one party involved

Question 11

GDPR

Answer 11

Anyone who handles data subject to Data Protection Act 2018
Overseen by Information Commissioner’s Office (ICO) - must be informed within 72 hours of a breach
Non-compliance leads to - Criminal conviction, fine of higher of £20 mill or 4% of firms global turnover

Question 12

Defences to Money laundering:

Answer 12

Lack of training - offence to employer
Privilege reporting exemption - suspects person engaged in ML is exempt - when knowledge came from privileged position
Occurring outside UK and not illegal where occurring
Reasonable excuse - didn’t actually know it was happening