Treasury should introduce a code of conduct for tax advisers, say MPs

Out-Law News | 26 Apr 2013 | 4:51 pm | 3 min. read

The Treasury should introduce a code of conduct for tax advisers, setting out what is acceptable in terms of tax planning, said a report of the Public Accounts Committee (PAC). Compliance with this code should determine whether or not these firms can access Government and other public sector work, the report recommended.

Accountants have pointed out that tax advisers are already governed by a code of professional ethics set by professional bodies including the Chartered Institute of Taxation and accountancy bodies.

Tax expert Jason Collins, of Pinsent Masons, the law firm behind Out-law.com, suggested at the time of the PAC hearings, that there should be a 'kitemark' to identify responsible tax advisers that meet certain standards.

"A 'kitemark' would make it easy for businesses and consumers - and government - to identify the advisers that engage in responsible tax planning where all the risks and benefits are properly communicated to the client, and also to be aware of those whose business model is to push ideas to clients primarily to generate sales," he said. "The kitemark would not endorse the quality of the advice, but the way in which it is delivered."

MPs on the PAC expressed concern that the 'Big Four' accountancy firms often second senior staff to HM Revenue & Customs (HMRC) or the Treasury to advise on the formation of new tax rules, saying that this creates a perception that the Big Four "wield undue influence in the creation of legislation, in their own interests and those of their clients."

The PAC, chaired by MP Margaret Hodge, said it is "very concerned by the way that the four firms appear to use their insider knowledge of legislation to sell clients advice on how to use those rules to pay less tax".  It recommended that the proposed code of conduct for tax advisors should cover managing conflicts of interest where a firm has advised government on new tax rules and then provides advice to clients on the same rules.

Ian Hyde, a tax expert at Pinsent Masons, said "in seeking to limit the interaction between tax advisers and HMRC there is a risk that the understaffed HMRC will lose access to the very expertise that they need. Without Big Four secondees, HMRC will have to spend more on hiring from the Big Four”.

Responding to the criticisms the Treasury said "The analysis and conclusions in the PAC report bear almost no resemblance to reality of what Government is doing or what is happening. In particular, as a matter of principle, the suggestion that Government shouldn't work with business and indeed anyone affected by its policies is totally absurd."

However, Jason Collins suggested that a register of secondees from private practice to Government would provide a measure of transparency.

New rules apply from this month forcing those bidding for certain Government contracts to self-certify that they have not been involved in certain types of tax avoidance. The summary to the PAC's report recognises that "this is a step in the right direction" but says that the rules "are narrowly focused" and would not cover those companies providing tax advice. The PAC says the rules "would allow firms to win government contracts whilst also advising on schemes that allow their clients to avoid tax."  

Jason Collins said that "whilst it has been envisaged that bidders will be certifying in respect of their own tax compliance, the procurement rules say nothing about the obligation needing to be in respect of your own taxes." He said "A change of policy could mean that in future these rules could be applied to professional advisers in respect of advice they have given to clients”.

The report said that HMRC "appears to be fighting a battle it cannot win in tackling tax avoidance". Margaret Hodge said "Our inquiry has exposed the continuing weakness of HMRC in its efforts to deal with tax avoidance. It is engaged in a never-ending game of cat and mouse".

However, Jim Harra, HMRC's Director General of Business Tax, said: "The facts show that we are not only aggressively fighting battles against tax avoidance, but we are winning them."

He said that since the end of 2012, HMRC has won 11 Tax Tribunal cases against avoidance schemes, two of which were against large corporates. In the last three years alone HMRC has litigated more than 50 major avoidance cases, Harra said.

The PAC also called for the simplification of the UK tax system. The Office of Tax Simplification (OTS) was established to provide the Government with independent advice on how to simplify the UK tax system. It is, however, "grossly understaffed" and, according to the report, employs fewer than six full time staff. The report recommended "more radical progress in simplifying the UK's tax code" and suggested that the OTS should be better resourced.

The PAC held hearings in November and December 2012 to investigate "why some multinational companies pay little corporation tax despite doing a large amount of business in the UK", and why "some individuals can get away with avoiding tax through the use of contrived schemes". This included interviews with representatives of Google, Amazon and Starbucks.  In January 2013 they took evidence from four large accountancy firms "to understand their role in tax avoidance." These firms – the so-called Big Four accountancy firms - were KPMG, Ernst & Young, Deloitte and PWC.

The PAC's investigation followed a significant amount of negative press attention concerning tax planning practices, particularly allegations of 'profit shifting' used by multinational companies.