New rules have been put into place to discourage tax avoidance with the spotlight on the accountants and advisors who help people bend the rules.
A fine of up to 100% of the avoided tax has been suggested as suitable penalty for those who actively encourage tax avoidance.
HMRC have traditionally gone after the individuals and companies who seek to cheat the system, rather than focusing their attention more on those who advise and help people to do it in the first place. This way they may be cutting tax avoidance off closer to the source.
Financial Secretary to the Treasury, Jane Ellison said “these tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market.”
While the message is a clear warning, the government is keen to remind people that it’s not trying to punish people for seeking legitimate ways of cutting their tax bills.
What do accountants have to say?
Richard Murphy, chartered accountant and academic said that it would be unlikely to result in any prosecutions but would act as an “amazing deterrent” to financial advisors considering offering tax avoidance advice. This would be because any prosecution would harm their ability to get professional indemnity insurance, which is required for them to continue working.
“Lawyers and accountants will not take the risk of selling these schemes,” he said. “There’s a risk of a 100% fine so they’ll think they can’t afford to do it. Every honest accountant will be jumping for joy this morning that those who have been selling these schemes will be put out of practice.”
However, not everyone is happy with the news. Some accountants are concerned that this could potentially lead to them paying fines despite not giving advice that is illegal.
Why the crackdown?
Tax avoidance has been making headlines for some time now. With the Panama Papers in particular bringing the subject of tax avoidance to global public knowledge, governments are now under more pressure from the people to do something concrete to tackle it.
The larger problem of tax avoidance
While governments state that tax avoidance is a concern they plan to address, many feel that they’re not doing enough to tackle it. This is particularly because they tend to ignore the tax affairs of larger companies like Amazon and Google who are always keen to avoid paying the same rate of tax that smaller companies and individuals are expected to pay.
The fear is that if the larger companies are taxed more, that they’ll leave the country and take their profits and job creation elsewhere. Then the government will really see no tax from them and the government will receive even less in taxes.
The EU recently made headlines around the world for demanding that Apple pay up to €13bn (£11bn) in Irish back taxes. The European Commission found that Ireland had provided Apple with illegal state aid in tax avoidance. They did this by suggesting that Apple list all of its profits across the EU as originating from a “head office” that existed only on paper in Ireland.
Whether Apple will end up paying the taxes back is unclear. They have already dismissed the idea as unfair and have launched an appeal, alongside Ireland’s own government.
It’s not likely to be a situation that is resolved quickly or easily. The money that has been demanded doesn’t include interest that will have to be backlogged several years meaning that this could take several more years to resolve.
Some are saying that the European Commission has done more harm than good because of the damaged relations between countries. In order for the EU to enforce its laws it requires lots of international co-operation. This move has created a rift between countries, the EU and Apple.
With larger companies that operate all over the world, international cooperation is going to be very important. As this has only raised tensions, it may now be a setback when it comes to nations agreeing to a common solution and co-operating.