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Correspondence from readers on tax arrangements and the popular press and research and development claims.
Tax breaks and the law
In his article on the subject of VAT on private jets and yachts imported into the Isle of Man (‘Plane sailing’, Taxation, 12 March 2020, page 18), Sam Brodsky notes that The Guardian reported inaccurately that the arrangements facilitate tax breaks arising from an illegal loophole. Worryingly, such misleading reportage is not unique. Other newspapers regularly report that various international companies are not paying their ‘fair share’ of tax, deliberately overlooking that no one arbitrarily decides to pay tax at a level that they consider fair rather than at a level fixed by law.
This is not just sloppy journalism. It places the blame in the wrong place. The companies concerned are behaving in accordance with the law and not, for example, like someone who fiddles their expenses. It is not fair to blame companies for observing the law. If the law gives what is regarded as ‘the wrong answer’, it is up to the law-makers to change the rules. Tim Friedman.
Regulating R&D claims
I read Andrew Hubbard’s views on research and development (R&D) tax claims (Taxation, 27 February 2020, p5) and recognise that the circumstances outlined are not confined to R&D. As property taxation specialists with many years’ experience of capital allowances claims, we too have advised some taxpayers that we did not believe their circumstances merited a claim, only to find later that one had been undertaken by a so-called ‘tax consultant’ who has selectively ignored, say, an election under CAA 2001, s 198 or conjured up numbers for asset expenditures with little or no evidential basis. These ‘experts’ invest in glitzy marketing to beguile clients, often claiming special relationships with HMRC or approved methodologies.
Andrew asks how firms that stretch the boundaries beyond reasonableness are to be tackled. One key aspect would be to choke off their supply of naive clients by the industry prohibiting referral fees. Despite the Professional Conduct in Relation to Taxation (PCRT) guidance setting out clearly the tax sector’s disdain for such fees, many regulated and established firms (lawyers, accountants and surveyors) still push client referrals at these telesales boiler rooms for the commission income. Their clients, as irregular purchasers of tax services, are usually unaware of the commission or introductory fee and believe the referral to be based on ‘best advice’ – in other words, that their accountancy firm has referred them to the best adviser for their requirements. The reality is they are often the firm offering the highest commission.
We had one accountancy practice wanting us to pay a commission to sign up as an exclusive capital allowances partner – we declined.
HMRC must also play its part. However, to date, it shows no appetite to help address the bad practice and borderline ‘advice’ peddled by these outfits. The department should be challenging the claims of approved methodologies and seeking injunctions against firms with misleading claims in their literature and on their websites.
Those firms accumulating some track record for investigated claims being rejected and found to have limited substantive credibility should be exposed – ‘named and shamed’ – in the same way as for errant taxpayers. It should be accepted that there needs to be a de minimis threshold to protect the ‘careless’ or irregular case.
Accountant, architect and optician are all protected titles, but anyone – irrespective of background, training, qualifications or experience – can call themselves a tax adviser.
Another potential tool to weed out rogue traders might be through the money laundering regulatory (MLR) process because all tax advisers – irrespective of background – must be regulated by an approved body such as the ICAEW, CIOT or the default regulator – HMRC. Hence, any adviser found with deficient claims should have their regulatory processes checked and be restricted from trading if they do not meet the MLR requirements. Perhaps it should be mandatory to add the MLR registration references (or the firm’s regulatory references) to advisory notes and tax computations to demonstrate to HMRC that the advice has come from a registered or regulated firm.
I do believe that this area of commissions, introductory fees and marketing fees across the tax spectrum – whether pensions, estates, inheritance tax, capital allowances and R&D – warrants some cleansing sunlight. Property tax specialist.
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