Tax Planning: risky business for PI insurers?
Bobby Payne, Broking Director at ICAS partner* Bluefin looks at the implications of tax avoidance schemes on PI Insurance amidst continuing debate over what constitutes evasion, avoidance and good tax planning.
Clearly tax avoidance schemes is the most talked about issue of the day, with well-known names such as Jimmy Carr, George Michael, Katie Melua, Sir Michael Caine, Anne Robinson, David Beckham and Sir Alex Ferguson all investing in them in recent years. I spoke with Virginia Hickley of world-class law firm, Mills & Reeve LLP and Martin Thomas of specialist professional indemnity insurer, Epic Underwriting, to get their views on this hot topic.
So what are tax avoidance schemes?
Tax avoidance involves exploiting loopholes to minimise tax that would otherwise fall due. It used to be applauded as innovative tax planning, or tax mitigation, but has now become something of a dirty word.
Tax avoidance should be distinguished from tax evasion (which is illegal and dishonest) and tax mitigation, or planning, which is a perfectly legal way of benefiting from a tax advantage intended by parliament.
The General Anti-Abuse Rule (GAAR) was introduced in July 2013, giving new powers to target the most aggressive tax planning schemes.
Promoters or investors of a scheme bearing the hallmarks of tax avoidance must comply with the rules on DOTAS (Disclosure of Tax Avoidance Schemes). Following a disclosure, HMRC will assign a number to the scheme, and it will almost certainly be investigated.
The latest power in HMRC's armoury is what is known as "accelerated payments", intended by HMRC to "widen the circumstances where the disputed tax sits with the Exchequer during a dispute". This unpopular power means that taxpayers may be forced to pay the disputed amount even where a case has been undecided. HMRC says it "puts all taxpayers involved in avoidance schemes on the same footing".
It is estimated that accelerated payment notices relating to existing tax avoidance schemes currently under dispute will be issued to approximately. 33,000 individual taxpayers concerning £5.1 bnof tax.
The amounts at stake are worrying insurers and tax planning departments in accountants' firms alike. Underwriters will say tax planning has replaced auditing as the riskiest type of workfor accountants and that professional indemnity premiums will inevitably rise if the level of claims increase as anticipated.
Professional indemnity insurers are carefully monitoring their exposure and how this may impact their policies. In our experience, the majority of cases reviewed by insurers where there is a tax scheme exposure have been in circumstances where the accountant has provided the introduction to the scheme, rather than offering direct advice. There is still an increased risk here even if the accountant has not received a commission for the introduction.
It would be wrong to suggest that claims relating to tax advice are new. Tax advice has always been a significant (and difficult) part of what an accountant does and has always led to claims, however, claims in the past have been made either because of changes to legislation or because a saving on one tax may have inadvertently led to a payment of another. What we are now seeing is that it is harder than ever to discern whether you are falling on the right side of the tax avoidance/planning line. Now you must act within the "spirit" of the law, and not just within the letter of it.
This article was taken from Bluefin Professions' market review publication 'Adding up the risk'. To [MM6] read the full article please visit http://www.bluefinprofessions.co.uk/accountants-adding-up-the-risk/peeling-film-tax-avoidance-claims/
Bluefin Professions are working with ICAS to provide access to exclusive insurance solutions especially for ICAS members. If you want to find out more simply view their offer on the ICAS Website, call Lorraine Marchetti on 0131 255 0336 or visit the BlueFin website at www.bluefinprofessions.co.uk/icas-members.
* ICAS members are reminded of their obligations as detailed in the document Professional Conduct in Relation to Tax (pdf download).
|About the Author|
Bobby Payne has over 13 years experience in the insurance industry, 10 of which specialising in professional indemnity insurance. Bobby is the Broking Director for Bluefin Professions with responsibilities including overseeing the internal account handling teams, maintaining and improving insurer relations and working closely alongside the Claims and Sales Directors to provide outstanding levels of client satisfaction.