Tax policy, practice and planning

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Donald-Drysdale By Donald Drysdale for ICAS

4 May 2017

Donald Drysdale feels that the forthcoming ICAS Tax Conference, ‘Tax in Uncertain Times’, could scarcely have been more aptly named.

Introduction

To prosper, businesses require stability and certainty.

Tax is not a simple levy on business profits.  Governments introduce complex tax provisions and targeted reliefs in their efforts to encourage and incentivise certain behaviours.  If the rules to achieve these ends keep changing, the desired business behaviours are unlikely to materialise.  Stability is crucial.

In making strategic decisions about their operations, businesses need to know how they will be taxed.  They have to weigh up options such as where to locate headquarters, where to manufacture, and where to base selling activities.  Such fundamental commercial choices can have far-reaching tax repercussions, and the territories that offer certainty are likely to be favoured.

It is hard to identify any period in recent British history, since the end of the Second World War, when taxpayers generally and businesses in particular have faced so many uncertainties.  Will Brexit be soft, hard or chaotic?  Will the UK as we know it disintegrate? What international trade deals will exist in the future – not only for Britain outside the EU, but possibly also for Scotland outside the UK?

Tax policy

In the past month we have seen Chancellor of the Exchequer Philip Hammond deliver his first Budget at Westminster, while Derek Mackay, Scotland’s Cabinet Secretary for Finance and the Constitution and a keynote speaker at this year’s ICAS Tax Conference, has secured approval for his first Budget at Holyrood.

For politicians, setting tax policy is fraught with difficulties. Hammond received a salutary lesson on the sensitivities of altering relative tax burdens – National Insurance contributions – for different business sectors. Mackay found the need to agree a political compromise in order to ensure support for proposals from the minority SNP administration.

Tax policies are under the microscope.  In its Green Budget in February, the Institute for Fiscal Studies (IFS) reported on the Chancellor’s plan to continue cutting day-to-day public service spending, while it noted also that tax is set to rise as a share of national income to its highest level since 1986/87.

The way tax policies are made is undergoing changes, with Hammond moving to an Autumn Budget as the main annual event in the UK tax calendar.  This is a change which will impact on Scotland, Wales and Northern Ireland in their annual Budget processes.

Tax practice

Typically, businesses need help when faced with uncertainties about tax laws, and the helpers they turn to most often are their professional tax advisers.  Clients expect practitioners to know all the answers – even to questions which tax specialists recognise as unanswerable.

Those in practice who give tax advice are at risk on several counts.  They need to decipher complex tax law – often when it is relatively new and there may be little authoritative guidance available.  They have to apply the complexities of the law to their clients’ circumstances, which they may know imperfectly from the outside.  And they must be able to explain the implications of the law, and the associated risks, in terms which their clients can understand.

Prudent tax advisers will take positive steps – for example through their engagement letters, and in the way detailed tax advice is presented – to ensure that their advice is not misunderstood or taken out of context.  In doing so they should always follow the guidance set out in Professional Conduct in Relation to Taxation (PCRT) as updated with effect from the beginning of this month.

Tax planning

PCRT has always contained important guidance on integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.  However, from 1 March the professional bodies have strengthened those five fundamental principles by introducing five new standards for tax planning that members must observe.

As in the case of earlier revisions, HMRC have given their blessing to this new version of PCRT – accepting it as the standard by reference to which each professional body will judge what is acceptable and what is unacceptable behaviour by its members. But it seems that HMRC are now taking an altogether more forceful stance – with anecdotal evidence suggesting that they have quoted from PCRT in challenging the activities of particular tax agents.

The dividing lines between acceptable and unacceptable tax planning have shifted considerably in recent years.  In view of the interest HMRC seem to be taking in the newly-updated PCRT, it is crucial for tax practitioners to know where the boundaries are now.

Conclusion

For businesses and other taxpayers who deal with HMRC, and practitioners who advise them, it can be of great value to meet with leading tax policy-makers and other influential figures in the world of tax and hear what they have to say.

Derek Mackay, together with Professor Jeffrey Owens, Director of the WU Global Tax Policy Center (WU GTPC) at the Institute for Austrian and International Tax Law, are keynote speakers at this year’s ICAS Tax Conference, which is being held in Edinburgh on 23 May. The conference is chaired by Aidan O’Carroll, Global Compliance and Reporting Services Leader, EY(UK).  For those seeking to find their way through the web of uncertainties facing them and their clients, the day should provide a valuable update and a wealth of networking opportunities.

Article supplied by Taxing Words Ltd


The ICAS Tax Conference 2017 takes place at the Radisson Blu Hotel, Edinburgh on Tuesday 23 May. Cost: Members and Students: £192 Non-members: £234 CAPS Firm: £174. All prices include VAT.

Topics

  • Tax

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