Tax planning and tax avoidance schemes are under scrutiny in the media and by HMRC. Tax professionals may well feel as if the sands are, in recent times, shifting. Given the media attacks on aggressive tax planning and tax avoidance schemes, and the debate as to the morality of such schemes and the recent successes of HMRC in challenging claims for tax relief (including the refusal of tax relief to investors in the Eclipse 35 film investment partnership, and the Supreme Court's decision to prevent the Tower MCashback partnership and its members from enjoying tax relief), it is hardly surprising that clients are questioning, or have concerns about, some of the advice they have previously received.
Although when faced with an anxious client there is enormous temptation to give immediate reassuring advice, this will not be appropriate in all cases and can lead to greater problems. Tax professionals would be well advised to restrain themselves from providing "off the cuff" advice about matters which they have not reviewed for some time. Advice properly given some time ago may need to be reviewed or caveated in the light of the approach HMRC are now taking, recent case law or the client's circumstances. If tax professionals are concerned that their previous advice might be open to question, then they will need to consider their professional obligations, including whether they have the necessary objectivity to be able to comment on advice they or their firm have previously given. Advisers who have given advice when their professional obligations require that they should not have done so leave themselves open to further problems, particularly if they have advised in circumstances where their own interests conflicted with those of their clients.
All too often, a client's initial concerns, if not properly dealt with, evolve into a difficult complaint or claim. It is important in dealing with such matters not to take steps which, although seemingly helpful, inadvertently prejudice a position in the event of a claim or complaint subsequently arising. In particular, professionals need to consider their obligations to their professional indemnity insurers. Many policies will require professionals to report to Insurers without delay not only claims, but also their awareness of circumstances which may give rise to a claim. Such obligations must be taken seriously. Tax professionals will wish to consider, in conjunction with their Insurers, establishing a privileged environment where they can both take advice as to the situation in which they find themselves, and formulate a strategy to deal with anything identified as a potential or actual problem. The advantage of doing so is that the privileged documentation created will not, in subsequent litigation, have to be produced.
By seeking professional advice, the appropriate steps can also be taken to make sure that all necessary hard copy and electronic documents are preserved and the adviser can be confident that any problem will be handled. Further, any conflict problems can be addressed and resolved.
The risk in giving off the cuff advice is that the adviser may give insufficiently considered advice or, in seeking to sort out an actual or potential problem, the adviser may, in some circumstances, not only aggravate clients, but cause greater losses to be suffered: for example, by way of charges and extended limitation periods. Advisers may also find themselves having to explain why they advised when they had a conflict of interest – an ugly backdrop to any claim or complaint. In seeking to deal with matters without seeking appropriate professional guidance from Insurers and legal advisers, advisers will often inadvertently create documents which will have to be disclosed in any litigation (including electronic documents, emails or texts) and which are harmful. Tax professionals will also need to guard against the temptation to confirm advice given some time ago, when different considerations applied. There may be perfectly proper reasons for the advice to have changed, but these can rarely be sufficiently explained without careful consideration – and if they are not properly explained, clients often become confused or feel that they are having the wool pulled over their eyes – in particular if the corollary of the advice is that they must now pay tax that they had not anticipated – or worse still tax, penalties and interest.
In short, tax professionals need to tread very carefully at the moment. Aggressive tax planning and the use of schemes will undoubtedly be scrutinised. In an effort to reassure clients or to deal with their concerns or difficult problems thrown up by the current challenging environment, it is very important that tax advisers take steps to protect themselves, rather than risk compounding a problem.