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Readers' forum - Is this a tip-off?

31 August 2005
Issue: 4023 / Categories:

HMRC have advised us that some of our simpler and more straightforward personal tax clients are to be removed from self assessment and 'unless circumstances change' tax returns will no longer be required.

HMRC have advised us that some of our simpler and more straightforward personal tax clients are to be removed from self assessment and 'unless circumstances change' tax returns will no longer be required.
In most cases we have suggested to the client that we review the annual income details at the year end and advise. In some cases this may result in an income tax repayment and the client will be pleased. But what if our (helpful) research uncovers a further liability? Or what if, as we begin to input data, our experience 'tells us' that a further (possibly substantial) tax liability will result? Obviously we could finalise the tax return and calculations, having our suspicions confirmed. But what action should be taken if we advise the client of a potential tax liability and he says to simply 'let sleeping dogs lie'?
Under money laundering regulations the client will have committed a reportable offence.
We have such a situation at the moment. The result may be 'all square', but possibly not. We have deliberately stopped inputting data; just in case the answer is not what we want. We are minded to write to the client telling him how far we have got and — at this stage — explaining fully and precisely the full details of the dilemma. At the moment we do not have 'knowledge' of a reportable offence, so it seems to me that any 'tip-off' is purely given by way of an example of the tax practitioner's occupational dilemma in the present climate.
Do readers have any better ideas?
Query T16,668             — Unsure.

Reply by Exile:

Unsure has an engagement to review the client's tax liability. If there is a repayment, Unsure is happy to ask for it back. If there is an underpayment, Unsure should advise the client to notify chargeability to tax by 5 October. If the client does not wish to notify chargeability, ethical guidelines of the professional bodies would require Unsure to reconsider the relationship with the client, perhaps even resigning. That has always been the case. The added issue is that, if the client does not wish to notify the liability, an offence is then committed and a report to NCIS should be made. I do not think that Unsure has to wait until 5 October to make the report. If the client is adamant that no notification is to be made to HMRC, a NCIS report should be made now.
Unsure may think that the client will not be guilty of failing to notify chargeability. But, there would still be a penalty under TMA 1970, s 7. It may be mitigated because Unsure has failed to advise the client and so the client was not certain that there was a liability. However, the client will be guilty of negligence in having an arrangement to check the tax position, but not asking for the results of that check.
What causes me some concern is Unsure's approach in having 'deliberately stopped inputting data; just in case the answer is not the one we want'. I am not sure about the position under the Taxes Acts. Unsure is not going to be caught by the penalties set out in TMA 1970, s 99 (assisting in preparation of incorrect return), but suspecting that there is to be a tax liability and doing nothing about it does not make the problem go away and, in my view, whether or not there is an offence under the Taxes Acts, it is certainly unethical.               

Reply by W.T.G.:

The duty of an agent is to carry out the lawful instructions of the principal and to do so competently by deploying the knowledge or skills offered when the engagement was made. This querist is engaged to complete clients' tax returns. HMRC have said that, based on current information, no further returns are required from some of them. The querist has suggested to some of them that the information should still be prepared for their use which seemingly has been taken up by some.
HMRC have given up requiring returns from all taxpayers on the laudable grounds that they have to collect tax, not to push paper around for its own sake, so returns without an end product are not issued. However, this does not alter the onus on all taxpayers to complete a return where necessary, which in practice means asking for one if the taxpayer knows the circumstances to be different so that tax is due. The querist has discovered this to be needed for clients who took up the offer of preparing information although returns were not issued; he is apprehensive they may instruct him to take no action.
A principal cannot instruct an agent to behave unlawfully — at least, he can purport to do so, but the agent should refuse.
What the querist should do is carry out the client's instructions to prepare figures regardless of whether a return has been issued and report the result, pointing out — if appropriate — that tax is due and that the Inspector must be informed that circumstances have changed so that a return is required to declare the liability. Should he be told not to do so, he must point out that this is unlawful, that he cannot do it and that if he did there would be regrettable consequences under penalty provisions for tax evasions as this would be 'wilful'. Surely accountants and others preparing tax returns would tender advice to any client found to be practising tax evasion that he must come clean. The querist owes a first duty to himself, his professionalism and reputation. One may add that no one is compelled to accept a client suspected of dishonesty. 

Issue: 4023 / Categories:
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