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Get 'insider' tax accountants from government

April 26, 2013 12:10 PM
By George Smid - Chairman Corby
Originally published by East Midlands Liberal Democrats

George Smid 2Actually today's headline was "Ban 'insider' tax accountants from government". But occasionally there is time to reconsider our perception of the worldly things: everybody can see the sun movement: rising, travelling across the sky and then falling behind horizon. It needed millennia of observation and Nicholaus Copernicus to prove just the opposite: it is the Earth which moves, the Sun is stationary.

Using this parallel there is plenty of evidence that we need to revise our 'ordinary experience' in the area of 'economics'. It does not need to be earth shattering revolutionary concept. It just needs to challenge 'the obvious'.

Obviously it was deemed beneficial for the accountancy firms to provide advice to HMRC (Her Majesty Revenue and Customs). Probably when the world was different it made sense.

Whatever the initial benefit to HMRC was it has evaporated. "The MPs said accountants were being seconded to work in the government to advise on changes to tax law but using the position to glean inside knowledge and tell businesses how to avoid tax. The MPs want the practice stopped." (see http://www.bbc.co.uk/news/business-22296769)

It can also be argued that the Accountancy Firm lucky enough to be endowed with secondment is actually gaining an unfair advantage over its competitor. In other words the initial perception is just the opposite of what the reality is.

But we must not stop there. We have to take the finding to a logical conclusion:

It is now time for the HMRC accountants to join Accountancy Firms. It is now time for HMRC accountants to be seconded to the big accountancy firms. Get 'insider' tax accountants from the government to the firms.

After all, according to Margaret Hodge "The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government" (ditto). Let's use that 'cosy relationship' to stop tax avoidance.

Another issue, perhaps not that apparent from today's news is the fact that the large accountancy firms benefit from the current complicated system. Hence their position is enhanced not only by 'being there' when the rules are made, but it is in their interest to have the rules as complicated as possible: complication means work, complication makes "avoision"* undetectable. Using Nicholaus Copernicus parallel again, the previous Ptolemy's system (everything rotates around the Earth) became terribly complicated to account for all the anomalies and observations which did not 'conform to' the 'rules'. Rather than formulating new theories, astronomers had busied themselves in 'saving appearances' which consisted of trying to patch up Ptolemy's cumbersome and inaccurate model.

Let us stop 'patching up' our current tax rules. Our reliance on the previous model of predominantly taxing income only is out of date. We need a system reflecting the 'new observations'; we need a system using asset tax, income tax and turnover tax in combination to simplify the rules. We should not rely predominantly on income tax only.

Prior to Copernicus, the astronomy had stagnated. We are at similar stage with finding a solution for current 'economy anomalies'. The ideas stagnated: Cut, cut, cut shout the Tories; spend, spend, spend is the chorus of the Labour party. In the end they talk the same: the Right cuts taxes to encourage 'spending', the Labour spends on the bases of future cuts….. We need new thoughts. Step forward LibDems, step forward Nick Clegg. Why not suggest now the HMRC tax accountants will be seconded to the big accountancy firms? (And the firms will have to accept them).

PS: Some might wonder why I talk about an astronomer in connection with economy. Well, it was Copernicus who originally set down a quantity theory of money - in 1517! Nothing new about the 'revolutionary' Thatcherism then!

* 'avoision' - 'avoidance' of tax and 'evasion' of tax, the former legal, the second illegal, the 'avoision' being not exactly legal, but still not illegal enough for HMRC to take action.

John Wheaver - Kettering Comments

The Institute of Chartered Accountants' professional standards should mean that any Chartered Accountant failing to advise against aggressive tax avoidance is struck off. And if the ICA sets the standard too low it should be threatened with loss of Royal Charter.

George Smid replies

John, thank you for your comments.

I have no doubt that the rules and regulations are made in the best intention. Neither do I have doubts that there are chartered accountants who follow the rules 'in the spirit' rather than 'in the letter'.

Obviously, I do not have the resources to verify the House of Parliament findings so I took them at face value and based my thoughts on that. And I do believe that the reports about Jimmy Carr, Starbucks, Amazon etc. are true: hence my conclusion that the rules are not 'fit for purpose' and that, very often, the phrase 'I pay taxes I am legally obliged to pay' often means 'I pay no taxes at all or very little'.

As you indicate in your response, it is the accountants who are policing the system.

As the MPs reported yesterday the situation is not satisfactory. The phrase: Quis custodiet ipsos custodes? (Who will guard the guards themselves?) comes to mind. Do you happen to know if any of the accountants advising the recently highlighted cases of 'aggressive tax avoidance' have been struck off?

Incidentally, I believe the word 'avoision' (indicating avoidance and evasion) comes from the accountants themselves. Obviously there was a need for such a word, presumably describing specific activities. Equally I believe that minimising the tax payment is a legitimate pursuit. It is the out of scale proportions which bothers me and others.