On the 21 September 2017 the SRA published a warning notice to solicitors, firms, and anyone else it regulates, who provide tax planning services.
It relates to those who are involved in the design, implementation, organisation or management of tax affairs, schemes or arrangements, and adopts principles from the General Anti-Abuse Rule (GAAR) which took effect from the 17 July 2013. Tax payers and advisers are no longer free to use their ingenuity to reduce tax. Aggressive tax planning is not just illegal but socially unacceptable, and solicitors who are involved in such planning may demonstrate a lack of integrity. That’s why the SRA has issued a warning.
There will be a number of difficult issues if or when the SRA takes disciplinary action in relation to this. In its warning notice the SRA says it is following action taken over recent years against those who participated in Stamp Duty Land Tax avoidance schemes, although strictly speaking many of those were caught out because the schemes involved a conflict with institutional lender clients, rather than participating in something illegal or immoral. The Tribunal could not have ruled on illegality as such, although in most if not all of its prosecutions the SRA did rely on the fact that HMRC thought they were illegal. It tried to get illegality in through the side door. Many such schemes were based on so called favourable counsel’s opinions and adopted various property purchase structures. The prosecutions contained a mixed bag of allegations with varying degrees of success.
The warning notice does not form part of the SRA Handbook but the SRA “may have regard to it when exercising our regulatory functions”. This means of course that a failure to heed the warning or to have sufficient regard to it may lead to disciplinary proceedings.
Disciplinary action in relation to aggressive tax planning could only realistically follow a determination by HMRC that a particular arrangement was “abusive”. The Disciplinary Tribunal will not be the forum to determine this. The ‘double reasonableness’ test requires HMRC to be able to show that the arrangements entered into ‘cannot reasonably be regarded as a reasonable course of action’. Should such a determination be made the SDT will look at what the solicitor actually did, assessing the degree of participation, the advice given and the extent to which others participated and advised. It does not of course follow that it demonstrates a lack of integrity, although it might. These cases will be highly fact sensitive and complex. The SRA may well feel a weight of expectation from HMRC which will presumably report the professionals involved. Should HMRC determine a particular scheme was aggressive, does it follow that the solicitors involved demonstrated a lack of integrity? No, not as a matter of course because this will not be a matter of strict liability, but perhaps the regulator will see it differently when the opportunity to deploy the warning arises.
The warning notice does make plain it is for HMRC and the relevant courts to decide on the legality of tax avoidance schemes. The SRA has said that “where solicitors have advised on schemes that are judged to be illegal, we will on the face of it see this as evidence of misconduct. We will also take action if we see evidence of a lack of integrity in a solicitor’s dealings with HMRC, either directly or on behalf of clients”.
Time will tell us how the SRA will go about this.