This summer the government has announced its proposals to crack down on tax cowboys. So, how can you spot a tax ‘cowboy’ and do higher earners really care whose tax scheme they are using?
A cowboy in the context of business is someone who is engaged in mis-selling something; probably promising more than they cannot achieve. Typically charging very high fees, when their work is found to be defective, or the customer complains, the cowboy is nowhere to be seen – he has already ridden off for the hills (or in search of his next victim).
There is no real difference between identifying cowboys in tax and cowboys in other types of business. The first step is quite basic.
Check the history of the firm selling the tax schemes, has it:
- Ever changed its name, if so, how often, and why?
- Operated via different companies or legal entities in the past
- Closed its previous companies down, with key member of the team moving on to new companies.
Most reliable firms keep going, they want to retain the same name because they are keen to create a brand and goodwill. Cowboys are not interested in branding, they just want their fees.
More specifically to tax scheme promoters, does the firm:
- Include a “fighting fund” in its fees
- Rely on “counsel’s opinion”
- Never produce the full and detailed opinion given
- Often not fully comply with DOTAS rules.
- Charge fees based on tax saved (7-20%)
- Pay commission to introducers which is not disclosed to the client by the introducer (you need to ask about that)
It is worth investigating the background of the individuals selling the scheme or strategy:
- Are the directors/consultants open about their previous employers when you ask for details?
- Are they qualified with any of the recognised tax or accounting bodies?***
- Have they ever had a complaint made about their conduct?
The scheme they are selling:
- Can you understand it?
- Can your accountant understand it?
- Is is similar to any of the schemes listed in HMRC's spotlights?
*Bodies such as the ICAEW, CIOT, ACCA etc all have internal disciplinary procedures and their members should follow ethical codes of conduct.
**Qualifications aside, leading firm of qualified advisers PWC found on appeal that an artificial capital loss scheme they created and promoted in the early noughties failed.
