Her Majesty's Revenue and Customs (HMRC) is heavily scrutinising client engagement letters for evidence of tax evasion, a leading tax lawyer has warned advisers.
The letters, which detail the actions and activities an adviser is prepared to undertake for a client, form the basis of the parties' contract for services.
Adrian Shipwright, director at law firm Allington Eames, told delegates at the Personal Finance Society (PFS) conference in Birmingham the letter is used by HMRC investigation teams to show intent of evasion.
"Take care with your letters of engagement. The Revenue is crawling all over them. If your engagement letter essentially says what's proposed is a tax fiddle, when HMRC looks over it, it will say it is a tax fiddle."
Where advice which offsets tax involves taking advantage of business incentives, advisers must ensure they show commercial justification in the client letter, Shipwright said.
Four ways to help clients understand tax avoidance
1. Ask what they are trying to achieve, and why.
2. Ascertain their risk profile - is sleeping well at night more important than the potential savings?
3. Remind them HMRC is under pressure to collect cash
4. Explain the facts - if a client pays less tax than the Revenue thinks they should, it will launch an inquiry
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected