The idea that accountants have to make moral judgements exclusive of accounting and the law borders on the absurd, says Accountancy Age editor Kevin Reed
‘As an accountant, I ensure that while you don’t pay a penny more tax than you need to, you don’t pay a penny less tax than you should.’ So says Catherine Chamberlain FMAAT, an AAT past president, on AAT’s website.
Accounting and the law: how ethics came into play
This may seem a reasonable, unambiguous, straightforward statement from Chamberlain. Yet moral and ethical confusion has struck accountants recently after public protest about aggressive tax avoidance. And that means Chamberlain’s statement risks being interpreted very differently. Where once many accountants saw their jobs as doing the best for their clients within the law, now the amorphous concept of ‘ethics’ has come into play.
Why amorphous? Well, your own morals don’t necessarily need to be wholesome for you to meet the ethical criteria of an accounting body. Taking an admittedly extreme example, philandering behind the back of your pregnant wife might not make you Mr Popular, but as long as that behaviour doesn’t impinge on your work – and isn’t against the public interest – you would not have breached the accounting ethical framework.
Generally, accountants’ ethics set out that they must properly serve their clients, without impinging on the public interest. The key philosophical battleground that has been debated among advisers is how to deal with the provision of tax advice that, while within the law (sometimes described by advisers to their clients as: ‘Lawyers have checked this scheme over and it’s all legal’), is still effectively dancing around legislation to take advantage of loopholes.
On one side are those who argue that anything within the law goes. Others argue that the principle – the intended meaning – of the law is usually clear enough that weaving between legislative language to take advantage of it is effectively unethical.
A strong stance against tax avoidance
In 2012 the ICAEW took a strong stance against the aggressive tax avoidance brought to light by newspaper reporters. In his most widely viewed blog, ICAEW chief executive Michael Izza said aggressive tax avoidance brings the ICAEW into disrepute. Remember that tax avoidance is not illegal.
Wrote Izza: ‘ICAEW chartered accountants who are engaged in the kinds of schemes highlighted in The Times need to look at themselves in the mirror and ask – am I upholding the honour and reputation of ICAEW chartered accountants and am I seen to be doing that?’
The institute then outlined where it thought advisers could bring the profession into disrepute through advising on tax avoidance. If I were being kind, I would say that this stance was greeted with a ‘full spectrum of opinions’ by accountants. I’ll let you draw your own conclusions.
For me, what is more interesting is that aggressive schemes were often offered by the biggest firms. While those firms have moved away from them, where was the institute’s outcry years earlier? Note that ACCA, unlike the ICAEW, has set out no ethics-based avoidance advice criteria. For good measure, the ICAEW has admitted that no accountant has ever been sent to its disciplinary committee for providing aggressive avoidance advice.
Trying the square the circle of accounting law
Perhaps public outcry has forced the profession to reconsider its position. But I digress. The biggest issue remains how to square the circle that is balancing between working with the law as it is set out, trying to interpret it in a benign sense – and using its flaws to the advantage of your clients.
While it might seem to be an almighty headache for advisers to small businesses and entrepreneurs, some have set out pointers that, on the face of it, make knowing where to draw the line a bit easier.
Tax expert-at-large Mark Lee feels the issue comes down to a few points. These include fundamentals such as knowing that you don’t have to make clients aware of structured tax avoidance schemes and are unlikely to get sued for not doing so; and that you should only suggest a scheme if you are comfortable with it yourself and the client is fully aware of the associated risks.
Complex schemes vs transfer pricing: two of the same?
So if the scheme is hideously complex, needs a big wodge of lawyers to pore over it and is likely to be shut down as soon as it’s set up, it’s probably worth steering clear. Where does that leave big corporations using transfer pricing strategies to avoid corporation tax, and their advisers?
Well, the public doesn’t like it. And nor does the government. The latter is particularly ironic, given that the Chancellor is fighting a battle to the bottom as far as the corporation tax rate is concerned. But hey, who ever said tax policy needs to make sense?
While the absurdities continue, accountants again, but for new reasons, face the old conundrum of whether to tell people at parties what they do for a living. As if there weren’t enough already, there’s another moral dilemma for you.
Kevin Reed is the former Editor of Accountancy Age.