Host

Philippa Lamb

Reporter

Mark Rowland

Guests

• Ray McCann, Consultant, Charter Tax
• Sophie Wales, Director of Regulatory Policy, ICAEW

Producer

Natalie Chisholm

Transcript

Philippa Lamb: Hello. Welcome to Accountancy Insights. I’m Philippa Lamb with your monthly roundup of news for the accountancy profession. First up, why isn’t the offering of tax advice a regulated profession? Tax expert Ray McCann thinks it should be, and fresh from delivering the annual Hardman Lecture, he’s been telling reporter Mark Rowland just how much damage cowboy advisers can wreak on businesses and how he thinks they should be reined in.

And with Christmas round the corner, Director of Regulatory Policy, Sophie Wales, will be joining us remotely. She’ll have some dos and don’ts for festive office parties, as the ICAEW Code of Ethics is revised to clarify what unprofessional behaviour looks like.

Now, over to Mark Rowland, who caught tax expert Ray McCann fresh off the stage at Chartered Accountants’ Hall. As I said, among other issues Ray used his Hardman Lecture to highlight cowboy tax advisers.

Mark Rowland: This is Mark Rowland for Accountancy Insights, and I’m here with former HMRC inspector, ex-Chartered Institute of Taxation President and tax consultant, Ray McCann, fresh from delivering the annual Hardman Lecture on the regulation of the tax profession. Ray, how do you feel it went?

Ray McCann: Well, I was pleased with how it went, Mark. I thought there was a good engagement from the audience, and I got all the points across that I wanted to. Obviously, to some extent, I was sketching out the issues in relation to it because it’s just such a big topic, and there’s just too much to cover in the time that was available. Overall, I was pleased with how it went.

MR: Obviously people can’t give financial advice without regulation, but they can give tax advice. How have we ended up there?

RMcC: I think it’s historical. In the past, accountants in particular were held in much higher professional standing, and as a consequence of that the government and nobody else probably thought that they should be subject to any regulation. And of course, chartered accountants have always been subject to regulation of their own – the form of self-regulation that we had. So the need for wider government regulation, I think, is a new thing, which has been caused really by the spread of tax schemes over the past 20 or so years.

MR: It seems like most people when they’re interacting with these advisers, these shadow advisers as you call them, are acting in good faith. Is that a fair statement?

RMcC: I think a lot of the time they’re acting in good faith – not always, but I think a lot of the time. It depends on how you define good faith, because too many of these schemes are such that it’s difficult to see how anybody in good faith could really believe that it was legitimate, or at least wasn’t something that HMRC would get really upset about, and they were likely to end up in an HMRC investigation. But of course, so often they’re told that it is benign and that the Revenue are aware of it, and so on, and as a consequence of that, there’s no need to worry about an HMRC investigation starting. And far too many believe it.

MR: Some of the companies you mentioned – less tax for landlords, quick tax claims – they sound a bit like ‘dodgy Dave’, second-hand car dealers. How has this ecosystem cropped up, and why do people fall for it when it seems like such a unbelievable scheme?

RMcC: I have always put it down to the fact that the lure of the tax reduction – either not paying any tax or paying a lot less tax than they would expect to pay – is just so great that, in too many people, it overcomes any sense of apprehension or risk that they might have.

You can see the people who are promoting these schemes. If you’re calling your business Less Tax For… whatever it is, landlords or anything else, there’s a kind of brazenness to that, and it shows that they’re just not expecting at all HMRC to turn up and show any interest in it. I think it’s come as much as a shock to them to suddenly find themselves on the front page of the financial press as anybody else, but that’s where it’s gone. It’s people who aren’t Chartered Accountants, they aren’t Chartered Tax Advisers, they’re just money people. They’re just people who recognise an opportunity to monetise loopholes and so on that are within … or as they perceive are loopholes in the tax system, on the basis of dubious advice.

MR: Do you think there’s a sort of financial or a tax literacy problem here? People are buying into these schemes that seem to us to be fairly obviously a scam. Does that say something about the education of the public and business owners?

RMcC: Definitely. I’ve worked in tax now for almost 50 years. There’s very few tax things that I would ever look at and not get some sense of it was just a little bit questionable. But if you actually look at it from the viewpoint of the ordinary businessman or the ordinary man in the street, they don’t have 50 years of working in tax and seeing every conceivable type of tax scheme going. So to some extent, you can forgive them for not immediately seeing the risk. But there are things that have been sold over the last 10, 15 years that it is really hard, even looking at someone who doesn’t have that knowledge, understanding how they didn’t sense that there was something wrong about the arrangements that they were getting into.

MR: How often are people getting caught out by these schemes?

RMcC: Well, it’s quite widespread. It varies obviously, depending on the scheme. As I understand it, so far as landlords are concerned, there are hundreds of landlords who are now concerned, and there have been several who’ve approached me, but because I’m not taking on client work these days, I’m passing them on to others who I trust who will help them. And that’s just me. No doubt many other advisers are getting them.

If you look at things like film schemes, there are tens of thousands of individuals caught up in investigations for film schemes. There’s some 40,000, 50,000 people still involved in loan schemes that need to be resolved.

MR: You talked a little bit about the government, their measures to figure out this problem with tax regulation. There were a few options put on the table earlier this year; they’ve now been scrapped, as you mentioned. What do you think is the right answer? Is the government getting close to the right answer? Do you think there’s a better option? What do you think?

RMcC: There’s a bit of me thinks that the problem will resolve itself, that the environment will become so hot for the type of adviser, the shadow adviser as I describe them – that is, people who are not members of a professional body, who don’t interact with HMRC but have a really meaningful bearing on what a taxpayer puts on their tax return. I keep hoping that the environment will become so hot for that person that they exit the market because they just can’t make any more money out of it. It doesn’t seem to be completely happening yet.

The ideal solution, or an ideal solution for me, is that everyone is a member of a regulated professional body, but that in itself won’t resolve every issue. I think the reason we haven’t got there is simply because it won’t resolve every issue. From an HMRC perspective, I’m pretty certain if they thought it would, they’d throw their weight fully behind the idea that we should all be members of a professional body.

MR: Just one last question before I let you go. What are you hoping that tax professionals take away from your lecture tonight?

RMcC: The point that I tried to stress is that there’s common interest between the profession and HMRC and government in terms of making sure that bad actors are not able to ply their wares to the detriment of the tax system as a whole, and the inevitable detriment of their clients, as we’ve seen with landlords and loan scheme members and so on. I want them to take away from that, that there is a solution that’s there, and that they shouldn’t be frightened of it, and that the more they engage with it, the more likely that we’ll end up with something that is palatable to even those members of ICAEW and CIOT who are sceptical about the idea of more regulation.

I have always maintained the view that, combined with ICAEW, the profession should be in the lead in finding solutions to the problem of unqualified tax advisers, and particularly shadow advisers. So I want them to take away that we have a vested interest. To some extent, their careers and their jobs could depend upon it, because at some point, if it was to continue, the government might just come along and say, we’ve had enough, there’s a regulatory system. And it just might not suit us at all, and it might make actually doing what we do – and for many of the people in the profession, they love their job – it might make them love it less.

MR: Thank you so much for your time, Ray.

RMcC: My pleasure, Mark.

PL: On to professional behaviour with Sophie Wales.

Hi, Sophie. You’ve been working to update ICAEW’s Code of Ethics, haven’t you? Why now?

Sophie Wales: The current wording that we’ve got in the Code of Ethics talks about treating people with courtesy and consideration, but over recent years there’s been a bit of a debate within ICAEW about whether this wording is dated and whether it really captures the right kinds of conduct that we’re concerned about.

PL: So what are you moving to?

SW: The new wording that has been approved by ICAEW Council is some application wording that explains what we expect from members in this context. It says that a reasonable and informed third party would expect that a professional accountant – that’s all members – in their professional life treats others fairly, with respect and dignity, and for example, doesn’t bully, harass, victimise or unfairly discriminate against others.

PL: As you say, it feels more contemporary, doesn’t it?

SW: Absolutely.

PL: This is particularly relevant, isn’t it, right now? People are heading off to office parties – I’m guessing these could be fraught with danger?

SW: I think it’s a tricky area, and we do receive complaints about conduct of members at office parties.

PL: What sort of things?

SW: Where things perhaps come unstuck is that maybe people forget that, if it’s a work social event, it’s still your professional life, and there’s still expectations about how you behave. It can range in seriousness, but it can go as far as sexual misconduct cases. Clearly that leads to issues for the member with their employer, but it’s also a relevant issue for us as a regulator.

PL: It’s this idea that just because you’re off-site, you actually are in a way still at work, aren’t you?

SW: I think this new content and the guidance we’re going to produce around it is going to bring people’s attention to that. Your professional life is not just when you are sat at your desk doing some technical work. If you’re with colleagues or with clients or representing the profession, then those expectations still apply to you in terms of your personal conduct.

PL: This brings me to social media, because comments, images that people might post – not just at parties, but generally – presumably they fall within the scope too?

SW: They can do. I think social media is a really tricky one. As you would expect, it is an area where we are starting to receive quite a few complaints about what members may do or say on social media. But I think it’s really important that people bear in mind, if you’re identifying yourself as a chartered accountant when you’re making a post on social media, the expectations of your conduct are the same as if you were doing something as an in-person interaction. So really, this new wording applies. But just because it’s entirely in your personal life, you can still bring discredit to the profession. You just have to think about what you’re posting before you send it out there.

PL: It’s a tricky grey area, that, isn’t it, Sophie, because when you put it in those terms, it can sound quite intrusive – work life leaching right over your personal life?

SW: Yes, and I think we have to get a right balance here, because this isn’t about members not being entitled to a private life, because of course they are. And it’s not about restricting freedom of speech, because that’s really important. I think there’s probably two bars we have to think about. When you are being a chartered accountant, when you are being a professional and can be identified as one, there’s really quite high expectations of your conduct. If you’re in your private life, you’ve got to do something quite serious before it brings discredit to the profession. But in a social media context, for example, if you post something seriously offensive or harassing or discriminatory, that it causes offence to that extent, then I think that is still relevant. But you would hope that members would not be making those kinds of posts in any event.

PL: I’m guessing that clarifying unprofessional behaviour in this way… presumably you’re also hoping that will make members feel perhaps more confident about reporting it when they see it. So not just their own behaviour, but the behavior of others?

SW: Yes, absolutely. This new content sets our expectations of what we expect from members in terms of their professional conduct. And in making that clear, that should mean that members can identify concerns they have about unethical behaviour of others, because, as hopefully people are aware, the duty to report misconduct means that any member has a duty to report their own or other Chartered Accountants’ conduct if they think it’s sufficiently poor that it could be a disciplinary issue.

PL: So we’re talking about being reported. What happens if a chartered accountant is reported to the Institute?

SW: That’s a very good question. We do get over 1,000 complaints a year come in about all kinds of things. They get passed to our Conduct Department, which is made up of a fairly substantial team of experienced chartered accountant and other accountants who consider whether the conduct is such that it’s sufficiently serious that it could be a disciplinary matter. Because as you’d expect, we do get all kinds of complaints about things that are not serious enough, because it has to be quite poor before you’re looking at disciplinary issues, and everybody makes mistakes. That initial assessment takes place to see is it sufficiently serious, and is there evidence, or could it be evidence? Because we have to ensure a fair process.

PL: And if it is held to be a disciplinary matter, what happens then?

SW: After it’s been assessed, if it’s concluded that it is potentially a disciplinary issue, an investigation starts. We have investigation officers who conduct that investigation – they contact the member and any other relevant parties and try and get to the bottom of what’s happened, and collect evidence to support it. If at the end of that investigation the conclusion is that we still believe it’s a potential disciplinary issue, it goes to the Conduct Committee, which is made up of chartered accountants and lay members – so that you’ve got all views there – and that independent committee makes a decision about whether they think there’s a disciplinary case to answer, and if so, what the sanction should be.

PL: And the sanctions?

SW: There’s a whole range. We have a document called ‘Guidance on sanctions’, which is available online, and that sets out for all types of issues what the potential starting point could be, because the committee deals with issues in quality of work, in all types of accountancy work, through to personal conduct issues. For all things, it can range from no action, a caution, a reprimand, a severe reprimand, or in really serious cases you can be looking at exclusion. But if that’s the case, it goes to a full tribunal hearing where the member can attend in person, because clearly it’s a very important decision at that point.

PL: It makes it all the more important that the level of behaviour that’s expected is really understood.

SW: Yes, absolutely. I think other sectors have done this already. When we were doing this exercise to look at what the Code should say, we looked at other professions, other trade bodies, public sector bodies, and they tend to have something fairly similar to this. So it’s really what society expects from a chartered accountant. We would hope that most members are behaving this way anyway, of course, but I think it’s helpful to just clarify that this is the expectation.

PL: And when does this new wording come into effect, Sophie?

SW: The Code of Ethics is being changed for a number of items to align us with the international code, and we’re expecting that to happen springtime next year. But that doesn’t mean that this Christmas party season isn’t relevant, isn’t in scope, because the Code already has an overarching provision that all members must behave in a way that doesn’t discredit the profession. So while this adds clarity, it doesn’t change the position really, in terms of how members should be behaving.

PL: Thanks. Sophie. I’m hoping we haven’t put too much of a damper on everyone’s office parties, but it is an important topic.

Looping back to Mark’s interview with Ray McCann, a reminder to tax specialist listeners that you can subscribe to our sister podcast, The Tax Track, as well as this series on any podcast app or indeed the ICAEW website.

That’s it for today. Later this month, Behind the Numbers will return to discuss how corporate sustainability reporting practices are changing. And remember to join us in the New Year, when our regular SWAT team of financial and political futurologists, Iain Wright, Frances Haque and David Williamson, will revisit the predictions they made for 2024 and – perhaps more enjoyably for them – reveal their predictions for 2025.

Thanks for being with us.