Advisers who help high net-worth and high-profile clients manage their tax liabilities are being warned to consider the implications to their reputation of offering such a service
David Mellor, chief executive of national audit, tax and advisory firm Crowe Clark Whitehill said less than favourable media coverage of the MPs and QCs sheltering millions in the Phoenix Film Partners LLP tax scheme had highlighted the effects of tax planning on a business’ reputation.
Although such practices are not illegal, Mr Mellor said that investing money in schemes that save the investor a large amount of tax may not be a prudent business model in times of austerity.
Earlier this year, HM Revenue & Customs said Phoenix, ostensibly a movie investment scheme, had been designed specifically to avoid tax.
It was alleged by HMRC that Phoenix had assets worth £107m in 2013, but had made losses of more than £7m since its launch in 2008.
The 200 members of the scheme did not have to pay tax on the money they invested, but will have to pay tax on any future earnings.
Phoenix is alleged to be one of 1,200 tax avoidance schemes identified by HMRC where investors may be told to hand over unpaid tax before disputes are settled by a tribunal.
Mr Mellor said: “Even if they are entirely legal, tax schemes have frequently been shown to cause significant damage if they are perceived to be immoral. Individuals need to take note and react accordingly.
“The prime concern for individuals should be how a proposed tax scheme might look, rather than simply how it performs from a purely technical perspective. Now, more than ever, people need to realise the value of being seen to be good citizens.
“Many public figures do a lot for charity, but all the hard work can easily be undone.”
He added: “People need to take a much broader view of how their finances are perceived. Reputation is a hard-won asset, but it is easily lost. Even when there is no legal wrongdoing, reputational risk must be managed. This may mean a larger tax bill in the short term, but it is a small price to pay to ensure the long-term benefits of avoiding negative, and harmful, publicity.”
Mike Pendergast, an IFA with Zen Financial Services in Crewe, said: “We would agree with Mr Mellor’s comments, and we would not advise our clients to invest in these types of schemes. They have a habit of popping up and then being shut down by HMRC a couple of years later for not doing what they were set up to do.
“Many people have been caught up in the negative publicity surrounding them, and I imagine there will be people who have invested in similar schemes who are looking to get their money out. For a responsible IFA, there are plenty of investments they can use for clients, such as Isas. Tax planning, when used properly, can help businesses without being unjustifiable morally.”