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Disclosure burden falls on clients
by Susie Hughes at 08:31 11/10/04 (News on Business)
The Treasury has come up with a solution to break the deadlock after lawyers indicated they would not reveal details of their client's tax avoidance arrangements. Get the clients to tell the Revenue themselves.
The Government has been forced to amend the new tax avoidance rules which require accountants and advisers to register tax avoidance schemes with them. The Law Society threw a spanner in the works by advising its members that they could claim legal privilege and not reveal details.

Accountants were angry at this stance as it created an unlevel playing field between the two professions. The revenue has been in talks with the Law Sociary to break the deadlock. Now, the Government has changed the rules to require clients to make a disclosure in place of a promoter where the promoter believes the relevant information is covered by Legal Professional Privilege.

A Treasury announcement said: "These changes put beyond doubt that that all promoters, including the legal profession, are able to comply with their obligations without revealing privileged information.

"The effect of these changes is to ensure the rules operate as intended and apply fairly to everyone in the business of promoting or advising on tax avoidance schemes, including accountants, financial institutions and lawyers.

Lawyers described the changes as a 'sensible compromise', which gave the Revenue what it wanted without infringing on legal privilege.

The client will need to make the disclosure within five days of the first transaction which forms part of the scheme or could face fines of 5,000 if the Revenue discovers an undisclosed scheme and 600 for every further day they persist. Clients finding themselves in this position will have to start making disclosures to the Inland Revenue from 19 November 2004.

The client would also have the option of waiving privilege, thereby allowing the promoter to make a disclosure on their behalf.

However, this is set to create more Red Tape for small businesses who will now have the burden of responsibility for informing the Revenue shifted to them rather than their adviser if they use a lawyer to arrange their tax affairs.

The changes to the legislation so soon after it has come into force has drawn criticism that the Government should have consulted properly and got it right first time.

The amendment affects the Regulations by:

  • removing from the definition of a promoter everyone who cannot comply with the disclosure rules as a consequence of LPP; and
  • moving the obligation to make a disclosure in such cases from the promoter to the client.

The Inland Revenue will be issuing amended guidance shortly to reflect these changes.

See Lawyers drive coach and horse through IR scheme - Sept 2004, Shout99
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Susie Hughes Shout99.com 2004

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