In the first part of this blog, I looked at some examples of when a client/ adviser relationship goes wrong, due to a breakdown in communication. I noted that “The role of an adviser is to be proactive and to help structure the affairs of their client properly and as efficiently as possible” and focused on examples of famous people blatantly ignoring their adviser. Problems can also arise, however, when people do take their adviser’s advice, but do not fully understand it, or when the adviser is given too much freedom with the individual’s tax affairs.
Over the last five years or so, there have been a number of incidents that demonstrate how leaving all your tax planning to your adviser can result in damage not just to your finances, but also to your reputation.
As an example, in 2014 the then Radio 1 DJ Chris Moyles entered into a convoluted tax scheme that promised to legally reduce his tax bill. The schematics of it are difficult to explain easily, but the attached image shows how the scheme purported to work. The courts eventually found against the scheme and the DJ was left with his original tax bill, plus interest and penalties, and less quantifiably, the damage to his reputation. Afterwards, he apologised noting:
‘Upon advice, I signed up to a scheme which I was assured was legal. Despite this, my knowledge of the dealings of the scheme were naïve.
‘I’m not a tax expert and acted on advice I was given. This was a mistake and I accept the ruling without reservation.’
Chris Moyles, is not the only person to have fallen into this trap. Famously, former Prime Minister David Cameron lambasted comedian Jimmy Carr for having entered a tax avoidance scheme, and other famous faces including (but not limited to) Wayne Rooney, Arsene Wenger, Kenny Dalglish, Rick Parfitt, Gary Barlow, Howard Donald and Mark Owen have also been ‘named and shamed’.
Unfortunately for the individuals concerned, there is little recourse available when a scheme is defeated in court by HMRC. Ultimately it is the taxpayer’s responsibility to ensure that their tax return is complete and correct, and it is their tax bill that is due to be paid to HMRC.
The responsibility eventually rests with the taxpayer – you -, so it is necessary that you understand fully any risks that are entailed with any tax planning in which you partake. Advisers therefore must consider areas beyond simply taxation, including reputation, cashflow and family structures when discussing matters with their clients. This is one of the many reasons why it is important for the adviser to know your circumstances well, and for you to trust their advice and can communicate with them effectively.
To ensure that the relationship between you and your adviser is founded on mutual trust and understanding, the adviser must have knowledge of what you are comfortable with. Equally, you must be happy to say no to a proposal, if you don’t feel it is in your best interest. Only with open and honest communication can that happen. It is therefore essential to find an adviser that you can trust, one who not only gives advice, but also has your best, wider interests at heart.