Thursday, December 21, 2006



In my previous posting I mentioned that there were two things that struck my eye in last Saturday’s Times. The second was a response by a reader to a question posed by Joe Joseph, in his column, Modern Morals, the previous Monday: “My accountant found that HM Revenue and Customs had made an error in my favour and wants my permission to alert them. I don’t see why I should pay him £200 an hour to engage in a lengthy correspondence”.

I can never work out whether Mr Joseph’s column is a spoof on agony aunts or a semi-serious column written by someone with a weird moral sense. In any event Mr Joseph’s response to the above question was “An “error in your favour” is the mirage of the tax world. It just doesn’t exist in real life.” He went on to conclude, “You are morally and legally on thin ice. But, it’s academic; they’ll notice soon enough.” Oh that he were right on either count! In my experience, and that of most, if not all, other accountants I know, HMRC make many errors. Their staff are human after all! And although most errors in the interpretation of the law tend to favour the State, arithmetical errors can, and do, benefit either the State or the taxpayer. And no, most of the time they do not notice soon enough!

What interested me however was not Mr Joseph’s naivety but the reader’s response namely, “Your accountant has a legal obligation to advise the taxman of the error. His seeking your permission is only really a courtesy.”

This is news to me. As far as I am concerned, as an accountant, I have a duty of confidentiality to my clients. Although this falls short of legal professional privilege
I am under no legal obligation to breach that duty by telling HMRC or anyone else of a mistake HMRC makes in a client’s favour. I have a legal obligation to tell the Serious Organised Crime Office (SOCA) if I suspect that a client (or anyone else) has, or has used, the proceeds of a crime, but as far as I am aware it is not a crime to keep silent if someone makes an error in your favour. Section 3 of the Theft Act 1968 provides that a person is guilty of theft “if he dishonestly appropriates property belonging to another with the intention of permanently depriving the other of it”. If HMRC actually makes a tax repayment (or greater repayment than they otherwise would have done) to a client the question arises whether he dishonestly intends to permanently deprive HMRC of the funds, but I would have thought that he does not if he intends to repay the money to HMRC should they ever ask for it.

I hasten to add, that is not to say that I will cheerfully turn a blind eye to such an error unless it is very minor. Under the ethical rules of the Institute of Chartered Accountants in England and Wales (and of the other professional bodies of which I am a member) I have an ethical duty to seek the client’s authority to advise HMRC of the error. If the client declines to give me such authority I will seek to persuade him to do so. If he still declines I have an ethical obligation to consider whether I should continue to act for him, bearing in mind the importance for trust to exist between HMRC and ICAEW members. As a result of such consideration, I would undoubtedly choose to cease to act for the client. But my duty of confidentiality would still preclude me from informing HMRC of the error or of why I had ceased to act. If the client goes to another accountant who asks me if there is any information of which he should be aware before deciding whether or not to act for the client, I would tell him that I had ceased to act because the client was not prepared to notify HMRC of an error they had made in his favour, but would not be able without breaching my duty of confidentiality to the former client to tell the accountant more than that.

The ICAEW regards the duty of confidentiality as a fundamental professional duty that can be breached only where the law gives me a specific right or duty to do so. They regard the public interest in giving people an assurance that they can seek advice from members in confidence as more important than the public interest in everyone paying the right amount of tax. So readers of “The Times” can rest assured that the decision as to whether or not to tell HMRC of their errors is firmly in the client’s own hands.


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