ACCA Advanced Taxation (ATX) Practice Exam

What should be done first if the tax scheme is suspected to be a tax avoidance scheme?

1. Investigate if it has been notified to HMRC

2. Advise Emma of the potential penalties

3. Reassure Emma that it is a legitimate scheme

4. Charge Emma for the investigation costs

The correct answer is: Investigate if it has been notified to HMRC

When a tax scheme is suspected to be a tax avoidance scheme, the most appropriate initial action is to investigate whether it has been notified to HMRC. This step is crucial because HMRC has a specific framework for dealing with tax avoidance schemes. If the scheme has been registered with HMRC, it may provide insights into its legitimacy and any previous scrutiny it has faced. It also serves as a basis for understanding the implications of the scheme in terms of compliance and potential challenges. Addressing the other choices, advising Emma of potential penalties is an important consideration, but it should follow the initial investigation. If the scheme is registered and compliant with HMRC regulations, the risks may be lower than initially perceived. Reassuring Emma that it is a legitimate scheme without prior investigation could lead to misinformation if the scheme is indeed problematic. Charging Emma for investigation costs could be appropriate later on, but the priority must be to clarify the status of the scheme first to ensure informed decision-making.