Is tax scheme advice comparable with investment advice?

The CIOT has published a press release which I would encourage all accountants to read. It is titled: CIOT President suggests there may be a need to target promoters of dodgy tax schemes under mis-selling laws.

I welcome this statement as I have had similar thoughts myself. Many tax schemes require clients to make some form of investment. In effect they are making a judgement call (often not based on full information) that the scheme will produce a beter return than a conventional investment.

We know that financial regulations preclude us from recommending specific regulated investments. This is part and parcel of evidencing our independence – hence the further restriction on recommending tied investment advisers. Our professional ethics, which apply to those of us who are members of CCAB professional bodies, require us to disclose to clients all commissions and introductory fees etc that we earn from investment advice or from any other activity.

These same ethical principles also apply when it comes to advising on tax schemes. Commissions etc are disclosable to clients and we have a duty to evidence our independence.

The issue that has started to exercise my mind is why there is no commensurate restriction on our ability to promote unregulated investments – which would include loans, mortgages and funding providers as well as tax schemes.

Patrick Stevens, in his statement yesterday, suggests that

“there may be a need to consider toughening up financial services mis-selling rules to attack the promoters and sellers of tax schemes that have no real prospect of working.”

In my view this is only a step away from requiring accountants and tax advisers to be as cautious when recommending tax schemes as when recommending investments.

What do you think?



Ten things accountants need to understand about tax schemes

In the light of media reports related to ‘selebs’ tax affairs and their use of K2, icebreaker and other ‘legal’ tax avoidance schemes, some accountants may find the ten facts highlighted below to be of value.

As I explained in my last blogpost, (“Why weren’t all accountants promoting those tax schemes?“) the media reports are misleading when they imply that structured schemes are pretty straightforward or ‘easy’. The only other people who perpetuate this myth are either investing a fortune in developing the schemes or earning a commission by promoting them. Either way they can hardly be relied on to be objective.

Implicit in most of the recent media reports about the use of ‘abusive’ tax avoidance schemes is the idea that they are only for the wealthiest of taxpayers. This is partly due to the level of fees payable before a client can utilise the scheme. Leaving this to one side there are ten things accountants need to understand and remember about tax avoidance schemes:

  1. Accountants should only promote such schemes if they are comfortable doing so and are confident that they understand ALL of the risks and consequences for their clients;
  2. Accountants do NOT have to advocate structured tax avoidance schemes;
  3. Accountants who promote such schemes honestly will find that typically less than one in ten clients will proceed once they understand all of the risks and downsides;
  4. Accountants do NOT have to notify all clients that such schemes exist;
  5. Accountants are NOT at risk of successful negligence claims if they fail to alert clients to structured ‘abusive’ tax avoidance schemes;
  6. Encouraging a client to undertake a specific structured tax avoidance scheme is much like encouraging them to make a specific investment – is it something a professional accountant can do if integrity and independence are important qualities;
  7. It takes a fair amount of time to get to grips with all of the relevant details of a structured tax avoidance scheme and even longer to compare one with another;
  8. HMRC may announce a change in the law at any moment – leading to rushed (and perhaps botched) attempts to revise the scheme by the promoters. It is only a matter of time before the long-threatened retrospective changes are introduced to negate the hoped for tax advantage;
  9. Even after an accountant has committed loads of time to learning about a scheme they must still resist any temptation to act unprofessionally and to persuade a client to ‘invest’ if they might not otherwise choose to do so;
  10. If, some years later, the scheme is ultimately held not to work the client may sue the accountant for failing to adequately highlight the associated risks.

Together these ten facts should provide support for those accountants who choose not to advise clients on structured avoidance schemes. This list is an updated version of such lists that were previously published on the TaxBuzz blog.

I’d be very happy to explain or expand on the ten facts above and also to receive and debate comments below if you have a different view.

Related posts about tax avoidance schemes can be found on the TaxBuzz blog:

– Tax avoidance schemes – a simple guide
– Naive promoters of tax avoidance schemes

I have written a 10,000 word ebook drawn from my talk on How to avoid professional negligence claims, containing tips and risk management advice for accountants in practice. You can buy the book or download a summary for free here>>>


Why weren’t all accountants promoting those tax schemes?

I imagine that some accountants are concerned that clients may have complaints in the light of the latest media stories about tax avoidance schemes. Such complaints will rarely be justified and would only arise due to some of the misleading reports of the way that Jimmy Carr, Take That and other celebrities have used the K2 and icebreaker tax schemes to avoid tax.

This blog post is intended to clarify two distinct issues.

Firstly if these schemes are legal why haven’t all decent accountants recommended them to their clients?  And secondly, if these legal schemes are abusive, why have they not been blocked by HMRC or by the Government?

Why weren’t all accountants encouraging clients into such schemes?

Contrary to the mystique that the promoters of such schemes like to create, these schemes are not as simple or as straightforward as media reports imply. The schemes are sophisticated and complicated. The promoters of the schemes promised their clients that the arrangements are legal. This is VERY DIFFERENT TO PROMISING THAT THE SCHEME IS EFFECTIVE.

The key issue is that as long as the scheme is legal no one can ever justifiably criticise the client for EVADING tax. All they have done is to AVOID tax as the scheme relies on a justifiable interpretation of the relevant tax laws. This is often not the only interpretation however (see below) and it may well be both artificial and contrived. When clients understand the consequences, risks and downsides of schemes like this they typically decide it’s not something they want to do.

Jimmy Carr explained: “I met with a financial advisor and he said to me: “Do you want to pay less tax? It’s totally legal.” I said: “Yes.”  Many people have intimated that they would have done the same thing and that’s perfectly natural. But there’s more to it that that as such decisions have consequences that need to be understood too.

If someone tells you that there is a legal way you could reduce your tax from 40% to 5%, would you jump through all of the hoops of a tax avoidance scheme? If it were that simple then of course most accountants would encourage their clients to do so. No one wants to pay more tax than is absolutely necessary.

The question is whether Jimmy and other investors in the scheme were provided with sufficient information to make an INFORMED decision. Many accountants know that clients in possession of the full facts rarely decide to proceed with such schemes. I know not whether Jimmy later changed his mind or if he invested without being provided with sufficient advice as to the nature of the scheme. I have however repeatedly explained on my TaxBuzz blog (see below) that these schemes are risky and carry various downsides. The list of these now needs to be supplemented by reputational risk if the media find out!

I have long maintained that accountants should NEVER encourage clients into sophisticated tax avoidance schemes unless they are able to explain all of the risks and downsides to the client. When this is done properly only a tiny percentage of taxpayers decide to proceed with the scheme. And because of this, very few accountants, these days, spend much time trying to keep up with the ever dwindling number of tax avoidance schemes that are being promoted. And, as I have explained ad nauseum on the TaxBuzz blog this is a perfectly rationale approach to adopt. It is also professional, credible, independent and commercial.

Let’s also remember that the upfront cash costs of entering into such schemes often mean they are only even worth considering for the wealthiest of clients who are prepared to gamble the sums involved. Then there’s the time it can take to determine whether or not the client wants to jump through all the hoops. And so on.

Why haven’t these legal but abusive tax schemes been blocked or stopped?

Readers will recall that the Chancellor, in his Budget speech, spoke of his disdain for tax evasion and aggressive tax avoidance, describing both as “morally repugnant”. David Cameron and Nick Clegg have made similar observations more recently. So why don’t they do something to stop these schemes?

Quite simply the media reports of how ‘selebs’ are avoiding tax through LEGAL tax avoidance schemes do not tell the full story. The ‘selebs’ may THINK they have avoided tax. The promoters of the scheme may CLAIM they have avoided tax BUT until HMRC conclude their enquiries the REAL outcome is not known.  Of course, as long as Tax Counsel has confirmed the scheme was LEGAL the taxpayer will not be prosecuted for tax evasion.

All of the schemes referenced in recent media reports are already or will now be challenged by HMRC. Media reports of HMRC investigating the K2 scheme and the Icebreaker scheme insinuate that this is only happening due to the media attention. What rot!

Our tax system has inbuilt delays in it when it comes to challenging someone’s tax position. Take That, for example are reported to have invested in the Icebreaker tax shelter in 2010. This would have been in the tax year 2010/11. HMRC enquiries into those tax returns didn’t start until they were filed (probably in January 2012). HMRC often highlight their concerns re schemes like these on the Spotlights page of their website. But until the Courts confirm HMRC’s view, as distinct from that of the promoter’s of the scheme HMRC cannot do much more. They often hold back from adding further complexity to our tax system unless they genuinely fear that the scheme works. In such cases they may recommend that new tax rules be introduced immediately to block such schemes. However HMRC often still challenge them in case all the steps and paperwork were not properly completed. This is another of the risks that taxpayers run. The scheme works in theory but only if all necessary steps are taken in precisely the right order, adequately evidenced and truthfully represent the underlying transactions. Often this is not the case and the hoped for ‘legal’ tax savings have to be repaid.

The interpretation of tax law on which a scheme depends for it’s success and legality will often be the subject of lengthy debate and legal hearings.  These challenges often drag on and on.There are some promoters of schemes who claim to have never lost a case in the courts. However when they make such claims it is rarely clear whether all avenues of challenge by HMRC  have yet started, let alone been exhausted.  Regardless of what the promoters assert, there are always risks of failure and of the hoped for tax savings being denied even when a scheme is LEGAL. And many years may pass before we learn whether or not the scheme was EFFECTIVE and the tax savings were permanent. So, the alleged tax savings enjoyed by Jimmy Carr and Take That may yet need to be repaid to HMRC.

EDIT 20 July 2012: We now have contemporaneous evidence in support of the above explanation. The Court of Appeal has just pronounced on a tax scheme promoted by PwC ten years ago. The case, Howard Schofield v HMRC, has already been through the first tier and upper tier tribunals and this is the 3rd time HMRC have won. This case alone involved potential losses to the Exchequer of about £11m. It seems likely that around 200 other taxpayers who entered into the same scheme (being advised by PwC that it was LEGAL) will also be affected. The tax they all thought they had saved will now become payable plus interest. Whether they will be able to recover the fees they paid to PwC for the decade old advice remains to be seen.

Related posts on the TaxBuzz blog:


Are your business relationships too insubstantial?

Thinking about your business relationships, how close do you want to be with clients, prospective clients and advocates?

The following list suggests a number of distinctive levels of contact that you could have. It can be a mistake (as in, a waste of time) to expect recommendations and referrals from anyone before your contact level reaches a certain level.

0 – They don’t know you (even if you know someone in common)

1 – Met once/occasionally – they have only a limited knowledge and understanding of what you do. (Even if you have given them your business card!)

2 – Limited amount of fee-earning work done for them or for someone they know.

3 – There has been sufficient contact for them to recognise and be able to explain to others the value of the work that you can provide

4 – You have their vote. They know, like and trust you enough to recommend you unreservedly whenever the opportunity presents itself

5 – Things have moved on to become up-close and personal. You meet socially and do not always discuss any business related issues. DANGER area. Whilst a close relationship can be useful with advocates and fellow professionals it can work against you with clients.Of course you may value your client relationships more than the additional fees you waive as a consequence of your closeness.

I would suggest that there are at least two key points to take from this analysis:

The first is that you cannot really expect anyone to engage with you before they know you well enough to appreciate what you can do for them. How much effort do you make to move your business contacts upto levels 2, 3 and 4?

The second point is to show that in many cases it is fine to move clients only upto level 4 rather than all the way to level 5. Do you agree?

Can you see other potential issues with having all one’s key clients at level 5 relationships?

Another way of looking at this is by reference to Ian McKechnie‘s loyalty matrix.   He suggests we think of our clients in terms of which filing draw they are in within the RADIAN cabinet.

From the top down:
‘Referrers’ – these people you can call up to persuade others to buy your services, because they love what you do.

‘Advocates’ – will spread positive word-of-mouth about you to others. You need to work on these advocates to turn them into solid gold referrers.

‘Dedicated’ clients  –  have 3 attributes – regular use of your services, positive liking for them, ability to differentiate you  from your rivals. ‘

‘Involved’ clients  – use you but couldn’t describe your USP, so they are vulnerable to switching.

‘Aware’ clients  – lurk in the 5th drawer down, on the fringes of using you for additional services but never quite taking the plunge.

‘Not aware’ prospects  – don’t understand your offer and need educating as to what else you could be doing for them.

As Ian says, the trick is to find out who is in which drawer and adjust your marketing mix to raise them through the levels.

What too few accountants appreciate is that you cannot really expect any loyalty from clients who are merely ‘Involved’ or lower down in the cabinet.

What do you think? Please add your comments and views below.



How accountants can use Linkedin groups

There are thousands of Groups on Linkedin and some are of more value to accountants than others.

If you scroll down someone’s profile on Linkedin you can see the Groups to which they belong. ‘Belong’ – the list doesn’t reveal whether they are active in those groups, or indeed whether anyone is active there.

It can be worth joining some Groups on Linkedin even if you are not planning on being very active therein. By so doing you can emphasise your interest in areas related to your expertise and your practice focus – for example businesses in your area.  And of course if you do either start or join in discussions you may well find that prospective clients get in touch. Or other opportunities may come your way; probably more than would become apparent if you remain completely passive on Linkedin.

If you are unsure which groups to join:

  • Consider those that your prospects belong to. You can find these by looking at the profiles of prospective clients on Linkedin and scrolling down to see the groups to which they belong.
  • You can also use the Groups Directory by clicking on the ‘Groups’ link on the top menu bar on any Linkedin page. After you click on ‘Groups Directory’ you can search for relevant groups by using key words (eg: Burnley business, Watford business networks and so on), and exploring different categories (eg: Networking, Professional, Other).
  • Linkedin also has a “Groups you may like” function that suggests Groups based on your current profile and connections.

To assess which Groups are worth joining, consider how many members they have, who established them, whether they are location specific and how active are the discussion forums.

Currently Linkedin allows you to join up to 50 Groups. This should be sufficient for most accountants. If you need to you can search for topic and location specific groups that contain concentrations of people that you would like to network with. It is also worth checking out the level of participation and conversations in the Discussions area of a Group. If you find these are largely self publicists or recruiters you may well decide that the Group will be of little benefit.

Ironically, you will often find that the best groups for lead generation are those that don’t tolerate blatant self-promotion.

You may also choose to join Linkedin Groups related to personal, social or other non-business interests. Whilst not crucial, you can choose to ‘hide’ your membership of these non-business focused Groups if you wish to do so. This means that they will not appear at the foot of your profile when someone (other than you) is viewing it.

One key tip is to drop out of Groups that are of little value to you. For me these tend to be Groups where the ‘discussions’ are mostly posted by recruiters or of a self-promotional nature.

You can leave a group at any time if you find that the members or discussions are of no interest to you.  (Go to the Home page of the group you wish to leave and click on ‘More…’ on the horizontal menu bar beneath the group name. On the dropdown list that appears, click on ‘Your settings’. At the bottom right of this page is a button that allows you to ‘Leave Group’).

Do ensure that you also join the ‘Ambitious Accountants – UK‘ group on Linkedin. I run it exclusively for accountants and it has no suppliers or recruiters to spoil the flow of valuable discussions.

How else might accountants benefit from using Linkedin Groups?

PS: I have written a 10,000+ word book specifically for accountants who want to use Linkedin – either actively or passively. Click here for full details>>>


Are we undermining the meaning of the word ‘specialise’?

I saw an advert recently for the Daily Telegraph’s jobs board. It claims them to be “Specialists in your Industry”. Er, no they aren’t. They can’t be.

They may ‘cover’ every industry. They may have vacancies or jobs for people in “every” (or, more likely, simply ‘most’) industries. But, by definition, they cannot be ‘specialists’ in all industries. No one can. Specialists concentrate primarily on a particular subject or activity. This is the complete opposite of what the Telegraph jobs board attempts to assert.

This reminded me of the nonsensical way that some accountants claim to specialise in working with or advising SMEs. I’m sorry but this is hardly a meaningful specialism either.

Official statistics from the Dept of Business Innovation & Skills show that OVER 99.7% of all UK businesses satisfy the definition of SME business. The stats also reveal that around 4.5 million businesses in the UK rank as SMEs, so it’s not realistic to claim SMEs as a specialism.  And I am firmly of the view that Accountants, of all people, should not perpetuate the myth that the acronym ‘SME’ refers only to the smallest micro businesses (which officially have a turnover of less than 2m euros and fewer than 10 staff).

If you ‘specialise’ in advising micro or smaller businesses, solopreneurs or small family-run businesses you cannot, at the same time also ‘specialise’ in advising those with muti-million pound turnovers and hundreds of staff. (The definition of SME includes those businesses with a turnover of upto £25.9m and upto 250 staff).

Some accountants’ websites misuse the word ‘specialise’ in another way. They list out the industries in which the firm ‘specialises’. All too often, this is simply a list of all of the industries in which the firm has at least one or two clients.

Those firms which truly have a specialist focus generally evidence this by explaining how their focus benefits clients in those industries. The websites have specific pages that talk to prospective clients in those industries and contain specialist information of relevance and benefit to prospects in those industries.

Rant over.  Do let me know what you think on this topic by adding your comments below please.


A dozen key tips for your Linkedin profile

I’ve been advocating Linkedin as a key online networking opportunity for accountants and other busy professionals for a few years now.

I’ve realised something important was missing though: A post containing my tips and advice for someone who would benefit from enhancing their profile to make it work for them. This is all simple stuff and doesn’t involve adding any apps or doing anything new.

You can edit your profile at any stage. Go the ‘Profile’ tab – top left of the Linkedin screen. The first drop down option allows you to edit each and every section of your profile as often as you feel the need.

Simply click the links marked ‘Add’ or ‘edit’ and make whatever changes you choose. To ensure your profile has maximum professional impact I would suggest that you ensure that your profile:

• Includes a headline title, after your name, that describes your role and approach rather than simply repeats the title on your business card; and makes clear you operate in the ‘accounting’ industry. The only reason to choose a different industry would be if you were, for example, exclusively a specialist accountant or tax adviser for, say,the computer games industry.

• Displays your full name

• Includes a professional type photo in which you are recognisable so that someone meeting you in real life will already ‘know’ you from your photo and online interactions

• References your current role at your firm and indicates that it is an accountancy business

• Contains descriptive Website links that point to your firm’s website and to any specific landing page or blog you want to highlight. In each case, choose the ‘Other’ option (rather than the generic ‘Company website’) and then describe the link. This makes the nature of the links more obvious. For example, rather than ‘Business Website’ my three links are set up as:

o Other – Mark’s personal website and blog
o Other – Tax Advice Network
o Other – Referrals from Accountants

• Has a personalised ‘public profile’ URL link rather than one that ends with a load of superfluous numbers (as is automatically generated by Linkedin). A personalised, tidy link makes you look more professional and enables you to reference the link more easily on your business card, website and in articles etc. When you edit your public profile link you are given a list of options on the right hand side of the screen. Unless you have a good reason for wanting to keep part of your profile hidden from the search engines and from people looking for you, I recommend you make every element of your profile visible to everyone. But you can choose to keep parts of it hidden if you want to do so.

• Makes clear you are an approachable, experienced and fully rounded person in the ‘Summary‘ area. This should be written in the first person and also reference your current role and responsibilities. However, this is NOT the place to promote your firm. That’s best done on the firm’s own separate and distinct Linkedin Business page.

• Includes all of your skills and expertise. If you want to be found easily when someone searches Linkedin for an accountant with your specialist experience, ensure that the words and phrases you use here are those that people might search for.

• Includes in the ‘Experience’ section the same name of your firm as your colleagues are using so that you are all linked to the same firm!  (It is up to you how much of your personal job history you include on your profile. Do keep it honest).

• Includes your business email address in preference to a personal, gmail or hotmail address. The latter are more common for job hunters than for serious professional advisers. LinkedIn does not display your e-mail addresses to the public, only to your direct connections. You can also set tings up so that Linkedin emails you at a personal address even if your business address shows on your profile.

KEY TIP for your Linkedin profile

This is a key tip if you want to benefit from SEO withhin Linkedin when users are looking for someone like you: Ensure you include your key words (eg: accountant and tax) in the five key elements of your profile:

  1. Headline
  2. Current work experience
  3. Past work experience
  4. Summary
  5. Specialities.

Think about what terms and words people might be using to search for an accountant like you. The more often you include these in those five elements of your profile, the easier it will be for you to be found – which is the main idea (especially if you’re not planning on using Linkedin actively).

There are other things you can do to enhance your profile on Linkedin but the above list is a pretty basic minimum and quite easy to do.

Your public profile

Your Linkedin profile will also appear in the search results when someone is looking for you on Google or Bing etc. And often your profile will appear higher up the search results page than your website – especially if the latter is focused on your buinsss rather than on the person who the user was searching for.

Compare and be inspired

Check out the Linkedin profiles of other accountants like you who have plenty of direct connections. Avoid copying the approach of naive newer users of Linkedin and especially of those with few connections (eg: less than 500). Instead check out what the more  successful and active accountants on Linkedin are doing. One place to find loads of switched on accountants is the ‘Ambitious Accountants – UK‘ group on Linkedin.

PS: I have written a 10,000+ word book specifically for accountants who want to use Linkedin – either actively or passively. Click here for full details>>>