Mourning the death of Tax Facts

There needs to be a special reason to give over this blog to someone else’s words. This is one such occasion. It’s important for accountants to be able to debate the tax news stories of the moment with confidence and conviction – based on the facts. This has become increasingly difficult in recent months, as John Andrews explained in a recent speech.

John is a former CIOT President and founder of the Low Incomes Tax Reform Group. The comments below are taken from his acceptance speech after he became only the third ever recipient of the CIOT Council Award this week. This is a prestigious and very well deserved commendation for John’s tireless work since his ‘retirement’. He remains one of the most highly regarded and respected independently minded members of the tax profession, so his words deserve wide attention.

Towards the end of John’s speech he referenced a recent debate on tax avoidance in Parliament (the Bold emphasis is mine):

This was generally a more mature debate and a realisation that we have an international problem that cannot be solved on our own. However, some parts were filled with heat and very little light. Other parts contained a distinct lack of facts, accompanied by impossible dreams, misunderstandings and many unsupported assertions.

This reminded me of a report in the US press last year [credit here to Rex Huppke of the Chicago Tribune] which made Facts into a mythical person and then criticised US politicians for killing Facts. The event that caused the demise was when a Florida Republican announced, without any evidence, that at least 81 of his fellow members of the U.S. House of Representatives were communists.

This made me think that some tax debates may have pushed our equivalent of the mythical person, Facts, to an early grave here in the UK.

Facts had a long life and I believe was born in ancient Greece, the child of Aristotle who saw that evidence was essential for his nurture. As Facts grew up people like Edmund Burke observed “Facts are to the mind what food is to the body.”

Facts helped to discover gravity, break the Enigma Code, discover DNA and, perhaps, introduce self-assessment.

In 2012 however, people seemingly unable to understand how tax systems work, began to doubt and ignore Facts. Opinion became the new truth and reprinting of such opinion in the press confirmed this new truth as correct. No feedback from Facts was thought necessary.

Facts had suffered serious injuries at the time of the 10% tax rate debacle in 2008 and through the misplaced assertions in 2010 about millions of errors being produced by the new PAYE system.

His health was improving, when early last year he was laid low by the absence of any sensible discussion about the granny and pasty taxes.

But nothing was to prepare him for the cruel assault which led to his demise in the final month of twenty-twelve. Assertions in the press that you can judge the right amount of tax a multinational should pay by looking at its turnover; followed by the revelation that for certain there was a £69.9 billion tax gap caused by avoidance, caused Facts to have a major stroke.

He was still in intensive care in hospital when the final straw came. His cousin TaxLaw was the one to break the news. TaxLaw had been admitted to the hospital’s isolation unit and had been ignored by all and sundry, including, at times, the Public Accounts Committee. The oxygen was rushed to Facts when he was told that a coffee bean company was now to be the arbiter of the amount of tax that people should pay; but it was too late.

That news coupled with the whisper that a burger chain would set the CPI in future had done its worst.

You will have seen from his obituary that Facts was aged 2,372 and was buried, at his request, in the birthplace of Parliament – the Isle of Man. He is survived by two brothers, Rumour and Dogma and a sister Shout Loudly.

Donations in his memory may be made to HMRC in a brown envelope marked “corporation tax”.

It is to John’s credit that he didn’t name any individual carriers of the virus that killed Facts. He was making serious points, about which he cares greatly, under the guise of an amusing valedictory speech.  Sadly much of the media is unaware or does not care enough that they are helping the spread of a virus.

John Andrews’ acceptance speech can be read in full here.

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8 Misconceptions about Limited Liability Partnerships

At Accountex friends of mine conducted a straw poll of attendees to ascertain attitudes to advising on Limited Liability Partnerships (LLPs). The straw poll was related to a project to which I have leant some support. The results were not wholly surprising but do reveal continued misconceptions and fear of the unknown:

  1. LLPs are perceived to be of marginal value: In fact they are the preferred business structure for anyone who wants the protection of limited liability, but does not want or need a limited company.
  2. LLPs are perceived to have limited tax advantages: In fact tax is rarely the key driver. The tax rules are effectively the same as for conventional partnerships. LLPs are transparent for tax purposes.
  3. The benefit of the limited liability aspect of LLPs is not well understood: The fact is that LLPs offer all the normal benefits of limited liability but without the inconvenience of a corporate structure.
  4. LLPs are perceived to be just another form of partnership with all the attendant management issues: In fact the move from conventional partnership to LLP status allows many such management issues to be resolved when the new membership agreement is drafted. In practice the real benefit over conventional partnership status is the added protection of limited liability.
  5. An inability to prepare LLP accounts as easily as for sole traders and limited companies: This shouldn’t be a barrier as all of the main accounts production systems have LLP modules. The practical problem is that some accountants have yet to access the LLP modules.
  6. LLPs are not perceived to be a key option for new business start-ups: This simply follows from many of the above issues. It is why I assisted in the creation of a business structure review checklist – to identify those occasions when LLPs should be seriously considered.
  7. LLP agreements are thought to be no more important than a conventional partnership agreement or a standard shareholder agreement: In fact LLP agreements are as importnat as shareholder agreements where there is any possibility, however remote, of a disagreement. The default provisions to resolve disputes in the LLP Act will rarely result in a fair outcome.
  8. LLP agreements between individuals and their own companies could be perceived as agressive tax avoidance: In fact the tax benefits of such a structure are a side-benefit. The principal reason for such a structure is to obtain the protection of limited liability without the administrative hassle and complexity that arises when running the business through a limited company.

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When I’m wrong, I admit it

This post is a post-script to a couple of posts I originally wrote for the TaxBuzz blog. As I no longer update that blog I have to comment here. And, yes, I HAVE to comment. Two people with whom I worked some years ago have been found guilty and imprisoned for their part in a fraudulent tax scheme. And I think there are lessons here for ambitious accountants in practice.

Three years ago, in October 2009, I set out my views on reports that: Vantis tax advisers to face charges of “cheating” re tax scheme. I admit that I doubted that Messrs Perrin and Faichney had done anything different to dozens of other promoters of tax schemes. I felt sure that HMRC were taking the case to act as a deterrent. I doubted that the accused had done anything beyond promote an aggressive scheme supported by “Counsel’s Opinion”.  As is well known, I am no fan of such schemes but equally, having worked with Perrin and Faichney, I found it hard to believe that they would do anything fraudulent.

I wrote two follow up pieces along similar lines: Wives of promoters of Vantis tax scheme also facing charges and Tax and financial advisers in court again re ‘failed’ tax scheme.

Well, in the light of the latest reports, I have to accept that, unless there has been a miscarriage of justice, “Faichney, who was managing director of Vantis Tax, worked with his deputy David Perrin to share £4.5m in profit from a fraudulent tax scheme“.

So, I was wrong and I admit it. I am shocked that two ex-colleagues bent and broke the rules to the extent now found proven in Court. When I worked with them I trusted them. Neither was a qualified accountant. I played bridge with David Perrin who was very bright and very commercial when it came to quoting fees for tax planning work. I worked more closely with Roy (Robert) Faichney who promoted me shortly after I joined WJB Chiltern in 2001. Both were involved in my recruitment to the firm.  (I should add that I have neither seen nor spoken with either of them for many years).

During my 4 years at the firm I attended many seminars at which Perrin and Faichney lectured to accountants about tax planning ‘opportunities’. Many of the more detailed technical arguments were beyond me but I was satisfied that their claims were supported by Tax Counsel and arguable interpretations of the law. Or so I thought at the time. And they clearly won over many accountants in practice too.

Now I am wondering. How robust were their technical arguments, really? Did they win me over with their charm and confidence? Did their plans, even then, go beyond the parameters of legal but aggressive tax planning? How many of the tax schemes that they put in place for clients really worked? By which I mean, how many such schemes, have been accepted as effective by HMRC after having been challenged? I wonder how many are still being negotiated? And I wonder how many accountants in practice were suckered into promoting the fraudulent tax scheme to their clients. Reports suggest that it was promoted via a network of contacts to over 600 clients including “an Oscar winning film executive, a celebrity psychiatrist, senior City bankers, top barristers and company directors.” I wonder how many other schemes devised and promoted by Perrin and Faichney have or will also be successfully challenged?

Faichney and Perrin were first interviewed by HMRC in 2006 in relation to the tax scheme in question which had been promoted some years earlier.  It has taken six years for HMRC to get a successful prosecution. Similar (and longer) time lags are commonplace when it comes to disputed tax schemes.

So what are the lessons for ambitious accountants? I would suggest just three:

  1. The fact that someone, whether a colleague or a client, seems to be honest when you first form a judgment as to their character, does not mean they will always resist temptation. Whilst we cannot go through life being suspicious of everyone, we should keep an open mind. We should not allow our faith in someone we trust to blind us to the possibility that they have overstepped the mark.
  2. Following on from the above, if a tax planning opportunity seems too good to be true, it probably is. Ask yourself whether fraud could be alleged – over and above any refusal by HMRC to accept the tax consequences of the scheme? If ANY element of the scheme involves a nudge-nudge, wink, wink, undisclosed agreements or arrangements, or any deliberately misleading statements, beware.
  3. And remember what happened to Perrin and Faichney. The fact that the promoters of any tax scheme seem credible and have a strong background of ‘success’ is no guarantee that all will be well in the future. Perrin and Faichney had loads of experience and their credibility was boosted by them working for one of the (then) top accountancy firms, Vantis Tax. Any promoters who approach you could seem just as credible but may themselves have got greedy. How would you know?

 

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Accountants discouraged by ICAEW from advising on aggressive tax schemes

Although Tax Avoidance is no longer headline news we continue to see the repercussions of recent media stories. Last week I referenced the comments of the CIOT President. He suggested that there may be a need to consider toughening up the financial services mis-selling rules to attack the promoters and sellers of tax schemes that have no real prospect of working. I wrote about this here under the title: Is tax scheme advice comparable with investment advice?

Now it is the turn of the CEO of the ICAEW. Michael Izza has posted on his blog the most forthright comments I can recall on the subject. His words will shock some members of our profession. Although I would suggest that in the main these will be:

  • that minority who have been active promoters of tax avoidance schemes; and
  • those naive followers who enjoyed the commissions they earned and who have yet to realise that their blind faith in the promoters’ promises may not be justified.

Two years ago I wrote what turns out to be a prophetic piece on this blog.  It included the following:

“There are plenty of people who will tell you that you can generate a good commission whenever you persuade a client to ‘invest’ in a structured tax avoidance scheme. They are right. Such schemes are (usually) legal and fully disclosed to HMRC. So what’s the problem?

Let’s start with the need, for most qualified accountants, to comply with their professional body’s fundamental ethical principles. These include acting with integrity, objectivity and professionalism. Clearly this means only advising on things you understand and being clear that the prospect of commission is not uppermost in your mind when advising clients.  Of itself this does not preclude you from advising clients to consider structured avoidance schemes.”

I then set out seven key points that it is too easy to overlook when presented with an otherwise compelling proposition by an enthusiastic promoter of such schemes. You can read the full post here. Last week’s posts covered related points: Why weren’t all accountants promoting those tax schemes? and Ten things accountants need to understand about tax schemes.

It is now six years since I chose to give up being a tax adviser. One of the reasons I did so was an increasing concern I had re tax avoidance schemes and the ‘moral’ issues. Rather than impose my views on anyone else I simply stopped advising on tax issues. I therefore welcome Michael Izza’s recent comments and I was absolutely delighted to see such a clear statement from the ICAEW.  You can see the original here but I have copied it below to encourage debate here as well:

“I believe that there is no place for our profession in the creation or maintenance of these sorts of tax schemes.

As ICAEW Chartered Accountants, our code of ethics, which is the foundation for how we behave, is clear that we must do nothing to bring our profession into disrepute. Any members involved in aggressive tax planning through the sorts of schemes highlighted by The Times are doing exactly that, and are risking the reputation of the vast majority of our members who provide valuable and honest support to businesses and individuals and who want nothing to do with such schemes.

Looking at it through the public’s eyes, people find it hard to appreciate, let alone condone, the difference between avoidance and evasion, especially given the sums involved and the current economic situation. Anyone behind the type of tax schemes outlined in The Times must be aware that what they are dealing with is beyond the bounds of what is reasonable and responsible tax planning – all the more so if the schemes cannot be set out fully in writing or rely on information being conveyed orally.

In my view, taxpayers will increasingly want to be reassured that their tax affairs are dealt with in a responsible and professional way. ICAEW Chartered Accountants should be trusted to abide by our Code of Ethics and in the coming weeks we will be looking at what more can be done to reinforce that trust.

In these difficult times, any ICAEW Chartered Accountants who are engaged in the kinds of schemes highlighted in The Times need to look at themselves in the mirror and ask – am I upholding the honour and reputation of ICAEW Chartered Accountants and am I seen to be doing that? If the answer is no then they need to ask themselves whether they want to belong to our profession or not?”

As implied, I feel that my long-held views on the subject are vindicated and that the pressure on accountants to promote such schemes should reduce. Of course there will continue to be some grey issues and I know plenty of people will miss the point of Michael’s statement. It’s not anti tax planning. It’s not anti tax avoidance. It’s anti aggressive tax avoidance schemes.

I’d welcome your views and comments below.

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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?

 

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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>>>

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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:

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A brave accountant admits he needs help and asks for it.

An accountant approached me last week to ask whether any of the members of my Tax Advice Network would be willing to work with his practice on a regular basis? The answer was ‘yes’.

The background to this accountant’s question was not uncommon. What I admired however was his desire to address the issue. And I was pleased he had chosen to ask for my input.

It wouldn’t be appropriate to identify the practice but the following broad summary suggests his situation is far from unuusal:

  • He is in his forties and has built up the practice over the last few years
  • He has a broad range of mostly business clients
  • His in-house (part-time) tax manager knows her stuff but is not someone to put in front of clients. And her letters and reports always need to be rewritten
  • He fears that some clients may be missing out and paying too much tax due to his reluctance to initiate conversations about anything beyond the most basic of tax planning; but he doubts many would be interested in ‘aggressive’ tax schemes
  • He has realised the practice needs higher level tax expertise but cannot afford to invest in a full-time person with appropriate level and breadth of knowledge. This also means he is unwilling to approach recruitment agencies
  • He has no idea how to go about finding someone appropriate or whether such a role would appeal to anyone good enough
  • He is concerned that he could end up with someone who is simply more expensive but otherwise similar to their existing tax lady.

Firstly I confirmed that I know there are plenty of independent tax advisers who work with accountancy firms like this one. In each case the parties agree an arrangement that suits them. This could include:

  • Weekly or bi-weekly visits
  • Flexible visiting arrangements
  • Ad-hoc telephone/skype and/or email help and support
  • Working as part of the firm or as an external consultant. Some accountants say their clients know the accountant is taking things seriously when he refers to his tax expert. (ie: Clients take the same attitude as patients do when their GP recommends a consultant).

Fee arrangements can also be flexible and may involve:

  • A weekly or monthly retainer – against regular invoices
  • PAYE for regular work as a part-time employee (with consideration of overtime arrangements if required)
  • Hourly invoiced rate for support provided by phone, email or face to face
  • Fees invoiced to the firm or to specific clients (the latter is only common for outsourced tax investigation cases or other situations involving substantial fees)
  • Or any other arrangement that suits both parties and reflects the arrangements between them. These may need to be reviewed after a few months

To proceed I suggested that the accountant use the simple search facility on the Tax Advice Network website to identify those advisers who are comfortable advising on ‘business tax’ issues. And then to add his postcode to sort the advisers and to show those located closest to him. He can then contact them by email or phone and have a chat.

Starting with our website means that the accountant is dealing with someone I have vetted as to their technical experience, is committed to undertake sufficient CPD and has a reasonable level of PI cover. Many general practitioner accountants might be less well prepared and yet it is important to check all such elements when recruiting tax support (whether to be on staff or only on a consultancy basis). Having said that every accountant needs to make their own assessment of the suitability of the tax people they engage directly whether or not they are found through the Tax Advice Network website.

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Is a ‘me too’ Budget summary worth sending to anyone?

Last year I awarded a (notional) prize for what I considered to be the  best Budget night ‘commentary’ that I saw the following day.  The winner, and runner-up to a lesser extent, stood out among the dozens of ‘me too’ pieces that were, frankly, not worth anyone’s time and effort.

Many years ago the Chancellor’s March Budget heralded tax changes that would take effect from the following 6 April. In those days there was a real client service need to summarise the Chancellor’s announcements, what they would mean in practice and what action clients might need to take as a result.

That was then. This is now. Few tax changes take immediate effect any more, other than the closure of fancy tax loopholes. And when that happens more detailed analysis is required than will ever appear in a Budget commentary. Also long gone are the days when the Budget Night press releases contained sufficient detail to enable accountants to say something constructive. Now we have to wait for subsequent announcements that appear long after the Budget newsletter was published. And most of the next tax year’s rates and allowances were announced a few months back – as has become the way for some time now.

But still many firms produce their own summaries or buy in a commercially produced ‘overnight’ Budget commentary to send out to their clients. I’ve heard the arguments for this. “Clients expect to get one from us.” “They get one from every other accountant in the town.” “They like them” (really?). To my mind there are plenty of better ways for accountants to distinguish themselves from the competition and to provide real client service. These standard Budget emails, newsletters and booklets are of very little value and rarely contain anything more than appears in the daily paper or in generic news (or even tax news) email updates. And they have little in the way of ongoing value.

So why the awards last year? Quite simply because the winner’s approach was distinctive and better than all of the standard stuff that I received from dozens of accountants around the UK.  Elaine Clark of CheapAccounting.co.uk published ‘Not a Budget newsletter‘. It was client focused and recognised the fact that there was next to nothing of immediate impact in the Budget itself.

This year Elaine has already published her summary of the key tax data that the media will only think to announce after the Budget – despite the fact that the information was announced long ago.

I announced a runner-up award last year for informanagement as they had at least divided up the announcements:

  • Budget Summary March 2011 – New tax changes announced today
  • Budget Summary March 2011 – Future changes announced today
  • Budget Summary March 2011 – Changes previously announced for 2011-12, now confirmed

So here is a challenge for readers of my musings and blogs. If you can avoid a ‘me too’ attempt and you adopt a different, client centred approach this year, please let me know. If I agree I will give you the 2012 award (which simply means you get a mention on my blog and a link through to your website).

Of course if you want to argue the case for ‘me too’ summaries I’d also love to hear form you via the comments facility below.

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500 entrepreneurs clearly need new accountants

I had to read the letter in today’s Telegraph twice after I first saw the headline that referenced it:

50p tax rate is damaging economy and delaying recovery from recession, warn 500 business leaders

The key point I wanted to flag was the implications drawn from the following extract from the letter:

“The tax which is in effect a 58p tax after national insurance is taken into account, puts wealth creators like us in a very awkward position.”

The comment article notes that  the business owners have also provided examples of the damage being done to the economy by the levy.

They say that by taxing their personal income so highly they have less incentive to invest their own cash in their firms or try to make them more successful.

I have never met an entrepreneur who would deny him/herself the opportunity to build up their business to make it more successful. It makes no sense. More successful businesses generate bigger profits when sold. And the owners then pay Capital Gains Tax (at between 10% and 28%) on the profits they make. Not 50% income tax. Or “58p” either.

Most entrepreneurs can decide for themselves whether to draw surplus profits out of their business (typically as dividends). If they do this then these monies are indeed subject to top rates of income tax. BUT the corollary is true too. Higher rates of income tax make it more cost effective to leave money in the company to help it grow. This is the complete opposite of what the entrepreneurs are reported to have said they think the position to be.

The comment also suggests that these entrepreneurs think that they can only invest more money in their business by drawing cash out first, paying 50% tax on it and then reinvesting it. This is clearly a nonsense. Retained profits are not subject to income tax and the business itself pays corporation tax on its profits.

All in all, I conclude that these entrepreneurs clearly need better accountants to help them understand how our tax system works and that making their business more successful faster means paying LESS income tax at 50% – rather than more. In other words, their letter is not well argued.

So my advice today is to check out the list of entrepreneurs who have signed the letter and approach those in your area. It’s likely that they could benefit from your intervention. But I guess they won’t appreciate being told that their argument is misguided – even if we can agree that the 50% top rate is not ideal.

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