Are you at least ‘reasonably competent’?

There has been an interesting discussion on AccountingWeb as to whether an accountant could be held to be negligent for not advising clients about ‘advanced tax planning’ (ie: tax avoidance strategies).

As I explain when I present sessions on How to avoid tax related negligence claims, the standard of care to which you will be held is that of a ‘reasonably competent accountant’. I also stress that there is more to this than simply having a good defence.  You really want to avoid the claims being made as it’s a rotten process to go through – even if you are exonerated at the end.

Assume for a moment that an (ex) client alleged that their accountant had been negligent for not mentioning certain ‘advanced tax planning’ ideas, what would that claimant need to evidence to win their claim?

1 – That the accountant owed a duty of care – the client/accountant relationship probably satisfies that.

2 – That there was a breach of that duty of care (I’ll come back to that in a moment); and

3 – That the client has suffered a loss as a direct result of that breach.

As indicated above, the defence would be that the the accountant did nothing less than a reasonably competent accountant would have done. Is it a breach of the duty of care to choose NOT to mention ‘advanced tax planning’ ideas? in my view it is not (in general). And I say that in the capacity of someone who has acted as an expert witness in cases involving the alleged professional negligence of accountants.

In my view there is a material difference between ‘everyday’ tax planning, that most decent accountants would address and ‘advanced’ tax planning ideas.

Of course, if a client’s circumstances changed materially, (eg they stood to realise an enormous capital gain) or they ASKED for more sophisticated advice and did not get it then a claim might subsequently succeed. However the client would need to prove that there was a ‘scheme’, technique or facility by which they could have reduced their tax bills and that they would have been prepared to undertake the necessary transactions and pay the related fees. If they can prove that THEN there might be a case against an otherwise reasonably competent accountant.

Although not completely beyond doubt it is important to appreciate that a reasonably competent accountant probably complies with the Guide to Professional Conduct for those working in tax. It’s the same Guide for all of the professional bodies. It includes a requirement to seek expert support or help if clients want tax advice that goes beyond your comfort zone. If an accountant chooses to not give the required advice rather than outsource it they could be held to be negligent.

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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Clients will pay high fees for good advice

I have just read a report in Accountancy Magazine about some research published by the UK 200 group*. The report notes that:

Clients are more likely to ditch their accountants for giving therm incorrect or poor advice than for being too expensive……Clients only rate high fees as the THIRD most important reason for switching accountants behind incorrect or poor advice (87%) and lack of personal contact (66%).

Two other key points noted in the short report:

Tax planning was rated as the most valued service;

Around 60% of respondents had been with their accountants for upwards of five years;

I’m always dubious about drawing conclusions from surveys and reports when there are no details as to how the data was collected or of how representative was the sample surveyed. So with that caveat what do I conclude from this brief report of the UK 200 group’s research?

1 – It seems to vindicate my view that more accountants could increase their fees without losing too many clients. Indeed, those most likely to leave are probably the D-list clients that you want to ditch anyway. Much depends on how you raise the subject and how you implement the fees increase of course.

2 – It reinforces the rationale for the formation of the Tax Advice Network – which enables accountants to access vetted, independent, cost effective and expert tax specialists. Accountants can use our specialists to provide second opinions and so avoid giving “incorrect or poor advice” and to enable them to provide an appropriate level of “tax planning” to clients.

3 – It confirms my view that clients will pay decent fees for good advice. When I ran the tax support for professionals team at a large tax consultancy I noted that accountants were reluctant to engage the firm and often said things like “My clients are used to only paying £300 a year. They’d never pay £2,000 for tax planning advice.” I’d be the first to accept that an accountant knows their clients best. Equally I have long felt that some accountants undervalue the advice they provide and make incorrect assumptions about the level of fees some clients would pay if the cost/benefit ratio made sense.

The UK 200 group’s survey suggests that many clients are more interested in getting the right advice than in paying low fees – especially when it comes to the provision of tax planning advice.

So my message today is to ensure that you charge appropriately for good valuable advice.

*Strangely I can’t find any ref to the UK 200 group’s research online so cannot provide a link.

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Do you really know or are you just trying to impress?

Years ago when I joined a new firm I remember an audit partner telling me about two tax managers in his team He preferred ‘Dana’ because she always knew the answers. He didn’t like ‘Susie’ as much because she was never sure of anything and always wanted to check with a tax partner.

I expressed the view that ‘Susie’ was probably the better tax adviser as she was more cautious. ‘Dana’ was probably more dangerous as it was likely that she was overstating her real knowledge if she never needed to seek a second opinion. Armed with this new insight the audit partner became more open minded and within a few months he found that ‘Dana’ had indeed been covering up her mistakes and creating problems for the future.

The fact is that audit partners and general practitioners generally want their staff to be constructive and commercial. Being cautious is good upto a point but ultimately it is the partner who makes the decisions.If you are always overly cautious you may be seen to be uncommercial. So you need to develop confidence in your own knowledge and ability but this should not come from bravado.

It is generally the partners or the business owner who should decide on the level of risk they want to take when it comes to advising clients. This means that ambitious accountants should never present unresearched technical advice as if it were gospel. So, even if you have to advise in a hurry, qualify your advice if it is unchecked. At worst you will be given more time to research things. At best the person who runs the practice or the department can decide whether further research is required.

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Trends that will matter in 2008 – for accountants

I noted last week that I was not one for making predictions generally. Instead I simply set out my (accountancy related )hopes for 2008.

Since then I’ve had cause to consider what new trends there may be this year. Here’s what I’ve said:

1 – More clients will be texting communications to their accountants. NB: how do you print off any such instructions if you want to retain an audit trail of evidence? (instant messaging using skype will also become more prevalent but you can print these off, as you can emails;

2 – Increased use of VoIP (principally Skype*) in place of telephone;

3 – Accountants who complain that they can’t recruit the people they need will eventually get around to upgrading the material on their websites so as to attract the talent they seek. I have written extensively about this on my blog in recent months.

* NB: Since expressing this view on AccountingWeb I’ve heard from Dennis Howlett who has indicated that an alternative provider of Voip (Gizmo) will, in his (more informed) view be more attractive than Skype which he considers to be too flaky for general use. I suppose I’m hoping that skype will overcome its current limitations – not that I’ve experienced them myself.

On the tax front I will make one specific prediction. That, sadly there will be:

Absolute mayhem in October 2008 when taxpayers attempt to meet the new tax return filing deadline for the first time.

And as many have predicted for years there will be a continuing and growing demand for by clients for more than ‘just’ accounts and tax return services from their accountants each year. Again I’ve been blogging about this for some time too.

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Happy new year – be careful what you wish for

I’m not one for making annual new year resolutions – or indeed ‘predictions’. Indeed, rather than risk ‘predictions’ for 2008 I offer instead three of my hopes for the new year, that Accountants will:

1 – earn more money by advising their clients about their menu pricing models – so that clients know they’ll pay higher fees if they leave things to the last minute;

2 – stop risking PI claims by advising on tax issues where they’re not sure how the legislation really works;

3 – engage a professional business coach to help them achieve their potential;

On a related point I have updated my business cards so that these make clear that I specialise in:

Improving the results of businesses that target or operate within the UK tax and accountancy professions

Three of the principal ways in which I do this are related to my 3 hopes above:

1 – Speaking at conferences and seminars for accountants and tax advisers on business development related and Risk reduction issues;

2 – Running the Tax Advice Network – which provides accountants in general practice with access to their choice of specialist tax advisers; and

3 – Providing mentoring/business coaching to ambitious professionals to help them to achieve more success, peace of mind and confidence at work.

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Tax Advice Network

Last month I posted less frequently on this blog than usual. My focus was on the launch of a new business venture – an additional service to those I provide to support ambitious professionals. The Tax Advice Network has a clear focus on accountants in general practice although others may find it of interest too.

Tax Careers Magazine has just published a piece based on our launch press release.

Lee forms new online tax alliance:

Former ICAEW Tax Faculty Chairman, Mark Lee, has created a new virtual tax firm. The online facility www.TaxAdviceNetwork.co.uk is aimed primarily at accountancy firms without inhouse specialist tax expertise.

Already 20 experienced tax advisers have joined the network and between them they are able to give tax advice across a broad range of fiscal disciplines. Lee says that his members can advise on dozens of areas of tax, including the more complex areas of inheritance tax, employment status, customs duties, residence issues, corporate reorganisations and VAT. International tax will be added to the coverage in due course.

Lee states that the site includes customisable discussion forums exclusively for tax specialists to exchange views about tax and business issues of their choosing. In addition to actively marketing their services the Tax Advice Network also provides an online networking support facility for its tax specialist members.

He is targeting the service at firms that have ad-hoc need for high quality advice from experienced practitioners but are unwilling to pay the fees that larger firms charge. He wants the service to grow to include 200 specialist advisers within two years. “The site acts as a broker, marrying supply and demand,” he says. “It enables accountants to search and find advisers by location and by area of expertise. There is no charge for using the site and it contains full profiles for each specialsist.”

If this is something that might be of interest do please have a look at the website – which has been widely complimented by visitors for its clarity and ease of use.

We also offer a free weekly tax news email update focused on the needs of accountants in general practice; The first five copies are also available to read or download from the website.

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What sort of advice do you give? Specialist, Compliance or Dangerous? (part two)

In yesterday’s blog I described what I see as the three categories of advice that best describe the approach of many professional advisers.

The third category I described was ‘dangerous’ and I explained that advisers giving dangerous advice, normally do so as they are what we might term ‘unconscious incompetents’. That is they are unaware how out of date or ill-informed their advice is.

I first encountered such attitudes over twenty years ago when I was a tax manager in a twelve partner general accountancy practice. A couple of audit partners (long since retired) routinely gave their clients tax advice and answered their queries without seeking the input of any of the firm’s tax specialists. When the clients wanted confirmation or clarification it was our job to provide correct advice without undermining the nonsense they had already been told. Not an easy task. But it was better than the other related role we had. That was to deal with enquiries and challenges from (what was then) the Inland Revenue. We were forbidden from ever admitting that the audit partner’s advice had been wrong from the outset. I hear apocryphal stories suggesting that such things continue to this day.

Indeed only very recently I had cause to review a case where the accountant had told his client that he was entitled to tax relief for the rolled-up (accrued) interest on a loan to refinance a close company even though the legislation has long denied relief for such interest until it is paid. The Revenue hadn’t spotted what was going on for 5 years and it was some time later before the accountant admitted that his view was incorrect. Of course this was a simple issue. I suspect that such situations are even more common where the client’s tax problem or situation is not something that the accountant encounters every day.

I am reminded of such experiences whenever I come across that immortal line in the Guide to Professional Conduct for those working in tax. This is a joint publication updated every few years by a working party that includes representatives of all of the major accounting and tax bodies. It forms part of the members’ handbook (or equivalent) of all such bodies too and says:

“Members will from time to time find themselves having to advise on matters which require specialist knowledge. In such circumstances they should be careful not to go beyond their own level of competence and, if necessary, should seek help from a specialist in the field”.

I’d welcome input from others on my suggested categorisation of tax advisers and the related ideas raised in this two part blog.

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What sort of advice do you give? Specialist, Compliance or Dangerous? (part one)

What would be the impact on your practice if a client alleged that you had been negligent? It’s not something that anyone wants to consider, of course.Often such allegations lead to complaints that result in investigations and disciplinary proceedings, or a professional indemnity insurance claim – whether justified or not.

All such eventualities invariably result in the poor adviser incurring significant costs, having sleepless nights and suffering significant disruption to their day to day practice. Of course no one really wants to think about any of this any more than they want to think about the need for effective computer back-up procedures. Much the same thought process is required. What can we do to reduce the risks we run and still provide a commercial, client-centred and profitable professional practice?

Over the last year I have been all around the UK lecturing to accountants and tax advisers on the subject of How to avoid tax related PI claims. It’s quite clear that a great deal of what I tell them gives cause for concern (and action). Positive feedback suggests that my insights and explanations will help reduce the incidence of such claims in the future.

I’ve recently realised that most accountants fall into one of 3 categories when it comes to the provision of tax advice to their clients. I would expect that similar categories arise in other professions too:

1 – Specialist tax advisers – These are the accountants who have a depth of tax knowledge in one or more key areas. There are also a handful of accountants who really seem to have an encyclopaedic knowledge of all things tax. They and most other specialist tax advisers I know are also able to admit what they don’t know. Specialist tax advisers are aware of the dangers of pretending to understand more than they really do.

2 – Compliance tax advisers – These accountants are very familiar with most compliance tax related issues. Their colleagues and clients may even think of them as tax experts but, like all good specialist tax advisers, they are aware of their limitations. Every now and then a client needs help or advice as regards an issue with which the accountant is not that familiar as it doesn’t crop up very often. When this happens the accountant seeks specialist tax support.

3 – Dangerous tax advisers – These are the accountants who advise their clients on tax matters even though they don’t really know the answer. Either they guess or they rely on their memory of what happened last time the subject came up. The self assessment system facilitates a continuation of this approach such that the adviser continues to assume that all is ok and to provide similar out of date or incorrect advice to clients. It can be some years before the issue comes to light.

One of the reasons I use the word ‘dangerous’ here is that such advisers may be what has been termed ‘unconscious incompetents’. They don’t know what they’re getting wrong. They will defend the indefensible and still think they can make HMRC go away merely by strength of argument. Indeed they even manage to do this sometimes and thus further their self belief that they know what they’re doing.

I will return to this theme in tomorrow’s posting on this blog.

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Tax Careers

I’ve been looking at the stats for this blog and noticed that a number of people are directed here because they are searching for information about ‘tax careers’. This posting therefore seeks to provide some useful pointers.

If you are new to the world of tax and/or are looking to move to or from the public sector you will find loads of useful information and links on the TaxWorking website. This is a joint venture between various professional bodies, public sector bodies and professional firms of various sizes.

There are also two magazines that contain job ads and useful articles principally targeted at younger tax professionals. I have mentioned each of them in previous postings when I have been featured or quoted in them:

Tax Careers

Taxation 2

Finally some further links that may be of interest:

The ICAEW guide to a career in tax

The CIOT guide to a career in tax

The Facebook Tax club for younger tax professionals

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Webcasts for tax advisers

I was flattered to be asked to record the first ever webcasts for the Chartered Accountants’ Tax Faculty last week.

You can now see them by clicking where it says Tax Faculty.

Many of the points coverd in the webcasts are easily adapted to other types of professional services and advice work.

The webcasts, which are each around 5 minutes long, are intended to help accountants to avoid disappointing and losing their clients. The webcasts focus on 3 key areas: Collating clients’ tax return information, billing the tax return work and quoting for tax compliance work.
When the recording was being planned I suggested that it might be best to use a teleprompter but none was available. That’s why you can see me referring to my notes. Other than that I think the webcasts are fine and I know they contain useful and commercial soultions. All of these are covered in more detail in my talk: How to make more money from your tax clients.

I would welcome your feedback on the webcasts and suggestions for future such items.

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HMRC Interventions (updated)

Another year, another controversial issue for accountants and tax advisers.

For reasons best known to themselves HMRC decided to press ahead with their interventions project last month. This is despite the severe misgivings expressed by the professional bodies, the wholly inadequate consideration given to a range of practical consequences and the complete absence of legal protection available to taxpayers who are found to have additional tax to pay.

I would concede that the interventions project has a logical rationale. But it is riddled with practical and legal problems. Moany of these could have been avoided if HMRC had not ignored calls from the professional boides to postpone the pilot until these issues had been properly considered.

As it is the pilot is progressing, accountants and their clients are getting concerned about the implications and both the ICAEW Tax Faculty and the CIOT are beefing up their representations.

In the meantime I was delighted to be asked by CCH to chair a workshop on the subject of these compliance interventions next month – details below.

If you have any colleagues who might be interested please advise them by forwarding a link to this blog. Anyone wanting to attend should reply directly to CCH please.

Interventions Workshop

Enabling? Insulting? Inescapable? Avoidable?

Workshop including expert speakers and panel discussion

Chaired by Mark Lee (past chairman, ICAEW Tax Faculty)

Venue: Council Chamber, Chartered Accountants Hall, Moorgate EC2

Date & Time: Friday 8th September 2006, 9.30 start – ending with lunch.

9.30 – Chariman’s intro

9.40 – HMRC speakers

10.20 – Phil Berwick (head of Investigations at Tenon)

11.00 – coffee break

11.20 – Eamon McNicholas – Tax Barrister – the legal perspective

11.40 – Panel session including all speakers plus CCH reps

12.25 – Conclusion

12.30 – Buffet lunch

Cost: £ 55 per person (to include buffet lunch)

(If you are a CCH Fee Protection client you will receive a full refund of £55 per person against your next fee protection renewal)

Two representatives from HMRC will be amongst the speakers.

Full details and confirmation of speakers will be available from CCH in the next 10 days.

Places are limited and we expect interest to be high.

To arrange your place please call CCH on 0800 542 6648.

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