I recently blogged about the 5 things accountants can do to make more profits. Selling tax schemes was not on the list. Why not?
Quite simply because the idea is vastly over rated, over hyped and mis-understood. (Typically by non-tax specialists).
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. But it’s worth bearing in mind in the context of the following points:
- Encouraging a client to undertake a structured tax avoidance scheme is much like encouraging them to make a specific investment;
- It takes a fair amount of time to get to grips with all of the relevant details of a structured tax avoidance scheme;
- 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;
- Having committed all that time to learning about the scheme there may be a temptation to persuade someone to ‘invest’ even if they might not otherwise choose to do so;
- If, some years later, the scheme is ultimately held not to work the client may sue the accountant for failing to adequately highlight the risks.
- Accountants should only promote such schemes if they are confident that they understand ALL of the risks and consequences for their clients;
- Accountants who promote such schemes honestly will find that typically only around one in ten clients will proceed once they understand all of the risks;
And it is this last point that explains the principle reason why I say that selling tax schemes is NOT a route to riches. Perhaps things were different ten years ago, before DOTAS, before the Courts adopted a more principled approach to legislative interpretation and before HMRC started to adopt such an aggressive response to tax avoidance schemes.
These days though there is plenty of evidence that when clients are fully appraised of the risks and downsides of schemes, they say things like:
“Now I understand it properly, why would I want to go into a scheme like that?”
And, just as I concluded a few years back, there is a limit as to how much you can charge a client in such circumstances for the time and effort involved in reviewing, checking and advising on the scheme – especially if the client decides not to proceed. This is one of the reasons that promoters pay high commissions. It is partly to compensate for all of the conversations and meetings that do NOT result in a client signing up for the scheme.
If you are focused on generating more profits there are many more productive ways to spend your time than learning enough about tax schemes to be able to promote and sell them to your clients.
I have written more extensively about the risks and downsides of tax avoidance schemes on the TaxBuzz blog.