Tax advice: What your clients want

Mark Lee has long maintained that most clients want tax advice from their accountants. But what does this mean?

For many years I have been encouraging accountants to ensure that their clients know when they have saved tax. The reason is obvious, though commonly overlooked.

Some people delight in telling their friends and associates about how fantastic their accountant is as “they have saved me so much tax”. How does the client know this? Maybe it’s simply that their tax bill is lower than it was before. 

More likely though their accountant has told them how much tax has been saved and has...

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Comments
DMGbus's picture

Tax credits    4 thanks

DMGbus | | Permalink

Recent new client example.

A window cleaner.  Yearly income around £8,000.

Previous accountant retiring.  Charged a "good" (low) fee of £125.

For this a P&L plus Balance Sheet was prepared (plus SA return).

No advice on Tax Credits given. 

Result client about £2,500 a year worse off (but saved £175 in accountancy fees).

I quoted a fee of between £200 and £300 and will NOT provide a Balance Sheet, but from day one have provided Tax Credits advice - client is as a result currently receiving £50 a week in Tax Credits.

Many advisors see Tax Credits as beyond their boundaries of responsibility to the detriment of their clients.

But some might say that they "do a more professional job" by including a Balance Sheet for a Window Cleaner's accounts.

Fortunately for such advisors who will not face the facts about tax credits they often have clients who are oblivious to the money they're losing out on in tax credits.  Just maybe one of the areas where the profession has "Rogue Traders" (no, not really they have an engagement letter not mentioning Tax Credits and have passed a Practice Assurance rubber-sole visit, so all is OK on paper isn't it ?).

As a minimum clients should be advised that Tax Credits are an option, perhaps then advisors can add "but we don't advise on them" then the client can form a view on the subject matter.

My views above are what a client NEEDS, not what a client wants - if they don't know about Tax Credits then obviously they won't know that they WANT Tax Credits advice.

johnjenkins's picture

@Mark

johnjenkins | | Permalink

You seem to have strayed from your normal "safe" articles into something that is highly contentious.

Clients want to pay the lowest possible tax legally. How that is achieved is up to us.

To me (and I would think most who post on aweb) anything set up artificially purely for tax avoidance is a no go area. I have always maintained that the best way to save tax is do everything that is right for the business then the tax breaks follow.

So, perhaps a follow up article, "do our clients know what they should be wanting from us".

The other problem which you haven't highlighted is that if a tax payer is taxed out of existence then they will fight back and the only way to do that is legal tax avoidance. Then, of course, you have the fight back by HMRC and so it goes on.

Surely, Mark, you must agree that the tax system needs a rapid change (not overhaul). All this can leave some clients totally confused in "what they want".

bookmarklee's picture

Tax credits @DMGbus

bookmarklee | | Permalink

Good points, well made.

Accountants who have atended many of my talks in recent years will ( I hope) recall my Tax Credits Dance - more of a Rant really. I talk about the missed opportunities and the risks of ignoring tax credits. I summarise the reasons they give themselves for doing this as well and how they can rectify the position.

Mark

ps: I also agree that we need to address clients' needs as distinct from their expressed 'wants'.  Spot on. I wish I had made this clear in the article.

bookmarklee's picture

"strayed into something....highly contentious" @johnjenkins

bookmarklee | | Permalink

I have been writing articles along these lines for at least 5 years John, probably longer. My views have barely changed.

There are lots of other problems I have not addressed in the article.

NB: I do not buy the argument that all forms of tax avoidance are fair game because taxpayers are being "taxed out of existence". Most tax rates now are much lower than they were when I started my career. The top rate of income tax is the only one that is higher than it was a few years ago. But I suspect that most of the clients of most of the accountants who post on accountingweb are not earning over £150k so are unaffected by this.

I often wonder how low would tax rates need to be for those who argue the point to agree that the tax should be paid rather than 'avoided'. 

Sorry, I cannot agree with a simplistic statement that "the tax system needs a rapid change".  "A" change? It needs lots of changes and it is constantly getting lots of changes - sadly not all with which I agree.

Mark

Ask your clients    1 thanks

HudsonCo | | Permalink

I believe that clients should be clear on what you mean by tax advice.

I ask my clients how they feel about "advanced tax planning" (they understand this more now with the recent publicity). So far only one client has ever been interested.

With this client we discussed the risks etc openly and he decided that he didn't want to go down that route either.

I also have clients who won't even consider dividends or claiming for a home office for fear of putting their heads above the HMRC parapet; I document my advice and their response.

johnjenkins's picture

@Mark    1 thanks

johnjenkins | | Permalink

Sadly, after writing a contentious article you fall back on safety.

Wether you like it or not it is a fact thet tax avoidance schemes in any shape or form only spring up when tax payers are taxed "out of existence" IR35 is a classic example.

[I often wonder how low would tax rates need to be for those who argue the point to agree that the tax should be paid rather than 'avoided'.] That is a very salient point and the answer is very simple. Look at what happened with IR35 from start to now and you have your answer.

There are a number of other things that get up tax payers noses. Single mums getting more in benefits than working people. The amount of money spent on trying to deport a National security risk. Money going to foreign aid whilst some pensioners are left to die through not being able to afford to live. The amount of money the EU waste, then send us rules that curtail our earning power and liberties etc. etc. etc.

Like her or loathe her, if Maggie was here now in her prime we wouldn't be in this crap. 

  

cfield's picture

Taxes going down?    2 thanks

cfield | | Permalink

bookmarklee wrote:

Most tax rates now are much lower than they were when I started my career.

Not sure I'd agree with you there Mark. Here are are few taxes that have gone up considerably in recent years or never used to exist:

- VAT

- National Insurance

- Fuel Duty

- Vehicle Excise Duty

- Air Passenger Duty

- Insurance Premium Tax

- Stamp Duty Land Tax

- Community Infrastructure Levy

In addition, there is the fiscal drag created by freezing (or even lowering) tax allowances/thresholds, of which the following is a varied selection:

- Higher rate tax threshold (should be about £60k by now)

- Corporation Tax small profit limit (frozen at £300k since 1994)

- IHT nil rate band (frozen at £325k from 2010 to 2018)

- IHT annual allowance (frozen at £3k since 1981)

- Tax free mileage (frozen at 40p from 2002 to 2011 and 25p rate never lifted),

- Luncheon vouchers (15p per day since 1948 (then 3 shillings) 

- Staff re-location allowance (frozen at £8k since 1993)

- Childcare vouchers (frozen at £55 per week since 2006)

- Beneficial Loans (going up to £10k next year after what seems like decades at £5k) 

- Redundancy payments (tax free limit frozen at £30k since at least 1996)

I agree that overall tax burdens have come down since the 1970s though, when income tax rates were sky high and the pie was much smaller.

Good point about making clients aware of all the tax saving work you are doing for them. I inundate my clients with advice of this nature all the time and never let them forget how much better off they are.

A note of caution here though. Always specify exactly where you are saving them tax and never give the impression that you are saving tax across the board (or even worse put a very generic clause about tax saving in your engagement letter), because if you miss a trick, the client could say you were negligent.

 

bookmarklee's picture

Thanks for that @cfield

bookmarklee | | Permalink

Two impressive (sadly) lists! I stand corrected, to a degree as we agree that "that overall tax burdens have come down since the 1970s though, when income tax rates were sky high and the pie was much smaller."

I would also suggest that few of the items on your lists are uppermost in most clients' minds when thinking about the tax burden. But that's a whole different discussion for another place and time I think.

Your final para also contains a useful tip that was only implied in my article. I fully agree that accountants would benefit most from being clear as to precisely what tax savings they have facilitated for each client.

Mark

nigel's picture

So then, what DO clients want?    1 thanks

nigel | | Permalink

Thanks for provoking a debate Mark. Not sure that your article provides much of an answer to the question though.

What I think clients want - from our advice as much as from the tax system generally - is certainty, peace of mind and a clear idea of what their liabilities are (and how any course of action they might take will affect their tax liabilities).

The trouble with aggressive tax avoidance schemes is that they don't tick any of those boxes. IR35, Arctic Systems-type arrangements and the like are similarly flawed in many cases.

At least with conventional tax planning a client knows that £10,000 invested in a pension or fixed assets will reduce their tax liability by a certain and defined amount. Likewise dividend versus salary tax planning. Those things we all ought to be able to do.

The area where so many firms fail is allowing clients' tax affairs to get, if not in arrears, then all very last minute. That doesn't do either party any favours and just results in a second-rate experience for the client. My happiest clients are those whose affairs are kept up to date and who know what their tax bills are going to be well in advance - that way we also have the information we need to plan their tax affairs. Whether or not we should even try to help clients who won't help themselves is a topic for another time!!

johnjenkins's picture

@cfield and Mark

johnjenkins | | Permalink

People aren't that bothered about paying high taxes when everything else is in order and they have a bit of freedom, but when they are sqeezed from all ends it's a different story. Anyway Maggie sorted out the financials quite nicely until messrs. Major and Lawson cocked it up. Look where we are now, more or less the same position as when Maggie took over. Only difference is then it was the Unions holding the country to ransome now it's the bankers.

bookmarklee's picture

"What sort of tax advice do your clients want? "

bookmarklee | | Permalink

Hi @Nigel  - I agree. In fact my suggested title for the article asked this very question. The editors in their wisdom revised this to make it appear the article indicates what clients want. I didn't set out to do this beyond the generic approach mentioned in my opening paras. Indeed, you will see I 'repeated' the question in the final line of the article.

Mark

If a clients tax bill is say

Carlos_Fandango | | Permalink

If a clients tax bill is say £10,000 and it used to be £30,000 have you saved him £20,000?

I would argue not, he's just paying what he should be paying...you've used the tax legislation to his best advantage.

You surely can't argue that, "if I hadn't done this and advised you to buy that then" your tax bill would have been £20,000 higher because..that's what your there for!

Likewise, if you had greater knowledge and the client could have paid 8,000 in tax, have you cost him £2,000?

tonyaustin's picture

As the famous comedian once said...    2 thanks

tonyaustin | | Permalink

"...it's the way you tell 'em."

If a client is paid under deduction of tax under CIS and you get a refund by submitting a tax return claiming a personal allowance, can you tell him you have saved him tax? He will think you have because he got a refund and he might tell his friends who want you to save them tax too.

Perhaps a silly example but accountants tend to miss opportunities because we do not consider that just claiming what to us a person is obviously entitled to and just getting it right is saving tax. The client who does not know what he is entitled to thinks it is saving tax.

johnjenkins's picture

Do butchers

johnjenkins | | Permalink

tell you that they has cut the joint in such a way that the fat content has been reduced by 10%. No of course they don't.

It's our job - we should not lose sight of our obligations for charging our fee.

It doesn't hurt    1 thanks

Ian McTernan CTA | | Permalink

to tell clients what you have done to lower their tax bills- it's usually the simple things they like the best as they are able to relate this to their friends without having to be technical about it: 'my tax guy saved me £300 this year by making sure I claimed the right business mileage/telephone costs/printing costs (insert here)'.  If you want people to talk about what you did, they need to understand it so they are willing to talk about it!

I fall into the 'challenge' category of tax advisers, looking at the client as a whole and identifying what the real problem is rather than what they might have thought the problem was.

Fine example of how this works in practice and how word of mouth referrals work:

Occasional client (ie phones for ad hoc advice every 1-2 years) called, had split from hubby and was worried HMRC could chase her for his share of the CGT due on a joint property they sold (rented throughout).  Started to discuss this, then she mentioned the properties had already been sold and the money was sitting in a JOINT account.  Alarm bells ringing, pointed out he could withdraw the entire amount and she took immediate action to safeguard the monies- so the real issue wasn't what she thought it was.

She has referred a number of people to me over the years, so pointing out the real problem will certainly get people talking about you and generate referrals.

Something simple, which she can now tell her friends about!

So did she then withdraw all    2 thanks

Carlos_Fandango | | Permalink

So did she then withdraw all the money...or her half (grin).

johnjenkins's picture

She sent him a

johnjenkins | | Permalink

postcard from the Maldives thanking him for the advice.

B Adder's picture

Oh my - don't remind me

B Adder | | Permalink

Had that exact scenario
Two-edged sword - the Hubby was not a happy bunny !

MARK

ver1tate | | Permalink

What clients want is an accountant who can minimize their tax bill. What accountants should aim for is minimizing their client's tax bill, but avoiding the use of aggressive tax avoidance, which as we have seen of late, can backfire and cause the accountant to lose not only a client but possibly the goodwill of others.

But to my mind what is really required is a completely impartial panel of tax experts with no current ties to the profession, who are able to make tax laws without loopholes. This would probably mean that HMRC would have to poach them from the profession by offering them salaries far higher than the profession possibly could, requiring them to cut all ties with the profession and thereby ensuring their integrity. the initial outlay may seem high, but the potential returns would far outweigh this. Indeed, returns in the first month of operation, or knowledge that such a 'task force' has been set up, may be achieved before the salaries are paid.

johnjenkins's picture

@ver1tate

johnjenkins | | Permalink

your post seems a bit of a contradiction. First you say tax experts should be impartial, with no ties to the profession, then you say they would have to be poached from the profession. Then given such a huge salary that they would be biased towards HMRC.

I do get the point though, but I can't see it working.

What would do away with many problems and stop some Accountants from creative thinking would be to allow the workforce to decide their way of working and stop HMRC getting involved in working methods..