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95% of partners may be negligent with tax. By Steve Pipe

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22nd May 2008
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According to independent research, the service clients’ value most from their accountant is tax planning. And the thing clients want most from their accountant is “proactivity”. So, taken together, this suggests that proactive tax planning is one thing that every single practice must be extremely good at.

Survey 1 – What accountants do

The result of my 2007 survey of over 200 partners are, therefore, really very worrying.

I asked those partners whether they had ensured that every single one of their relevant clients had been given four specific pieces of tax planning advice. Less than 5% of partners said they had given that advice in every case where it was relevant. This means that 95% had not been proactive in giving their clients even quite rudimentary tax planning advice.

And when I asked them about how good they were at proactively sharing genuine leading edge tax planning ideas – such as tax avoidance strategies that could save clients really large amounts of money – most accepted they were failing completely.

This 95% or more failure rate no doubt accounts for the other independent research finding that 90% of clients don’t think their accountant is saving them as much tax as they should be. After all, it appears that those clients are probably right… in 95% of cases their accountant probably isn’t saving them as much tax as they should be!

In my view this is tantamount to negligence. According to the ICAEW, however, it is not necessarily negligence, since “it all depends on what the engagement letter says”.

But regardless of whether this is, or is not, technically negligence – it is certainly commercial stupidity, since as a result most firms are (a) letting clients down, (b) missing out on the opportunity to cross-sell additional tax services, and (c) running the risk of losing the client to an accountant who is more proactive.

Survey 2 – What clients think

I also asked the same 200+ partners the following: “How would your clients react if they discovered that their lawyer could have saved them tens of thousands of pounds on a transaction they were advising on, but they didn’t have the time to tell the client about it, so the opportunity was missed and the client was £000s worse off?”

On this issue every single partner I surveyed was crystal clear… their client would be furious, would find another lawyer and may even sue.

And then in the “penny dropping” moment, I asked them the further question: “Do you have any grounds for believing that your clients would feel any different if they discovered that they had missed out on an equivalent amount in extra cash from all those tax planning and other ideas that you never quite got round to proactively telling them about?”

The solution

Most clients don’t care that you are busy, or that some types of tax planning are difficult for you to get to grips with. They are paying you to help them, and they expect you to do it properly.

They expect you to give them the option of paying as little tax as possible. And that has profound implications for your approach to leading edge tax planning.

Clients don’t want you to hide behind excuses such as “we don’t have the time” or “its outside our skill set”. And in the case of tax avoidance options, they don’t want you to decide for them on the basis that “because we are risk averse, we don’t want to get involved”.

Instead, especially where the tax savings are potentially very large, they want you to tell them about their options, quantify the likely amounts, explain the pros and cons, give your opinion… and then let THEM decide for themselves.

Silence on advanced tax planning, therefore, is not an option. You have to tell your clients about all the possibilities that are relevant to them – even the advanced ones.

And if, for example, you don’t like certain tax planning strategies, make that clear by prefacing what you say like this: “As your accountant I have a professional responsibility to tell you that you may be able to get up to four years worth of income tax back. But it involves tax avoidance. And I am personally not very comfortable with tax avoidance because there are usually risks. But clearly it is for you, not me, to decide whether you are interested in paying no tax. So if you are, I can find out more for you, and run you through the pros and cons so you can make an informed decision as to whether, from your perspective, the benefits outweigh the risks”.

By doing this they will never be able to accuse you of not giving them the chance to cut their tax bills even further.

Instead they will know you are proactive. They will be grateful. Because you are giving them what they want, they will become more loyal. In many instances your proactive suggestions will lead them to buy additional tax planning services from you. And they will refer others to you because you are so proactive.

So your practice will become more successful and profitable.

And that’s the way business works – because profits are a consequence.

Your next step

In future articles I will set out a simple step by step system you can use to identify the most relevant and highest impact ideas (including tax planning ideas) you should be proactively sharing with your clients.

But if you can’t wait until then, and want to start giving your clients a better service straight away, email me at [email protected] and I will email you back with everything you need. And because you will have proven yourself to be an action taker, I will also invite you as my guest on 3, 10 or 17 June to a full day’s training on how to be more proactive with tax and every other aspect of your practice.

Steve Pipe FCA can be contacted on [email protected]. He is the Chairman and founder of the 250 practice strong association of leading accounting firms, AVN, and a leading researcher into the commercial issues and opportunities facing UK accountancy practices. He was also the editorial adviser to the ICAEW’s groundbreaking 2005 Report, and is the author of the 2008 White Paper “The proactive accountant”.

Copyright retained Steve Pipe and AVN 15 May 2008.

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Replies (31)

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By AnonymousUser
24th May 2008 10:53

Tax Management and Tax Protection
Not only is there an opportunity with tax planning but what about tax management and tax protection?

Tax management is looking at the clients books regularly and providing interim tax forecasts or reviewing the DLA every quarter to make sure they don't get stung with a s419 charge.

Tax protection is making sure the tax planning is underpinned with prime records that stop or make it very difficult for the taxman to gives your clients a hard time. This means making sure the bookkeeping is very good and all Div vouchers and minutes have been completed.

I've heard from an ex SCO investigator who now represents tax payers that Self Assessment = Self Investigation. We're here to protect our clients and having a wider service objective can do this.

By the way, I asked him about tax schemes and he's pleased people are pushing them because it brings him more work. But, if he was earning £300k he would do it and so would I.

I wonder if some accountants have let their training and prudent nature/nurturing override their commercialism? Saying no you can't claim this and can't do that isn't always a good mindset for business which is a risk and reward game.

Saving clients tax is just the start. It's a basic responsibility. The next phase is making sure clients keep the savings and budget for the tax bills. If you are serious you could consider signing a joint declaration with the client that if your client is found to be paying more than they needed that you will refund your fee up to the amount of the tax.

Just a thought, keep it in mind.

Bob Harper
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By AnonymousUser
23rd May 2008 10:33

It's not just high level and high risk
As well as high level, high risk advice for high profit clients our research shows that over 95% of accountants are missing basic day-to-day basic tax planning.

Proactive tax advice can be a key practice strategy becauae it stops clients complaining about fees and stimulates referrals, so you can get rid of the nightmare clients. And, if you approach clients correctly proactive tax advice can be used to get rid of workflow pressures and improve profits from compliance.

An example of day-to-day basic tax planning is Tax Credits. Take a sole-trader making £30k whose business involves a white van. If he buys a new van for £15k he qualifies for 100% Capital Allowances under the Annual Investment Allowance. That takes his taxable profit down to £15k and triggers a tax credit claim of £3k. Next year he gets a £3k award which doesn’t need to be repaid because of the £25k Income Disregard. That’s £6k in the client’s pocket, the equivalent of three months earnings after tax!

Other situations which could result in fluctuating profits could be a bad debt. This could become VERY relevant with the Credit Crunch crisis. Another would be an accident at work and it's why one accountant I spoke to ensures all his clients file a protective claim. The question is why don’t accountants pick up on these opportunities?

Our research shows the route problem is time and information. There isn’t the time to do this work within the budget and the client’s books are not good enough to calculate profit in real-time. This is needed because the advice needs to be given BEFORE the year-ends.

Our recommendation to firms is simple - systems and processes. Make sure you develop an effective “data collection” system. This needs to give you high quality up to date information from all clients. Having clients using different bookkeeping systems to different standards is a recipe for disaster.

Take control of how and what clients give you and remember garbage in garbage out. There is a direct like to what your practice get in from clients and what you and your clients get out of your practice.

Bob Harper
www.moresoftware.biz

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Richard Murphy
By Richard Murphy
23rd Jun 2008 16:17

Since when was asking people to pay tax 'extreme'
My position is simple: people should pay the tax that they owe at the right time and in the right place without trying to subvert the will of the law.

Tell me what is 'extreme' about that Steve?

I look forward to your justification.

Richard

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Steve pipe
By Steve Pipe
10th Jun 2008 23:18

Richard - What I really said
Richard, earlier in the debate you accused me of “sophistry” (having looked it up I think it means “flawed or false logic”).

But you are surely using sophistry yourself by unfairly criticising me for something I have never said.

In your 10 June posting, for example, you say “Steve Pipe thinks we should all be extracting rewards via trusts”. But nowhere have I said that. And neither would I make sucha ridiculous generalisation without any reference to the specifics of the client's situation. (I merely mentioned trusts, in 7 short words of my 4 June post, as one potential form of tax planning when asked, as a non tax technical accountant, to give some examples of where accountants were not currently being proactive enough).

While in my original article I gave one and only one script… and far from trying to force tax avoidance down anyone’s throat, which is what Richard seems to repeatedly imply my message is about, that one script actually tells you exactly what to say to and do if you never want to touch tax avoidance with a bargepole

So let's make this a fact-based discussed centred on the truth. Not on distortions of what was said.

And the facts are clear… what I am actually saying is spelled out with crystal clarity in the 9 key principles in my two postings of 5 June. Essentially they all boil down to one thing – being more proactive with tax planning. So I invite every reader to read those 9 key principles and draw their own conclusions about what is the right thing to do.

Happily in your posting of 6 June you accepted every single one of my 9 key principles. So leaving the irrelevant stuff aside, it seems that the only thing we really differ on is the judgement call as to what constitutes “acceptable tax planning”.

You clearly take a very principled (and extreme) stance on this – which I respect - in that you believe that anything other than what you label as "tax compliance" is immoral.

I on the other hand take a different (and I thimk more moderate) stance in that I am suggesting it is up to every accountant and their clients to make an informed decision for themselves as to what is "acceptable tax planning" - providing, of course, that it is legal and honest.

Some will reach the same conclusion you have, And others will reach a different conclusion. Either way, regardless of whatever you or I may think, that conclusion will be right for them.

In the meantime I think by now it is a clearly established fact that you and I will have to agree to disagree on the matter.

Steve Pipe
[email protected]


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Richard Murphy
By Richard Murphy
10th Jun 2008 08:50

Jacquelyn makes my point
Steve Pipe thinks we should all be extracting rewards via trusts, but they are so specialist most accountants can't use them.

That's because they are artificial.

It also means the chance that something will go wrong is very, very high. Clients get things wrong when they do not understand things.

Result? More tax, investigation cost, unwrapping he mechanism. Cost to accountant. Cost to PII, maybe. Loss of client. Loss of reputation for profession.

That's why tax avoidance of the sort Steve Pipe says accountants should offer as a matter of course is wrong.

Actually, let's put it another way. Let's suppose you were trying to market a particular group of accountants, some of whom knew how to do these things. Would you, in that case promote these things as normal to try to differentiate your team from the rest who do not do them, for good reason? I think it just possible.

But I may be wrong.

Richard Murphy

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By AnonymousUser
09th Jun 2008 13:38

EBT Scheme second opinion required
I know that this is slightly off thread but I have recently started acting for a client whose previous accountant has approached them with what I would consider to be a tax avoidance scheme using an EBT to extract profit.
Putting aside whether I think it was ethical of the accountant to approach my client with this type of scheme or not, as these shemes are highly technical I will need to obtain a second opinion. Do any of you have a tax specialist that I could speak to?

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By User deleted
09th Jun 2008 10:48

What are they being sued for?
It will make a difference, won't it, whether Baker Tilly are being sued for (a) offering the film finance advice at all or (b) getting the advice wrong. If it's (a) then Richard Murphy looks to be in the lead, but if it's (b) then it is either a draw or possibly Steve Pipe is still leading by a head. Trouble is, of course, there isn't actually a winning post in this race (pun unintentional).

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Richard Murphy
By Richard Murphy
09th Jun 2008 09:43

Why a little caution is of benefit on occassion
Sometimes offering advice on schemes is not the right thing to do

http://www.accountancyage.com/accountancyage/news/2218510/baker-tilly-faces-negligence

Richard Murphy

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Richard Murphy
By Richard Murphy
06th Jun 2008 11:35

To Steve
Steve

I have not for a minute said an accountant should not do tax planning for their client.

I have always done just that.

The issue about tax avoidance is, however, vital. Tax planning is an activity associated with what I call take compliance, which is making sure that a person pays the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions they have undertaken accord with the form in which they are reported for tax.

That knocks your tax arrangement straight into touch, for a start, because that is quite clearly tax avoidance using this definition. The trust is an artifically inserted stepo into a transaction udnertaken for pure tax beenfit. The form and substance as such do not coincide.

Being tax complaint is in every client's interest. Tax avoiding is not in every client's interest.

The arrangements you have suggested an accountant should promote to clients, without concern for the ethics of the accountant involved, include what I consider to be not just tax avoidance, but some pretty aggressive forms of it that will attract HMRC attention. I continue to believe that unwise. No client appreciates that attention. And a great many clients, as all experience practitioners know, fail to implement these sorts of arrangement properly and as a reuslt they are a complete hostage to fortune.

But it you accept my definition of tax planning I buy what you say. But it's a big 'if'.

Richard

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By AnonymousUser
05th Jun 2008 08:15

Route cause rather that the symptom
Putting the argument of what is and what isn’t ethical or negligent to one side I’d like to suggest that time based billing is the reason why we are having this debate.

Even accountants that offer fixed price set the fee based on how long the work will take.

Now, if the fee was linked to how proactive the accountant was during the year rather than how long the accounts took at the end of the year I am sure all or much of what has been posted is what accountants would be doing.

On the ground tax advice and high level is being missed because accountants are focussed on effort not value. I’ve suggested in my blog that accountants are unconsciously unethical. But, it’s now time to wake up for everyones sake.

We hosted and recorded a series of Webinars with Ron Baker earlier this year on the topics of Value Pricing, Trashing the Timesheet, Marketing and Selling. They are available for accountants who are interested in looking at a different way of approaching accountancy. Call me on 0800 915 4225 or visit www.moresoftware.biz and we'll send them to you..

Invest time listing to people like Ron’s and reading his books and you may find you will change your mind on all this.

I respect the people posting on this topic and would encourage them as thought leaders to focus on the cause rather than the effect. If we can change the mindset of the profession we can improve everyone’s lives.

At the end of the day I believe that if you are a really good accountant your clients should pay lots of tax. They will be happy to do so because they will be making lots of money. Their business and othert investments will be performing well.

If they want to buy a house then why not make £30k extra year and pay the mortgage for the child. It's a while since I did tax advice but wouldn't this be better for IHT planning because it will be gift out of income?

Bob Harper
www.moresoftware.biz


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Steve pipe
By Steve Pipe
05th Jun 2008 01:05

The 9 key principles - Part 1
In response to Richard Murphy's 4 June posting...

With respect I think you are being a little unfair Richard.

You accuse me of sophistry, and state that “Steve Pipe’s advice is unsound”, and yet your post seems to draw that conclusion based solely on your and Profession Ulph’s view as to the status of trusts.

But clearly real issue here is not the status of trusts.

So, leaving aside tax avoidance for the moment, would you please clarify which of the following general points made both explicitly and implicitly in my article and subsequent postings is unsound, and why.

PRINCIPAL 1 – Tax planning of any kind is about saving the client money.

PRINCIPAL 2 – Saving clients tax, even where specifically permitted in the legislation, usually means that the government receives less in tax revenues. And that in turn means either that the missing tax has to be raised from other tax payers, or spending on good cause has to be cut back. So in a very real sense, every kind of tax planning, even the simple claiming of reliefs and allowances that would otherwise have been missed, generally benefits those who can afford good advice at the expense of others less fortunate.

PRINCIPAL 3 – Clients want their accountants to do tax planning. In fact, research shows it is the service they value most.

PRINCIPAL 4 – Research also shows that clients want their accountants to be more proactive.

Continued in part 2 below….

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Steve pipe
By Steve Pipe
05th Jun 2008 01:02

The 9 key principles - Part 2
…. continued from Part 1 above

PRINCIPAL 5 – In a market economy service providers earn their living by meeting the needs of their clients – always, of course, working 100% within the law and the requirements of their professional bodies.

PRINCIPAL 6 – Accountants should therefore be more proactive with tax planning – since it is what the market wants, and as a consequence it is what the market will reward them for.

PRINCIPAL 7 – Not having enough time to be proactive with tax planning is not a good enough excuse.

PRINCIPAL 8 – Not having enough knowledge to be proactive enough is with tax planning is not a good enough excuse either.

PRINCIPAL 9 – If you want to be excused (for example in the field of tax avoidance) then you have to explicitly reach an agreement with your clients to that effect – ideally via your engagement letter, and ideally after giving the client a balanced explanation of the nature and potential magnitude of what they are likely to be missing. In other words, in much the same way that we must proceed if we want to get their permission to retain commissions received in respect of financial services products etc.

Please identify by number which of the above 9 principles that constitute my advice are “not sound”, and please explain why.

If, on the other hand, you agree with these principles then I will have achieved what I set out to do… ie make the case for proactivity.

Contrary to what you seem to think, I am not a rabid advocate for tax avoidance. I am happy for accountants to draw their own informed conclusions on the matter.

I do, however, passionately believe that the profession needs to become more proactive. And proactive tax planning is a good place to start.

Steve
[email protected]

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Richard Murphy
By Richard Murphy
04th Jun 2008 11:53

Using trusts for profit extraction istax avoidance
I dispute Steve Pipe's claim that 'using trusts, including for profit extraction planning' is not 'remotely tax avoidance'.

Using Prof David Ulph's definition of tax avoidance, which is 'Using artificial or contrived methods of adjusting taxpayers’ social, economic or organisational affairs to reduce their tax liability in accordance with the law while not affecting the economic substance of the transactions' then putting a trust into such an arrangement is most certainly tax avoidance. The fact that it does not require DOTAS notification is entirely beside the point.

Sophistry cannot eliminate the existence of tax avoidance that imposes a cost on society at large. Such arrangements do just that.

In my experience, such arrangements are also not understood by clients, impose an administrative and cost burden on them (the sort of thing we accountants usually moan about, please note) and are often open to challenge because client's cannot comply with the obligations they create to behave in certain, particular orders.

I have to say that Steve Pipe's advice remains, in my opinion, unsound and best avoided by practitioners because if this is the sort of thing he is recommending he is not suggesting accountants act in the best interests of most of their clients, and that has to be wrong.

Richard Murphy

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Steve pipe
By Steve Pipe
04th Jun 2008 10:20

Reply to Nick James
Firstly, it nice to talk again, even in this somewhat unusual way!

I agree with much of what you say… it is indeed our prerogative as members of the human race not to do things we don’t approve of… provided as professionals our engagement letters make this crystal clear.

But I need to take issue with you when you suggest I am hiding tax avoidance behind the label of “advanced tax planning”.

Advanced tax planning is exactly what it says, advanced. And whilst for some forms it may include a small amount of tax avoidance, much of it isn’t remotely tax avoidance.

As you well know, I an no kind of technical tax expert, but here are the first 4 obvious forms of advanced planning that spring to my mind and which 95% of accountants are not proactive enough with.

(1) Putting extra cash in their clients pockets during their lifetimes by sorting out the IHT planning for their parents.

(2) The careful structuring and combining of available reliefs and incentives for growth when launching a new business so that most of expansion profits are effectively free of tax

(3) Using trusts, including for profit extraction planning.

(4) Helping ordinary clients to protect their hard-earned assets from decimation by what many people regard as grossly unfair stealth tax on the elderly in the form of means tested long term care fee charges, which can wreak the most havoc to the lives of very ordinary people.

None of these is remotely tax avoidance, and none are disclosable under DOTAS. And yet very few accountants will even claim to have been proactive with this kind of advanced tax planning.

To repeat myself for the third or fourth time, the issue at stake here is NOT tax avoidance – that can be dealt with in the engagement letters you have started to use Nick – it is tax proactivity.

The profession must become more proactive with tax planning – including advanced tax planning.

Steve Pipe
[email protected]

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By nickja
02nd Jun 2008 19:39

Advanced tax planning - tax avoidance by another name?
We can disagree about what constitutes abusive tax avoidance, or even if such a thing exists, but we surely can't hide behind renaming it advanced tax planning.

No professional accountant could disagree that tax planning is one of the principal services that we're expected to provide. But is there not a difference between making choices clearly available in law and actively seeking and exploiting loopholes that could not have been intended? For me, the timeworn line that, if it's legal, it's OK is no more than an excuse for abandoning any sort of ethics. Consequently, I can't and don't agree that we're under any obligation to promote services to which we have ethical objections - regardless of what anyone expects. We sell our services and, if we're prepared to sell anything, even our integrity, we have some claim to be part of the oldest profession - and that's not a place I want to be. I don't want to play God but surely I have, at the very least, a right not to be involved in things I believe are fundamentally wrong, even if they are legal.

Steve's example of promoting a scheme that I suspect must involve the creation of artificial losses is an excellent example of tax planning that is fundamentally wrong. Sure, one person and his offspring gain but then a lot of other, considerably less well off people for whom the opportunity doesn't exist, have to pick up the bill. Taken to its logical conclusion, that reinforces the ever increasing have/have not divide and leads to the collapse of society. And why? Not because there is an attempt to provide the best service to a client but, ultimately, because there is a preparedness to sell anything.

Regarding Steve's survey, I'd be interested to know if owner-managers were made aware of the specific risks of advanced tax planning, that HMRC could very easily challenge and overturn what had been done and leave them significantly out of pocket. In my experience, small businesspeople want certainty in their tax affairs every bit as much as they want tax savings.

In conclusion, I'm grateful for this discussion because it's made me realise that what I have long been saying to my clients about tax planning really should have been confirmed in my engagement letters. The first one with the appropriate addition went out last Friday.

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Steve pipe
By Steve Pipe
02nd Jun 2008 18:25

Further reply to Richard Murphy
Richard

As far as I am aware, nowhere in the ICAEW handbook does it say that proactive tax planning of the kind I am suggesting is unethical.

And nowhere in law does it say it is illegal. In fact, even tax avoidance is perfectly legal.

You are entitled to your opinion that some forms of tax planning are unethical. But it is just that – your personal opinion.

So what we are really debating here is a question of personal opinions over the politics and/or “morality” of tax planning – and that is a subject that surely every person is entitled to their own opinion on.

The danger, it seems to me, is if a professional accountant who is charged with looking after his clients best interest,s allows his or her personal opinion to affect the scope and quality of the advice given… and as a result prevents the client accessing tax savings that could legally have been his, and which over the lifetime of the relationship could add up to many hundreds of thousands of pounds.

Happily, your clients seem to share your political/moral opinion on the subject – which means your “we don’t touch it with a barge pole” approach is absolutely right in your case.

But most other accountants have not been explicit with their clients on the subject in the way you have – ie they have not included in their engagement letters the “we don’t touch it with a barge pole” message. And therein lies the problem.

And given that it is all about opinions… surely the critical factor is that our clients' opinion needs to be informed (by us), sought (by us) and then acted upon (by us).

And the evidence seems to suggest that most clients are of the opinion that they want to know more, which is what I am suggesting accountants need to do… start proactively telling their clients more about the range of relevant planning opportunities.

Steve

[email protected]

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By AnonymousUser
02nd Jun 2008 17:50

Reasonably negligent
When I did some research (calling legal firms) I was left with the impression that an accountant would be negligent if the issue was something a "reasonable" accountant would cover.

I am fairly sure that a court would expect a reasonable accountant to pick up on basic tax planning like:

1) Incorproating a business
2) Proper profit extraction i.e. not voting a £15k salary "because it looks better"
3) Flat VAT rate accounting
4) Timing of expenses and profit shares for Tax Credits

I also think a "reasonable" accountant would be expected to ensure their clients books meet Self Assessment standards. I wouldn't want to be an accountant accused of letting clients do poor record keeping which resulted is expensive/stressful tax investigations, penalties and fines.

The other issue with clients books is accountants facing claims for unnecessary annual accounting fees from correcting basic bookkeeping mistakes year after year. Can you imagine a time like with the banks that businesses start claiming?

I don't know if a reasonable accountant should be expected to advice on complex tax schemes but I am sure they should be advising clients on steps to protect the business from the credit crunch.

I can think of half a dozen actions and typical small business should consider. This is type of proactice advice that can be made interesting with a video on the Website or a Webinar. Isn't this really what accountants should be doing?

Bob Harper
www.moresoftware.biz

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Richard Murphy
By Richard Murphy
02nd Jun 2008 17:45

Not as simple as it seems (3)
Steve

You say people don't ant tax avoidance and then describe a scheme that does, I expect, constitute avoidance (and unless you share the details that will remain my opinion).

Despite this you say accountants do not have the right to play God on this issue.

Respectfully, I think you are wrong. It is the duty of professionally qualified accountants, bound by a code of ethics and granted a licence to make super normal profit by the state, to not only avoid such opportunities, but to petition for their closure in the interests of society as whole.

After all, how are we to get a simpler tax system with lower tax rates until such anomalies are removed? It is hypocritical for accountants to argue that they want such a system without being proactive in helping create it.

In that case I think the conduct you propose is unethical and I remain of the opinion that no accountant should go near it.

My clients know I do not offer such arrangements to them and over nearly a quarter of century I've not yet had a complaint.

Richard

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Steve pipe
By Steve Pipe
02nd Jun 2008 15:56

Reply to Richard Murphy - Part 1
You are right in lots of respects Richard. But there are additional factors to consider:

1 - Just to reiterate… my article is NOT about tax avoidance - it is about proactive tax planning generally. For most accountants tax avoidance should be way down their action plan - since they are not yet getting the basics right.

2 - Yes, generic advice in newsletters and websites etc is better than nothing – but it is not truly proactive because it is not tailored to the specific needs of the client. Instead it puts the onus on them to wade through reams and reams of (often badly written) stuff that doesn’t apply to them in the hope of eventually finding something that does apply. That is not being proactive – that is hiding behind a smokescreen of confusion.

3 - Yes, as I said in reply to Nick, engagement letters can say that you won’t touch advanced tax planning with a barge-pole. But I have never seen one that does – and I would wager that the vast majority do not. And in the absence of clarity on the issue, some clients would be understandably peeved to discover that their accountant had made a moral/risk based decision on their behalf without either consulting the client or even making the client vaguely aware of an extended set of possibilities.

4 - You are again right that it is our job to be selective about the ideas we share with clients. They do not want us telling them about every little possibility. But they DO want us to tell them about the really high value possibilities.

EXAMPLE:
A client earning £100k a year may be able to use advanced income tax planning to save £40,000 a year. And if he did that in 5 of the next 10 years that would save him £200,000 – ie the sort of money cold buy a starter home for his child, and set them up for life. Is it really up to the accountant to decide that the client and his child can’t (or shouldn’t) have those things and therefore not even bother to tell the client about the possibility. How dare we play God like that !

Advanced tax planning is not, therefore, some minor peripheral issue that we can decide FOR clients. Yes it is something we are entitled to our own view on. And yes it is something we can make our views crystal clear to our clients. But unless our engagement letter actually says that we will not touch it with a barge pole, it is something that we must make our clients aware of.

See also part 2 of this reply in the next posting...

Steve Pipe
[email protected]

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Steve pipe
By Steve Pipe
02nd Jun 2008 15:55

Reply to Richard Murphy - Part 2
Contined from part 1 above...

The above is, of course, largely based on my opinion, and I recognize that I may be wrong. So to get to the facts, last week I commissioned a research study into the subject by a specialist tele-research organisation.

After just half a day of tele-research, the sample isn’t yet statistically valid – but even so the early findings are certainly provocative

Around 75% of the owner managers asked say they wanted their accountant to tell them about tax avoidance opportunities. But only about 50% of all the owner managers surveyed said they felt their accountant had done enough in the area.

So the initial evidence seems to support my central thesis that clients want their accountants to be proactive – and most accountants aren’t proactive enough at the moment.

Accountants should not let any personal concerns they have over advanced tax planning prevent them making a start – since there is so much more most firms can do to be proactive with plain vanilla tax planning.

And they should also not let their personal concerns over advanced tax planning lead them to be negligent. Either they should adapt their engagement letters to make it clear they will not touch it with a barge pole, or tell your clients what they want to hear about it.

Steve Pipe
[email protected]

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Richard Murphy
By Richard Murphy
30th May 2008 18:50

Not as simple as it seems (1)
This debate has been around for a long time. Sorry to join this episode late - I have been away.

Let's deal with the tax avoidance thing first. Most people are risk averse, especially when they know the facts. Kite G has outlined some of them. Most accountants are risk averse, especially when they know that the cost of a tax investigation on a scheme they sold to a client will probably fall to their account (and don't always rely on insurance). In that case, and given the ethics of tax avoidance (or rather, the absence of ethics in tax avoidance which means that in my opinion a professional person has a duty not to partake in that activity) then the accountants position can be made abundantly clear to a client at the outset of the relationship - and can be summarised in the engagement letter. It can be stated that arrangements that the accountant thinks to be tax avoidance will not be offered to the client for consideration on the basis that the risk inherent in them is always considered unacceptable for either accountant or client to consider. Use David Ulph's definition of tax avoidance if it helps:

Using artificial or contrived methods of adjusting taxpayers’ social, economic or organisational affairs to reduce their tax liability in accordance with the law while not affecting the economic substance of the transactions.

That gets one contentious issue out of the way. Completely.

Let's now get back to the point. Does an accountant have a duty to advise a client on every tax compliant planning opportunity available? No, of course they don't. To say they do is complete cop-out of professional duty. Client's engage accountants to take stress of their shoulders in an area they do not understand: in our case accounting and tax. They do not choose to have an accountant to be the recipient of endless unrequested advice on complex issues they do not comprehend and on which they are not qualified to form an opinion. They paid an accountant to do that.

So, it's an accountants duty to use their professional judgement to suggest opportunities to clients that might be suitable for them. But that has to take into account the broad range of knowledge an accountant has.

Let's take an example. It remains true that limited companies can, theoretically, save tax for a lot of self employed people, most of whom have no regard for the corporate veil, the need to account for tax whenever funds are withdrawn from a company, and who believe that any account with money in it is theirs to raid. It is completely negligent of an accountant to recommend the use of a limited company to a person who does not have the discipline to operate it within the constraints of the law and so expose that client to all sorts of risk. So why do it, to then follow up with a comment which basically says 'You could do this apart from the fact that I think you far to negligent to manage the arrangement?' Is that good client relationship management? I don't think so.

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Richard Murphy
By Richard Murphy
30th May 2008 18:50

Not as simple as it seems (2)

In other words, the accountant has a duty to exercise their own judgment. That is what being a professional person means: exercising judgement. The solution recommended here is a technical solution designed to alienate clients. I'd suggest giving it a very wide berth.

But as for the glaringly obvious advice everyone should supply, why aren't you doing that by email, web site, in routine letters, even (hard to imagine they're relevant anymore, but someone must do them) newsletters? If the client refuses to take the service, so be it. Make sure it's been offered. Then liability risk is removed.

That is being proactive.

Richard Murphy

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By AnonymousUser
27th May 2008 12:48

Systemise the routine, humanise the exception
If you build your practice/business on just people there will always be different services experiences because people have different capabilites.

However, if you have systems and processes like tax planning checklists which people use to deliver a stanardised service you can systemise the routine like tax planning reviews.

Maybe you could get your firm's tax knowledge into a simple checklist for small businesses and train people on it.

Bob Harper
www.moresoftware.biz

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By User deleted
27th May 2008 08:42

Try to keep up, Dave!
Yes, I had to search the Acts until I found it. S392 will be what you and I know as S360 relief for interest on a loan to buy shares in a close company, right? Isn't it annoying when people use the ITA 2007 references instead of the old ICTA ones we all know and love?

On the main point, it often strikes me that the bigger problems are faced by mid-sized firms where the primary client contact is with non-tax specialists, and where the tax specialists tend to be in the background. Tax specialists have the knowledge, but lack the client contact. Those with the client contact lack the specialist knowledge. So often the comments on these pages ("I always tell my clients...") seem to come from sole practitioners who concentrate matters in their own hands.

Any ideas for that area, Steve or Mark?

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By Dave Paveley
26th May 2008 11:09

S392 Jason?

Overlooked by me certainly - what is it in relation to start-ups?

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By User deleted
24th May 2008 19:38

.
All good stuff and its so obvious it's always a wonder why more accountants are not adopting this approach.

A pro-active and value adding accountant is what the (good) client wants, and the referral rates will go through the roof for the accountant who provides this service. A client will never tell an associate that his accountant has done a great job producing his accounts but would be happy to tell of the accountant who gave them pro active tax and business advice.

There isn't even the need for 'cutting edge' tax planning as even the basic stuff is more often that not, not given. An accountant can add value by simply advising on profit extraction, getting the relevant paperwork done, advising on the differing VAT schemes, advising start ups on S392 (so often overlooked), keeping tabs on DLA's, looking at CTC and WTC's, credit management, making sure that VAT isn't reclaimed when it shouldn't be, reviewing financing arrangments, introducing to valued partners, looking at directors personal situations etc etc etc. All pretty basic stuff but all too often not included within the service.

To do this the bookkeeping needs to be done in house, or regular access given. Pro-active advice cannot be given retrospectively at year end.

This type of arrangement creates a win / win situation - the client is happy and views the accountant as in investment rather than a compliance cost, and the accountant is happy as he/she is working for clients whom are paying a premium for the additional service, take their responsbilities seriously and also give good quality referrals. As this approach becomes part of the culture of the firm the PITA clients are dropped, increasing profit and staff morale instantly.

As Bob mentions there is also the added comfort of protection in the event of HMRC inspection / enquiry.

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Steve pipe
By Steve Pipe
23rd May 2008 20:44

Article is about proactivity NOT about tax avoidance
Just to clarify, this article is not primarily about tax avoidance per se. It is about proactive tax advice and tax planning (or, more typically, the lack of it).

Most accountants aren't even proactive enough with plain vanilla tax planning. So for them aggressive tax planning should be way down their list of priorities. They should start by sorting out the basics, and being proactive with that. And that is really what I was getting at.

Nick is also right… if you object morally to aggressive tax planning it is your prerogative not to touch it with a barge pole… provided of course that you tell clients in advance that that is your approach. (But surely it can't be right to make a unilateral decision to stay away from it without telling the client).

And Katie is right… aggressive tax planning can be risky, and the risks do need to fully explained to clients. Often, however, those risks are much more acceptable to entrepreneurial clients who realise that risk taking is what business is about, than they are to their prudent accountants who are risk averse by nature.

Mark also makes a valid point. I wouldn't expect anyone to tell every client every time some bright spark came up with a clever new tax planning opportunity. But a couple of minutes, a couple of times a year, proactively making every client aware of the broad options relevant to them, along with the risks, is surely not too much for every client to expect. The client can then decide whether he want to find out more.

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By nickja
23rd May 2008 19:45

Does anyone else have an ethical problem?
All the comments so far seem to ignore the fact that some of us have an ethical problem with pushing what might reasonably be termed aggressive or abusive avoidance schemes.

Rightly or wrongly, I choose to differentiate between what I perceive to be legitimate choices the law allows, eg business structure or timing, and "clever" schemes that are demonstrably no more than the result of searching out anomalies that were never intended to exist. I can't escape the conclusion that the "clever" schemes not only subvert the will of Parliament but also paint us in a light that does nothing but harm to our reputation in the community at large.

Sure, most clients want to save tax; that's human nature. But most are equally keen on being able to go to sleep at night knowing that whatever can be done to avoid future problems with HMRC is being done. I make it clear to all my clients that I'll do whatever I can to reduce their tax bills within what I perceive to be the spirit of the rules but nothing that I believe should cause them lack of sleep. And, if they want to get into the fancy dan stuff, I remind them that it's their prerogative to do so but that it won't be with my involvement. To the best of my knowledge, it's an approach that has never lost me a client.

Lest the question be asked, March is usually as bad as January due to my concentration on making sure that relevant clients do get the help they want and need.

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By User deleted
23rd May 2008 15:50

Looking from both sides
I'm talking as a CTA / ACA with 22 years tax experience at senior manager level - 13 years in big 4 firms and 4 years in mid tier firms. For the last 5 years I have been working in industry (a £3bn assets business). I therefore have considerable experience as both an advisor and a client. As a client, we have had first hand experience of undertaking cutting edge tax avoidance (i.e. completely legitimate tax planning). As a direct consequence of a particular piece of tax avoidance (undertaken before I joined the company) we were raided by HMRC, have incurred substantial (non deductible) legal costs in defending our position (several million pounds and rising) and have suffered bad publicity - and this was before the increased powers of the direct tax arm of HMRC.

I would counsel anyone to consider the potential downsides carefully. I'm not saying don't do it - but be aware that the landscape has changed.

As an aside - HMRC don't have to investigate everyone who undertakes a particular disclosable piece of tax planning - as long as sufficient do they will close it down - possibly with retrospective legislation.

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By ajbiddle
23rd May 2008 14:50

Cutting edge tax avoidance
Katie,

Whilst I agree with your first point aren't you making the exact assumption that Steve referred to in his article re tax avoidance schemes - your assuming your fears re tax avoidance will be shared by your clients - tell them what you think by all means but at least let them decide. And do you seriously believe the Revenue has the manpower to investigate every person/body corporate that undertakes a disclosable tax planning scheme?

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By User deleted
23rd May 2008 14:35

Cutting edge tax avoidance
I would take issue with some of the comments expressed. Firstly, most of the tax advice suggested is not what I would call cutting edge tax advice - but, rather, very basic and rudimentary tax practice. If I ommitted advice like that I would hope I would get struck off never mind sued.

With regard to what I would regard as genuinely cutting edge tax avoidance strategies, there are two significant changes which clients and advisors should be taking on board:

Firstly, the scheme is likely to be disclosable and hence closed down rather rapidly - possibly with retrospective tax legislation. Further, with the new risk assessment approach / penalty regime your client may find themselves the subject of great interest by HMRC - and, post April 2008, may find HMRC knocking at the door for some 'real-time' onsite investigation of the transactions. Would they really thank you for putting them in that sort of position?

Secondly, the changing face of tax means that clients (particularly larger clients) indulging in such schemes need to consider the reputational issues that are now associated with tax avoidance (ref Tesco).

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