The proactive accountants’ guide to tax credits

Steve Pipe outlines how one practitioner earned an extra £6000 a month providing tax credits services to existing clients.

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Comments

tax credit

rosataylor | | Permalink

We help and advise clients with their tax credits for FREE. NO CHARGE. Tax credit is theirs not ours to gain profit of.

Which tax credit software

Anonymous | | Permalink

Hi

I am only aware of the free HMRC tax credit software. Could you please recommend any other reliable tax credit softwares that I could invest in for my start up practice?

dbowleracca's picture

will you come and work for me for free too?

dbowleracca | | Permalink

Why do it for free?

Would you prepare their tax return or accounts for free? Do you maximise the amount they can claim through detailed planning or do you just fill in the form?

Too many accountants under value themselves and give us proactive accountants a bad name and sacrifice profit by doing exactly what you do. Not me, I am in this game to make a decent living, not line everyone elses pockets.

bookmarklee's picture

Bolting the stable door

bookmarklee | | Permalink

I'm confused as the implication above is that being proactive means raising the subject and offering advice on the subject. Normally this works fine, but it's not sufficient with tax credits to do this when one is preparing tax returns and accounts. It's too late. To be proactive  and of value the accountant would need to give the advice in advance. However much Ian Rodgers is making in additional fees the story above is not the whole picture, as I explain below. Although, to be fair, I guess that Ian's software program also contains prompts to register in case of entitlement the following year.

Like Steve, I invariably seek straw polls of accountants as to how many advice clients about tax credits. Whereas two years ago I reckon only about 2% of accountants (who attend seminars at which I'm speaking) advise clients on tax credits, this has now risen to nearer 20%.

The extent to which the advise is given varies of course. Quite a few do pretty much as Steve suggests above in terms of advising clients as to their entitlement - but they leave it to the clients to make the claims.

Many others hide behind their letters of engagement and this is partly because we see tax credits as being a substitute for old style social security benefits - and there was never any suggestion that accountants should advise on these. Of course tax credits are more widely available; they are administered by HMRC  and, perhaps most importnatly of all, they are called TAX credits. So more and more clients EXPECT their accountant to advise on tax credits. It can only be a matter of time before a disgruntled client accuses their accountant of negligence for failing to advise that they register soon enough to secure all of the tax credits to which they would otherwise have been entitled.

I generally encouarge firms to identlfy a tax credits support adviser - possibly a senior secretary or PA who is themselves claiming tax credits and thus familiar with the forms.

I struggle to understand how accountants who advise on the TAX implications of cpaital allowance claims, pension contributions and loss offsets can choose to ignore the CASH immplications of the impact of such advice on a client's entitlement to claim tax credits.

Many accountants have self employed clients who are making profits of less than £50k. Often, significantly less than this.  If the client makes a loss and the accountant only then thinks to mention the need to register for tax credits it's too late. Tax credits will only be paid out from the date of the claim and for the previous 3 months. If however a client registers a claim for tax credits NOW they may well get a NIL award. If, however, their business results at the end of the year are such that their income (or loss) would have enabled them to receive tax credits they will get a payment backdated to when they first registered.

Thus work programmes that review the position after the end of the accounting period will result in advice akin to bolting the stable door after the horse has bolted. Better to advise on protective claims each year for any client who might eventually be entitled to tax credits. If you are bolting the door as regards last year do ensure you open the door for future claims too.

Mark Lee - Chairman - TaxAdviceNetwork.co.uk

 

I agree with Mark

Anonymous | | Permalink

I agree with Mark's comments, as usual very informative.

On thing - Mark can you recommend a software that advises on Tax Credits - such as the one mentioned in the article?

Tax Credits Software and Training

steve marsland | | Permalink

The Tax Credits Team have a complete solution to tax credits for accountancy practices that wish to offer tax credits as a service to their clients.  The software they have includes not only an awards calculation worksheet, but also a whole bank of standard letters including a letter of engagement that has been approved by the Chartered Institute of Taxation, tracking document to enable the practitioner to monitor where their clients are in the tax credits system to ensure all relevant dates are adhered to and marketing literature to encourage clients to take up the service  In addition they also offer a support line to accountancy practices that decide to licence the software.  It is the only software and systems in the market place that allows accountants to offer a fully comprehensive service to their clients.  The whole idea is that after completing training on tax credits and the software you are able to go away and feel comfortable about talking to your clients about tax credits.

As well as the above, the Tax Credits Team also train accountants on tax credits which includes showing them how their practice will benefit from offering a tax credits service to its clients.  The next training day for accountants is set for the 12 November near Chesterfield, although there is a free taster session aimed at senior managers and partners which is in the afternoon of the 11 November also near Chesterfield.  Following this there is a training day set for the 3 December in central London and there will be other free taster afternoons aimed at senior staff in the coming months.

More information on the training can be obtained by registering at www.taxcreditsteam.co.uk.

With regard to Mark's comments he is spot on when it comes to identifying potential clients that could be in the tax credit system but aren't.  However, what we have discovered over the last 6 years of dealing with tax credits is that this is only one part of the problem.  Yes there are clients that should be in the system and when you identify that if they make a claim quite often they will get a large amount of tax credits, which they are always grateful for even after pointing out that they have lost considerable amounts by not claiming!  But what we find is that most clients that deal with their own tax credits get it hopelessly wrong by declaring to much or to little income.  They forget to take off pension contributions or SMP and other allowable deductions or where to get their self employed income figures from (we have seen numerous cases over the years that individuals take the figures in the accounts as opposed to the taxable figure shown on the tax return!).  They also have no idea how to deal with losses and tax credits, but then again most accountants we speak to have no idea what the correct treatment is for losses and their interaction with tax credits!  Lets not kid ourselves here, tax credits are complex and if you are going to advise on them you need to have an understanding of the workings of the system and how they interact with your clients own tax affairs. 

As an example which some may have already read elsewhere - a client is married with 2 kids and household income of £25K will get tax credits in 2009/10 of around £2,300.  The client runs a company and his accountant advises him to take a dividend to use up his basic rate band (we see this time and time again) - This is perfectly sensible advice to give the client for income tax purposes, but for tax credit purposes it reduces the ongoing award to the family element only of £545.  The client looses over £1,700 each year.  Admittedly not necessarily in the year the dividend is declared because of the income disregard, but it certainly affects the following years awards.  The clients cashflow is affected and this is even worse if the dividend is left on the directors loan account as opposed to being paid!

There are countless examples like this where accountants can and probably have over the years caused considerable harm to their clients tax credits awards because they don't understand how tax credits interact with other types of tax advice we give to them.  Thankfully most of them have that little paragraph in the letter of enegagement that says something like 'we do not offer any advice on tax credits'  But will this really stand up if your clients find out that the tax advice you give them for income tax purposes has had a detrimental effect on their tax credits?  I for one would not want to be put in that position.  And it gets even worse where the accountants have this paragraph in the LOE but the client rings up in July and asks the question 'I am filling in my tax credits annual declaratiion form can you tell me what my income figures are for last year'  As accountants we don't like to upset our clients and in a lot of cases accountants, despite what the LOE says, will give the client the figures and tell them what to include.  When I talk to accountants about this and look around the room and see the 'nodding heads' I am still at a loss as to why they would do this given they don't really know how the system works.  Or are they thinking like a lot of our clients think in that after all the annual declaration is only a handful of boxes and what could possibly go wrong!!!

Dealing with your clients tax credits doesn't have to be onerous.  After all the tax credits annual declaration in most of our clients cases will contain the same information that is included on a tax return and we wouldn't ask our clients to complete their own tax return would we?  What we do as a practice is take the complexity of tax credits away from our clients by dealing with the compliance side of tax credits to which we get paid a fee similar to doing the SA return, but also we look at planning issues for our clients where they are able to maximise their entitlement through simple tax planning that in a lot of the cases we are already giving our clients for income tax purposes to which a further fee is charged.  We have been doing this for over 6 years now and I can tell you it does work as not only has it won us a huge number of new clients and continues to do so, because it makes us different from most other accountants and is some cases clients want us to deal with their tax credits, but more importantly for us those clients are happy to pay us for this extra service on top of the compliance fees.

Now is the time for accountants to rise to the tax credits challenge and get themselves educated in how the system works.  The compliance side of tax credits is only really an extension to dealing with your clients SA returns.  After all, you will be asking your clients for the information to complete their tax returns and as I have said above this information is very similar to what is included on the tax credits annual declaration. 

Steve Marsland