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Tax: A little knowledge is dangerous

Philip Fisher looks at the implications of a Deloitte survey suggesting that general knowledge about tax is woefully inadequate.

16th Oct 2019
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Last week, Wendy Bradley highlighted the results of a survey by Deloitte, which suggested that the average person knows very little about tax.

Her article explores the subject in good detail but a couple of points arise that could be of interest to those of us who practice this arcane and sometimes sinister art.

Accountants inevitably deal with those in the higher echelons of society and therefore show surprise when they discover that the majority of the population has no knowledge of or interest in the tax system.

The way things are currently set up, most people pay tax at source and don’t need to concern themselves with completing returns or paying additional sums at higher rates.

In the same way that someone who doesn’t drive a car need have no interest in congestion zones, those with no real integration into the tax system can ignore it and still live a happy and fulfilled (if not necessarily very prosperous) life.

A much more serious issue arises around those who think that they understand aspects of tax legislation in operation but do not. They come in two different varieties.

First, there is the know-it-all who typically runs his or her own business and insists on using the services of your firm. When you explain that claiming deductions for expenses that you haven’t incurred is unlawful (whatever happened to illegal?), their immediate response is either to ignore your advice or, much worse, challenge it at very great length citing the examples of every single competitor who repeatedly flouts the law.

We all meet clients like this on a regular basis and, quite frankly, lose a great deal of sleep worrying about what they are doing to themselves and the potential reputational damage that we could suffer by association.

The second brand of self-appointed “tax expert” is potentially even more dangerous and considerably more irritating. These are our esteemed colleagues who are supposed to specialise in other disciplines: for example audit or, in bigger firms, sales.

These irrepressibly confident individuals may not have studied tax or kept up with legislative change at any point in the last quarter-century but will happily explain to clients that if you take steps X, Y and Z then there will be no need to pay any tax on a massive swathe of income.

It goes without saying that the people receiving this information will be delighted, appoint your firm to deal with their affairs and then expect the results that they were promised.

Somehow, the used car salesman who has transformed him or herself into the smiling face of an accounting practice is never the one that has to explain that their promises were built on sand.

Tax legislation is frequently unfair, illogical and changes with the wind. It is therefore perfectly reasonable that the average man or woman will be ignorant but, coming back to the point earlier, who needs to know what goes on beneath the bonnet of a car if you always take public transport?

The big positive that every tax specialist should be able to derive from the Deloitte survey is the knowledge that our services are desperately needed.

While many people can get by quite happily thanks to the PAYE system and an exemption on small amounts of investment income, most others are totally fazed by tax legislation and will be delighted to pay an expert, if only we make them aware of our existence.

Replies (5)

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By Vaughan Blake1
17th Oct 2019 11:00

I am somewhat surprised that you refer to having clients trying to claim "illegal deductions". The " we all meet clients like this on a regular basis", is not my experience. In over 40 years I can't recall any client mentioning claiming for 'imaginary' expenses (maybe they simply claimed them and had the sense not to mention it!).

Sure, I've had many clients trying to claim for private stuff and epic discussions have ensued over the years over Armani suits, breakfasts and suchlike. If your client trusts your knowledge and judgement you should only ever have this discussion once with a client.

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Replying to Vaughan Blake1:
Hallerud at Easter
22nd Oct 2019 11:44

In days of yore (though not in recent years ) I saw invoices within cash expenses and then statements (including said invoices) included later for a second bite, or receipts that are not those of the business (watch for the dodgy blokes in filing stations collecting dropped receipts and ask yourself how someone can say park their car in Edinburgh on x day but also have a parking receipt for Perth for which they would need to be The Stig to have managed), the advent of computers has surely increased the number of DIY prepared purchase invoices within records (to be fair never actually had (or at least detected) these but they are out there)

One of the drawbacks of MTD is that I suspect accountants do not do as much wading through the bits of paper clients have these days, it is that wading (and a good memory) that tends to spot these sorts of things.

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By AndyC555
18th Oct 2019 10:41

The media and politicians add to the lack of knowledge.

"XYZ has turnover of billions and pays no corporation tax."

"Companies using transfer pricing to avoid tax"

"American company sells products in UK and pays no UK tax"

And so on.

Is it their ignorance or a deliberate campaign of confusion?

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By Sue Murby
18th Oct 2019 12:10

Back in the 90s I took over a small group of clients, mainly to help out the widow of an accountant who had just died. Many of them left me after I'd prepared one year's accounts and tax return because I wouldn't include the estimates that my predecessor had, particularly for those who were mostly paid in cash. This accountant had sometimes included in the accounts higher provisions for his fees than he actually charged.

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By ElsaHeath
14th Jan 2020 16:20

In my experience, the average-joe does have very little knowledge of tax, but as the article says most people do just pay tax at source and therefore feel they dont need to know the mechanics of it. I think for those in the basic rate tax bracket, theres not an awful lot of need to know to be honest. Most people in that bracket just want to know what their monthly salary will look like and they can get this information from salary calculators available online like I only really get asked for more in-depth information when an employees salary hits the higher rate bracket, when they want to learn how to reduce the higher rate of tax through contributions and such like.

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