Archive for the ‘Tax related’ Category

One thing that most accountants have to face is a desire on the part of their clients to pay less tax. In this context it can be helpful to ensure that clients appreciate what is and what is NOT possible/achievable.

For example is it legal to legitimately minimise your tax liabilities. This includes:
•    Claiming all available allowances and reliefs
•    Claiming tax relief for expenditure incurred “wholly and exclusively” for business purposes
•    Planning your affairs to keep your tax liabilities as low as possible within the law

On the other hand it is ILLEGAL to deliberately/dishonestly evade tax. This includes:

• Claiming tax relief for non-business expenses;
• Telling untruths on your tax return or in the way you describe transactions;
• Failing to include all of your taxable income in your accounts;
• Withdrawing money for personal use from an incorporated business (company) and not making any attempt to make sure it is treated correctly for tax purposes;
• Failing to declare all of your taxable income and gains on your tax returns;
• Failing to ask for or to complete tax returns to report your taxable income and gains.

The consequences of illegal activity include: Revenue investigations, back taxes, interest on late paid tax and penalties (up to 100% of tax), time, hassle, professional fees, and if you’re very unlucky, ill-advised or stupid – prosecution and prison.

Clients also need to understand that if they get involved in structured tax avoidance schemes they are also highly likely to suffer a tax investigation – even though the scheme may be legal and fully disclosed.

I almost admire one promoter who told me his approach. Apparently he explains that clients who would be worried sick by the inevitable Revenue enquiry, the letters, the demands, the time it takes to resolve and the inconvenience should NOT get involved in his schemes – even though he claims they are legal, have full Counsel’s opinion and are fully disclosed to HMRC.

He manages clients’ expectations and makes clear that the enquiries often last 3 – 7 years; and even though he claims they are usually resolved in favour of the taxpayer, he admits there are no guarantees.

I always mention this issue in my talks on ‘How to avoid professional negligence claims and worse‘. If clients have been forwarned as to what you can and can’t do there is less chance of them subsequently complaining.  In this context though I would refer you to an earlier post on this blog. (I told him. Once. 12 months ago. How dare he forget). It contains a salutary warning.

What do you do to manage your clients’ expectations? Please add your comments to this blog post.

Let’s face it, few accountants have detailed procedures in place to ensure they do all they need to do when they lose a client. The simple reason for this is that it doesn’t happen often enough to warrant a detailed procedure and even when it does occur there’s rarely a problem.

The larger firms lose more clients across the board and tend to have procedures in place to reduce the prospect of problems arising down the line. One of these procedures is a proforma disengagement letter.

This is a concept that I frequently advocate during my talks on ‘How to avoid professional negligence claims and worse’. Simply stated the use of such letters can help minimise the prospect of continuing liability to ex-clients and also to those who do not reply to requests eg: for information required to complete tax returns or accounts.

What should be addressed in a disengagement letter? I suggest the following:

• A summary of services provided up to the date of ceasing to act;
• A note of any further action to be taken by the adviser;
• A note of any outstanding matters that either the ex-client or the new advisers will need to address;
• Details of any impending deadlines and the action required;
• The adviser’s willingness or otherwise to assist the new advisers resolve outstanding issues with HMRC or others; and to provide copy papers to the new advisers or to allow them access to files;
• If relevant, details of any outstanding fees; and finally
• A note indicating that the adviser has told HMRC that he is no longer acting for the client and that until further notice all correspondence should be sent only to the taxpayer.

Anything else? Please share your veiws as comments on this blog post.

Probably the most sensible thing any adviser can do is to recognize their limitations.

Most accountants are like GPs. Great at dealing with day to day issues. Every now and then though when you visit the doctor they recommend you see a specialist. Indeed you’d be very worried if the GP suggested you hop up on the bed so that he can remove your kidney, operate on your back, undertake a brain scan or whatever.

In the same way there is no shame in admitting to clients that occasionally you have to involve other specialists to ensure that the client gets best advice. This will invariably enhance your relationship with clients than either of the alternatives:

• Avoiding the issue – to avoid revealing your lack of knowledge/experience;
• Guessing and using the client as a lab rat (test subject) and risking the consequences of giving incomplete or incorrect advice

When you need a second opinion or want to refer work to a specialist, obviously I would like you to choose one of the vetted independent specialist tax adviser members of the Tax Advice Network.  The options however include:

• Tax expert colleagues in the office
• Colleagues in other offices
• Tax expert friends at local events
• Professional fees insurer
• Tax Faculty referral scheme
• Business Mentor/coach
• Larger accountancy firms
• Larger tax consultancy
• Independent external tax support – such as Tax Advice Network

It’s also worth noting that the Guide to Professional Conduct, applies to all members of the largest professional tax and accountancy bodies. It states that:

“Members will from time to time find themselves having to advise on matters which require specialist knowledge. In such circumstances they should be careful not to go beyond their own level of competence and, if necessary, should seek help from a specialist in the field”.

This was the message to accountants in a press release issued last week by the Tax Advice Network.   In it I warned that:

Accountants across the UK are likely to see a surge in requests for Tax Credit advice from couples considering getting married following the release of a controversial report highlighting the failings on the current Tax Credit System for married couples.

This followed on from The ‘Individualists Who Co-operate’ report issued last week by Civitas.

In fact I have been suggesting for some time that More and more accountants will find themselves having to advise on tax credits.

And this is also a  point I invariably make in my talks about How to avoid professional negligence claims and Mastering the Credit Crunch.

Question one
I always ask for a show of hands as to how many accountants in the audience advise clients about their entitlement to claim tax credits. I’ve spoken to groups of all sizes, from 20-180 and to date no more than 5 hands ever go up. This suggests to me that the vast majority of accountants are not currently advising clients about their entitlement to claim tax credits.

We know why don’t we. They are merely a new(ish) dressing for a social security benefit. Accountants have not traditionally advised on benefits. It’s not cost effective to do so and we don’t know all the rules. Some, but not all, accountants make clear in their engagement letters that they do not advise on tax credit related issues. That is their prerogative and in so doing they probably reduce the prospect of a client making a successful claim for negligence at a later date.

Question two
I then ask the accountants whether they advise their clients on how best to offset losses, on Capital allowance disclaimers, pension reliefs and (now) Annual Investment Allowances (AIA). Of course they all do. Indeed, securing tax refunds tends to go down well with clients. In fact, clients tend to value anything their accountant does that reduces the tax payable or that secures the biggest tax refunds. And if they perceive that their accountant isn’t doing all they could in this regard, they are inclined to switch to one who does.

Question three
So what happens if the loss claim, the AIA or other advice reduces the client’s income to a level whereby they would be entitled to claim tax credits?

So far as clients are concerned, tax credits are TAX credits.This means they are seen as TAX refunds. Exactly the sort of thing that clients expect to get help on from their accountant. And if their accountant doesn’t help in this regard then it won’t be long until the client switches to one who does. Especially if the client becomes aware that he missed out on claiming tax credits as his accountant didn’t tell him when he should have done so. (The 3 month limit on ‘back claims’ is a real problem here).

If the commitments I note at the end of my seminars and training sessions are anything to go by, an increasing number of accountants will be advising clients on their entitlement to claim tax credits. It doesn’t have to be time consuming and it can be done profitably.

Anyone know how much a client could claim in tax credits this year if they registered for them from April and , as a result of AIA (or losses) they have no taxable income this year? Assume partner has no income and there are 2 children.

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I’m told that this is the view of a senior Insolvency practitioner. What does that say about the advice being provided by accountants?  Are they just missing out on opportunities or are they failing their clients? I’d like to hope that this doesn’t apply to any of the regular readers of this blog (if there are any!)

In  a recent posting on this blog I suggested that: Accountants need to show they really are business advisers as we move into recession.

Let me take that idea further and offer a theory I have developed. It’s drawn from conversations with many accountants over the years.  It’s not a universal truth but it may explain the statistic above.

Most business clients go to an accountant because they want to pay less tax not because they want a set of accounts. To the extent that the business owner wants the accountant to do accountancy work it’s largely because they need their accounts for the bank, for their funders and for the taxman. And many accountants are happy to focus on providing these backwards looking tax and accounting services.

The challenge is for the accountant to help their business clients appreciate the need for effective financial management before it’s too late.  If you look at accountancy firm websites and promotional material however this is not an area on which many of them focus.  And they aren’t well placed to ’sell’ such services to new clients as an additional spend over and above the quoted fees for the traditional compliance work – unless the business is already in financial difficulty, in which case it could all be too late.

Many accountants would prefer to focus on providing the traditional services that they have always provided year in and year out.  Expanding into the provision of additional services might mean first devoting time to developing additional skills so as to be confident that the advice they provide will be worthwhile.

When clients require tax advice that is outside of the accountant’s area of expertise they can involve external specialists (eg: at the Tax Advice Network). But what about when a client needs solid help to implement effective financial controls? Rather than ignore the situation the accountant could outsource the provision of advice in effect by engaging an independent specialist who has the expertise, experience and time to work with the clients who need help.  My friend David Lewis for example.

I should also stress that even when the accountant offers to assist in the preparation of regular management accounts this is still not the same as helping the client implement effective financial management controls and procedures.

It seems likely that far too many corporate insolvencies can be attributed to poor financial management (whatever is the true statistic). Are accountants to blame or are they simply missing an opportunity to help their clients and to earn valuable additional fees in the process.

What do you think?

One of the pressures that all ambitious accountants endure is the need to advise on issues that do not arise every day. The more experience you have the more confidence you gain to know whether or not you have enough knowledge to give the advice without double checking it’s right.

Double checking might simply involve checking the rules in a book on the shelf, online, asking a colleague or going outside the firm to an independent specialist.  There is no shame in not knowing. You cannot know everything and it’s a mistake these days (and probably always was) to claim to be the font of all knowledge on any accountancy or tax related subject. None of the real experts would make such a claim so why should a ‘generalist’ feel it necessary to do so?

If you’re not sure though, here’s a simple test.  Pretend the client seeking your advice is a close family friend, your mother, brother or someone else you really care about.  Would you be happy for them to act on the basis of the advice you are giving?  If you’d want to double check before letting them follow your advice then you know you should double check regardless.

I’ve addressed related points in previous posts on this blog:

• Are you at least ‘reasonably competent’?
• What sort of advice do you give? Specialist, Compliance or Dangerous? (part one)
• What sort of advice do you give? Specialist, Compliance or Dangerous? (part two)
• Generalists – watch out!
• The trusted adviser who couldn’t be trusted
• What does it take to become a trusted adviser? (part one)
• What does it take to become a trusted adviser? (part two)

And if you don’t know where to turn when you require specialist tax input, I’d have to recommend the Tax Advice Network.

As the preparation continues for a new seminar I’m presenting next month I started to think about the specific tax advice that might be relevant as the economy moves toward a recession.

Let me stress that I’m referring here to the technical definition (two consecutive quarters of negative growth). From a  personal perspective I see more rather fewer business opportunities.  What about you?

Have you considered, for example the range of generic tax saving ideas that you could mention to clients? Remember they won’t know you’re thinking about ways to save tax if you don’t tell them – face to face is best; otherwise at least in emails and newsletters that you send to them. ( I addressed this issue in a previous blog post: Getting straight to the answer may not be best).

Here’s a short list of simple tax ideas off the top of my head:
- ensuring that clients are claiming all allowable business related expenses as deductions from their taxable income;
- moving suitable clients onto the VAT flat rate scheme and reducing the VAT they pay each quarter;
- maximising the claims for capital allowances;
- securing early relief for trading losses;
- taking advantage of the tax free benefits in kind that even owners of their own company can have;
- reviewing the balance of salary and dividends paid out of their own company;
- registering for tax credits so as to ensure they can get maximum amounts if their income is lower this year than they had hoped;
- claiming all available allowance and reliefs;
- switching to a car that qualifies for additional tax reliefs (in terms of the offsets available against business income);
- seeking a repayment of the sums paid on account in January and July this year if their tax liability for 2008/09 is likely to be lower than it was in 2007/08.

There are also ways to plan to reduce other taxes too – such as capital gains tax mitigation, inheritance tax planning and the taxes that can arise when reorganising groups of companies, such as on demergers or sale. Falling share and property values actually present specific tax planning opportunities for the wealthy – in terms of CGT and IHT, also for those companies wanting to incentivise staff through share option schemes.

Not all accountants have the necessary specialist expertise to advice on such matters. And it’s rarely low cost advice so it’s not for everyone. Many accountants outsource such specialist tax expertise. And that’s another win:win opportunity in the current economic climate.  It must be more cost effective to use the services of vetted independent tax advisers than recruiting or replacing full time in-house tax experts. More info at: www.TaxAdviceNetwork.co.uk (where you’ll also be able to sign up for our free weekly practical tax update written especially for accountants in general practice).

I’ll be addressing these and many other subjects in a talk I’m giving to accountants next month: Mastering the credit crunch – your practice, your advice, your future.

So, going back to the question I asked in the heading to this blog post: Does the impending recession provide more or fewer opportunities for accountants?
My own view is that there certainly aren’t fewer opportunities. There may be fewer people willing pay good money for advice, but if the cost/benefit equation is right then there’s no need for accountants to worry. Service and value for money are as important as ever.
What do you think?

Where does the time go? It’s almost exactly two years since I recorded my first webcasts. They are still viewable from the ICAEW Tax Faculty website.

1. Collating clients’ Tax Return information

2. Billing the Tax Return work [the ICAEW link for this webcast doesn't seem to be working at the moment]

3. Quoting for tax compliance work

They each contain around around 5 minutes of tips and advice and were intended to help accountants to avoid disappointing and losing their clients.
I recall suggesting that it might be best to use a teleprompter for the recordings but none was available. That’s why you can see me referring to my notes. Other than that I think the webcasts are fine and I know they contain useful and commercial soultions. All of these are covered in more detail in my talk: How to make more money from your tax clients.

This year we have a new 31 October deadline for submitting paper based tax returns. This replaces the 30 September deadline referred to in the webcasts. Other than that the advice should be equally valuable this year as it was in 2006 when the recordings were made.

I hope you find them helpful – although the technology has moved on quite a bit in the last two years.

This was another of the thoughts I had during the workshop that followed the E-business for accountants seminar that I attended last week. (I’ve already commented on the seminar here and here).

One of the workshop leaders was suggesting that accountants should be more prepared to ‘upskill’ their clients as regards their e-business strategy. I asked whether he meant:

• To be better able to talk to clients knowledgeably about e-business related subjects and to be able to introduce specialists to help the client with their issues; or
• To be able to provide billable advice as regards e-business related issues (as distinct from the conventional services that accountants provide).

The point being that accountants want to be provide value to their clients and to be paid for the provision of valuable advice. Some might alternatively say they want to be paid for the time they spend providing valuable advice.

I’m not sure that the speaker had considered the distinction before I explained it. The seminar had been promoted as “a chance to acquire new skills that enable you to advise your clients on their e-business strategy.”

In replying to my question however the speaker made clear that he was referring to the first of those options. That made sense to me – although it was a big step down from the alleged objective for the seminar.

The speaker’s worthy aim was refined as encouraging accountants to assist their clients with e-business related issues and introduce relevant reputable specialists. This makes more sense to me than trying to ensure that accountants are able to provide valuable advice on such matters themselves.

I tend to think that a little knowledge can be a dangerous thing. This is just as relevant in the fast evolving world of e-business as it is in the world of tax which I know so well. (And I recently explained the reasons why I gave up giving tax advice).

I’ve learned a fair amount about many aspects of e-business over the last couple of years – from web marketing to search engine optimisation to the differences between effective website design and website development. And so much more. I’ve put much of this knowledge to good effect in my Tax Advice Network but I know my limitations and take advice from experts – not amateurs.

Still, accountants are often revered for their all round business knowledge. Revered and respected. That puts them in a powerful position and it’s one of the reasons why plenty of those e-business experts want to work with accountants. They believe that you are well placed to make trusted introductions to your clients.

On the tax front it was for similar reasons that I chose accountants as the main target audience for my Tax Advice Network. I know that good accountants know what they don’t know. They are aware of the dangers of going beyond their levels of competence when advising clients on unusual or complex tax issues. And they want to involve trusted, vetted, recommended, commercial and often local tax experts. That’s what we’re all about of course.

Going back to that distinction I drew at the start of this posting. How far do you go?

I was delighted to be able to attend the ICAEW Tax Faculty’s annual Wyman debate last week.

The motion under debate was:

This House believes that the balance between the rights of the citizen and the powers of the taxing authority has tilted too far towards HMRC

Speakers for the motion were Francesca Lagerberg and Keith Gordon. Against were Simon Norris and Mark Neale. You can read a summary report of the event here.

There were two elements of the debate that struck me as worthy of mentioning on this blog:

1 – One of the speakers had no notes. None at all. Mark Neale (MD of the Treasury directorate for Budget, Tax and Welfare) started with a couple of references to the previous speaker and I expected him to then look down at his notes. But he didn’t because he had none. He didn’t need any. He spoke eloquently, without hesitation, repetition or deviation(!). He kept to his subject and to his time slot. His presentation was clearly well prepared. Even though I do not share his perspective I sat in awe as I listened to him. I was till in shock after he finished. He is evidently extremely experienced in putting his point across and had a complete command of his subject.

• How confident would you be if you had to speak without notes on such an occasion? I get pretty good feedback for my talks and presentations but I would rarely be comfortable going out to speak without ANY notes at all – and I’ve been speaking professionally for over 15 years.

2 – By the time Simon Norris stood up (as the fourth speaker) I was feeling sorry for him. Francesca and Keith had made their points with conviction. Whilst Mark Neale had spoken well (see above) his views did not impact my take on the main proposition. I was expecting Simon’s position to be equally unconvincing.

Then he explained that the new system and the new laws would contain MORE safeguards than are in place at the moment. This point also came out further in the subsequent discussion.

I wasn’t the only person to suddenly realise that the debate proposition contained the wrong tense. The balance has not yet tilted too far – it is simply in danger of tilting too far in the near future.

• A key lesson here, if you are organising a debate – consider carefully the tenses used in the proposition. The Tax Faculty may have had no choice here so as to give HMRC a chance to win the debate. As it was the final voting figures were:

Those for the motion – 67%

Those against – 21%

Those abstaining – 12%