David Heaton will be back in Yorkshire on Tuesday 19th February running an Employment Taxes Update seminar for the Leeds Branch of the CIOT. The seminar will be held at BPP Law School, Whitehall Quay, Leeds from 6pm until 7.30pm. Any queries please contact Billy Moffat 07815 741 428 or email email@example.com or alternatively contact Rachel Spence on email firstname.lastname@example.org
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It’s time to dust down your posh frocks and DJ’s! The Yorkshire Annual Tax Dinner has been arranged for Friday 28 June 2013 at The Marriott Hotel in Leeds. It’s guaranteed to be a good night, with a guest speaker, charity raffle, great company, 3 course meal and disco until the early hours. Ticket prices are £Nil to season ticket holders, £30 for ATT/CIOT members and £45 for non members. Group discounts are available. A booking form will appear at www.tax.org.uk/leeds shortly or alternatively contact Alison Tait on 0113 280 6764 or email@example.com.
Up here in GHR Towers as we are busily filling tax roles we find ourselves talking to a wide spread of the tax profession. In an average week we’ll be in contact with Heads of Tax in industry, senior managers in mid tier accountancy firms, business team leaders in the Big 4 or tax partners in law firms or independent accountancy firms and as a result we find almost by a process of osmosis that we pick up a thing or two. At present the overriding thing I’m coming across is a sense of outrage. Let’s face it, it’s a difficult market and almost everyone we talk to is fed up, basically they are either worried about keeping a job or getting the next one and worried about turnover and profitability of the business that they work in, in what to the tax market is a fourth year of recession. Behind all of this is outrage that the government and the media are treating the tax profession as scapegoats; effectively blaming the tax profession for the country’s perilous finances because tax advisors are seen to be tricking HMRC out of a ‘fair’ tax take.
I think the Parliamentary Public Accounts Committee (PAC) hearing with the Heads of Tax from the Big 4 is what has really got everyone fired up. To hear Margaret Hodge lambasting some of the most senior people in the profession as if they were naughty school children really was a new low. Anyone who works in tax came away feeling that it was a grossly unfair one sided debate, that Ms Hodge did not allow her victims to answer fully and that she badgered and slighted them. She showed a fundamental ignorance of how the accountancy firms work and what the role of the average tax advisor is. She even had the temerity to complain that firms were seconding staff to the treasury. As if by offering expert help to government departments (often for free) that the tax profession was somehow undermining it. Does she not know that all the Big 4 and a large tranche of the Top 20 send secondees to the Treasury, to HMRC and indeed to each of the three main political parties? Most of these secondments are unpaid (in that the firms cover staff salaries but don’t charge HMRC or the political parties etc). Why are these secondments needed? Because tax legislation is now so complicated that it needs experts to understand it and navigate it and help explain it to non tax experts such as members of parliament and treasury officials.
Taxation is after all fundamentally a cost to a business and the tax advisor’s role is to help their client determine what they legally need to pay. There is no moral imperative to pay more than your fair share. In January this year, when Goldman’s Sachs announced that it would be deferring bonus payments until the next tax year to take advantage in the drop in the top level of income tax rate – there was public outcry. This is basic tax planning and exactly what any tax advisor worth their salt would advise their client to do. Yet the media and politicians were up in arms when Goldman’s stated their intentions, one Lib Dem politician John Herring was quoted as saying said the bank ‘shouldn’t expect any government contracts’. This reminded me of the PAC hoping they could blackmail the Big 4 in to changing the way it gives tax advice by threatening to withdraw government contracts and public sector work. Fundamentally it showed that once again the PAC hadn’t got their facts straight as the average Big 4 firm makes about four times in tax fees what it makes in government/public sector fees. As the Goldman Sachs bankers said about their tax planning why is there such moral outrage? Why is this simply not the same as filling up your car’s petrol tank the day before you know fuel is due to go up. It is basically sensible financial planning.
An accountant’s job is to help their clients be compliant with tax and accounting legislation. That is what tax advisors do, it is not the fault of the tax advisor that the legislation is unwieldy and open to interpretation. The main tax professional bodies such as the Association and Chartered Institute of Taxation and the Tax Faculty of the ICAEW constantly petition HMRC and the government for simplified tax legislation and a decrease in the number of tax statutes. The Institutes’ volunteers pretty much singlehandedly man government initiatives like the Office of Tax Simplification – a fact that Ms Hodge seemed unaware of during the PAC debate.
Surely, when tax is a cost to a business then any business in uncertain economic times is going to be looking to cut costs? As a result businesses are looking at ways of minimising their tax payments, this is tax planning, it is not tax evasion. The PAC, the media and government seem to have forgotten the fundamental differences between tax avoidance and tax evasion. Tax evasion is fraud where someone purposely and deliberately evades paying the proper amount of tax and this is illegal. Tax avoidance is where an individual or business legitimately structures their tax affairs to ensure the lowest possible tax bill – and this is legal.
The press and MPs are using the term ‘tax avoidance’ as if it meant fraud, yet every one of the journalists or MP’s will have structured their own affairs to make the best financial sense; whether it be claiming back mileage or using their personal allowance or claiming tax relief on pension contributions.
Every day I hear my clients (the nation’s beleaguered tax professionals) complaining that their clients are worried about being ‘named and shamed’ for sensible tax planning. That large UK businesses are scared to legitimately use tax planning because of negative public perception. Haven’t businesses got enough issues with poor economic conditions? Without feeling they now have to pay more than their fair share of tax? How is paying ‘extra tax’ going to help the companies employees or share holders? How is it going to save jobs?
I can see the next thing that the press will focus on is dividend payments. I can already hear the rumblings ‘’it is not fair that owner managers should pay less tax than employees earning the same amount of money but in salary’’. This again shows a fundamental lack of understanding of how business works and how it creates employment and raises tax through corporate tax take, VAT, rates etc.
As a profession we tax qualified individuals have always had to deal with people thinking we were boring, conformist and grey. Now we have the added slur of being perceived as morally suspect, a more sexy accusation certainly – but one which the average tax advisor who spends their life following rules and helping firms keep within the law – may find hard to stomach.
Up here in the North of England historically people have always been ready to pick up a placard and march to save the jobs of miners or public sector workers, maybe its time to march to save your tax accountant or tax lawyer? By my reckoning there must be around 60,000 people who work in tax in the UK and they need your support!
Whilst MP’s slam tax advisors, they need to look to their own moral compass. Take, for example, the reform of foreign profits under which UK head-quartered groups can now fund their foreign operations at a tax rate of just 5.25%. A welcome move undoubtedly and one which will bring both tax revenues and jobs to the UK, but it also removes tax revenues from the other countries. Is it morally right for our government to take away tax from developing countries like India? Isn’t that more “morally repugnant” than trying to save yourself a bit of stamp duty?
Georgiana Head 7th February 2013 After writing this I came across Mike Truman’s article in Taxation, Mike you new award idea definitely gets my vote! http://www.taxation.co.uk/taxation/Articles/2013/02/06/53361/tax-prat-year
This week Georgiana Head interviews Dermot Callinan, Head of Private Client at KPMG:
Has the role of a tax advisor changed in your working life?
There has been a transition from general tax advice to more specialisation and increasingly technology is playing a big part in tax work. In the past if you had a brilliant idea to save your client’s some money you might do the same thing for two or three clients. Now using technology you can replicate that idea. This is part of the reason why tax schemes have developed and why HMRC has ended up no longer reacting to single cases but instead try to block an overall action or idea. Whilst technology has brought good things, I still fondly remember the pleasure of being in a really good tax library and sitting down with books.
If you could make one change to UK tax law, what would it be?
I would reduce the top rate of income tax from 50% to 40%, as while the general public is in the ‘mood’ for a higher rate, I see on a daily basis how it influences people’s decisions in a negative way. I think we should lower the rates and align the taxes so that CGT and income tax are perhaps equal. At the moment the system encourages disparity – so you can have a consultant anaesthetist paying 50% tax and a second generation business owner cashing out at 10%. So I would bring everyone into a middle ground, align all the rates and lower and simplify them.
What has HMRC got right?
They actually get a lot right and it seems rather unfair that just as Dave Harnett is stepping down he is getting heavily criticised. HMRC has actually become more effective and with better use of technology. I was impressed by them bringing across the Atlantic the idea of disclosure of anti-avoidance schemes. I think they have to deal with increasing complexity and that their leadership has been impressive.
What has HMRC got wrong?
HMRC has begun to create specialist units like the HNW unit, but they don’t have the specialist staff to man it. We have first hand experience of the HNWU simply unable to get specialist units to cooperate with their agenda and that is in danger of undermining them. On a longer term view HMRC is no longer seen as an employer of choice for graduates in fact the public sector as a whole doesn’t really occur to graduates. What HMRC need to do is train up some real technical specialists rather like in-house tax council. That has to start by recruiting from the top Universities.
Is the alignment of the operation of income tax and NICs a realistic aim?
It’s a great idea but the current system is so embedded it would be hard to change. Realistically a better aim would be to get rid of NIC and have a much more transparent personal income tax system. The current mix confuses the general public and obfuscates what they are actually paying.
What’s the best piece of advice anyone has given you?
Probably the friend who told me I should marry my wife Sue! And then Sue telling me that it wouldn’t be the death of my career if I moved up North. As it turns out the quality of work in Leeds is just as good as anywhere else in the UK including London.
Thanks to Stephen Einhorn for coming up from London to entertain the private client ladies of the North. Stephen is a highly regarded jeweller who client’s include Johnny Depp, Charlize Theron and Eva Green. He has worked on films including ‘Snow White and the Huntsman’ and ‘Dark Shadows’ and TV series including ‘True Blood’. At a lunchtime event at Brasserie 44 in Leeds, Stephen showed us a wide range of his work and talked us through his career. A truly glittering event where we got to try on some amazing jewellery (diamonds, darling!). Thanks to Jemi Hargreaves for her help organising.