Tuesday, June 30, 2009

HMRC BPSS is prolonging the recession

I'm a great advocate of HMRC's Business Payment Support Service (BPSS). I thought it was a wonderful innovation when it was introduced last year - allowing businesses to spread the payment of their tax bills.

I was a little surprised to learn that they allow taxpayers to spread not just the tax payable on business profits but also VAT and PAYE. This is a real boon for cash strapped businesses and facilitates cheaper credit than might otherwise be available from the banks.

In conversation with a Business Restructuring expert last week I gained a new perspective. He told me that many of the companies that are being helped have severe credit problems which are not being addressed. They are simply being shunted on to next year.

My friend explained that the extended credit provided by HMRC is not comparable with the rescheduling arrangements that follow when a business is unable to pay other third party creditors.

Of course one is tempted to dismiss this warning as it's from someone who earns (part of) his living from helping cash strapped businesses enter into realistic payment plans with their creditors. HMRC's BPSS is giving some of his prospective clients a breathing space - as was always intended. But maybe there is also some truth in his warning that the recession will appear to last longer as businesses that are already bust will only go out of business next year due to the generosity of HMRC.

What do you think?

Sunday, June 28, 2009

Get ready for the biggest revolution in tax compliance for 5 years

Somewhat later than expected it seems that we are at last about to see a draft code of practice for banks involved with tax avoidance - whether as regards their own affairs or that of their customers. But the impact of this code will be much wider than expected.

The code was originally announced by Alistair Darling in a statement to the House of Commons on March 16. He hoped to include a draft in the Budget on 22 April but that simply promised publication by mid-May. During his speech on 16 March, Mr Darling spoke about:
"the way in which investment banks and others have sometimes sought to develop instruments in order to avoid paying taxes."
In that context he continued:
That has, in itself, posed a systemic threat to the system, which is one of the reasons we need a code, so that people abide by the letter and the spirit of the law." (emphasis added)
Since then of course the MPs' expenses scandal has revealed MPs (including Mr Darling) defending their claims by reference to the 'letter' of their rules rather than the 'spirit' - even though this is clearly set out in the Green Book. So perhaps they appreciate that crafting the distinction is not as easy as they thought.

Latest reports of the imminent release of a draft code suggest that it will be contained in a consultation document to be published tomorrow. An unnamed source quoted in the WSJ suggests that:
"The code of practice will build on a similar mechanism that Her Majesty's Revenues and Customs office has used to minimize tax avoidance from leading U.K. businesses."
This makes no sense to me as the existing rules on Disclosure of Tax Avoidance Schemes already apply to all taxpayers and to all promoters of tax schemes. So the new code cannot simply be a "similar mechanism". It MUST, by definition, go further than the existing rules - originally introduced in 2004 and tightened up in every subsequent year.

Going back to the original announcement of this code I suspect that the first draft will include attempts by HMRC and Treasury to clarify what they mean by compliance with the 'spirit' rather than simply the 'letter' of the law. As such, this could be the start of the biggest revolution in tax compliance since the introduction of the first disclosure regime in 2004.

Friday, June 26, 2009

Tax avoidance is a card game - the metaphors multiply

I've long been of the view that if someone is intent upon undertaking any form of structured tax avoidance they need to play straight. And that means placing all of their cards face up on the table.

In a recent tax case Malcolm Gammie QC also used a card playing analogy:

The tax scheme, he said, was a game and he then described a game of bridge:

"... assume that North, East, South and West enter a room and sit at a table. North (the employer) holds cash that he has already said he will share (as an annual bonus) with West (his employee). The common understanding and intention of all concerned is that North will hand the cash to East, East will hand the cash to South and South will hand the cash to West. If the question is asked, has North paid West his annual cash bonus, the answer is quite clearly yes. ...

The answer does not change just because North produces a pack of cards so that the cash can pass from North to East to South to West under the cover of a card game."

The case involved PA Consulting, their EBT schemes (from 1995 and 1999) and bonus payments for 2000/01, 2001/02 and 2002/03. (TC00063: PA Holdings Ltd and Kully Janjuah).

For the record the tribunal determined that the disputed payments were both distributions and earnings. However the tribunal had to also accept that because the sums were taxable as distributions they could not also be taxed as remuneration. So as regards this element of the appeal they found in favour of the taxpayer. However, in respect of the NIC contributions, the tribunal found for HMRC and commented that there was no bar in law which prevented the tribunal reaching the conclusion that the payments received were in fact earnings.

Thursday, June 18, 2009

Will this mean less tax advice given in writing?

The Daily Telegraph's latest revelation concerns Kitty Usher and a letter she received from her accountants. The article quotes from the letter as follows:
“I am enclosing a declaration to vary your previous main residence election for a period of one month to [Burnley home] and then back to [London home].

“The effect of varying the election is that [Burnley home] will receive the final three years’ main residence exemption and the gain will be completely exempt from capital gains tax provided [Burnley home] is sold before April 2007.”

As the article is careful to note - the advice and Ms Usher's actions in 'flipping' her main residence were entirely legal. In this context I have explored previously on this blog:

Despite the legality of the advice and actions I'm not altogether sure that the letter from Ms Usher's accountants looks good in the light of public scrutiny. And this is closely linked to one of the reasons why I gave up giving tax advice. It also has a bearing on the draft HMRC Charter with it's promise that: "You can expect HMRC to... Pursue relentlessly those that break or bend the rules" - I addressed the ambiguities in a blog post: How far can you bend the rules?

Whilst few accountants will have dozens of MPs as clients, many accountants will have at last one or two public figures (from sportsmen and actors to Z-list TV celebrities) as clients. And the accountants will provide tax planning advice to them all in much the same way.

During my talks on 'avoiding negligence claims' I remind accountants of the importance of putting advice in writing, of setting out the facts on which the advice is based and any assumptions that are inherent in the advice. I also add the caveat: "Never put anything in writing that you would be embarrassed to have read out in a Court of law". To this I might add: "Or published in a National Newspaper". This applies to all clients but especially those whose tax affairs could be of interest to the media. If one would be embarrassed then perhaps the advice should be reconsidered.

The advice given to Kitty Usher involved the blatant exploitation of a tax rule. It's a rule that has been 'bent' in this way for many, many years. Whether the advice given is always as blatant as in the letter from the accountant's tax manager in this case, however I'm not sure.

As one of the commentators implied on my earlier blog post about 'flipping properties to avoid CGT': These revelations about MPs could lead to a tightening up of HMRC's interpretation of the rules even before the law is changed. Anyone remember Arctic Systems?

Wednesday, June 17, 2009

Working with tax agents - HMRC webcast

At the ICAEW Tax Faculty AGM yesterday Dave Hartnett explained that he and Simon Norris would be hosting a live webchat tomorrow. Dave is Permanent Secretary for Tax, and Simon Norris is Head of the Review of HMRC Powers.

The webchat has been promoted quite widely already and follows on from the recent consultation document 'Working with Tax Agents'.

What is a 'webchat' and what do we already know about this one?

Firstly let me stress that different people use terms such as 'webchat' and 'webinar' to mean different things. There is not, in my experience, one standard universally accepted format tied to any of these words.

The HMRC webchat is being hosted on webchats.tv so it's fair to assume that it will be in a similar format to the others on the site. So we can expect:
  • to watch a live tv interview with Dave and Simon if you visit the webchat page during the show
  • to contribute questions online before and during the show - and some of these may be read out and answered during the show;
  • to be able to watch a recording of the show by visiting the webchat page at any time in the future;
  • to be able to read a transcript of the show after the event - also on the webchat page. And of course you can cut and paste statements made by Dave and Simon after the event.
NB: Contributions and questions have been encouraged beforehand and Dave mentioned yesterday that they have had hundreds already. He said they ranged from the truly abusive to the profound: "If there is a tax on apples and I only eat oranges, am I a tax avoider" - Dave said he's looking forward to answering that one.

To take part or to submit a question in advance, follow this link to the 'Working with Tax Agents' webchat.

Saturday, June 13, 2009

Paul Aplin OBE and Chris Tailby CBE

I'm delighted to note that Paul has been awarded an OBE in the Queen's Birthday Honours list today. He is coming to the end of his tenure as Chairman of the ICAEW Tax Faculty and is the first Chairman of the Faculty to receive such an award. I'm proud to consider Paul a trusted friend and consider the award to be extremely well deserved.

I've known Paul for getting on for 10 years and still recall our first lunch when I asked him to be Vice-Chairman. He was not sure he was upto the task, being (in his mind) just a simple general tax partner in a firm of accountants in Taunton. He was, as ever, being characteristically modest. He proved to be a very supportive and hard working Vice Chairman (whilst I was Chairman) and then moved onto hold the Deputy Chairman role and then for the last two years has been Chairman in his own right.

There will be more fulsome records of his achievements, commitment and dedication in due course. Perhaps the first such occasion will be the Faculty AGM this week. The timing could not have been better.

A couple of years ago Paul won the Tax Personality of the year award. I recall many months beforehand leaning over to the Editor of Taxation magazine (and Chairman of the judging panel) to suggest that Paul be considered for that award. We had just heard that Paul's tireless campaigning on a key issue for the profession had paid off. He had spent much time behind the scenes trying to persuade Lord Carter that the filing deadline for tax returns should not be brought forward to September (as Lord Carter had previously proposed). Many other groups sought to claim credit for Lord Carter's change of heart but I knew it was as much down to Paul as to anyone.

Paul has a relatively quiet manner but he understands people and gets things done. He richly deserves this honour and I'm absolutely delighted for him. I note also that having spent the last two years on the Council of the ICAEW in an ex-officio position he has already been co-opted to remain on Council to assist in (continued) liaison between ICAEW, HMRC and the Treasury.

In scanning the Birthday Honours list I note also that Chris Tailby, the shortly to retire Director of the Anti-Avoidance Group at HMRC, has been awarded a CBE. I've known Chris for some years, dating back to before I was Chairman of the ICAEW Tax Faculty. I well recall a time he responded to one of my emails from a holiday beach on the continent. Clearly a man who works hard. And like Paul, very unassuming and good company.

If you have any knowledge of Paul or Chris please add your comments to this post.

Tuesday, June 9, 2009

We've had Tesco Law, why not Tesco Tax?

Last month the papers were again reporting that High street shops will sell legal services within two years. For the moment TescoLaw seems to be limited to a bookshop offering DIY legal guides.

What is it about legal work that is thought to be so attractive to Tesco, the AA and other large companies?

Tax vs Law

Surely more people need help with their tax each year than need any legal services? I’m sure that more people complete tax returns than need conveyancing services for example. OK, even more people need to prepare a will than complete a tax return, but what other legal services are so in demand that large retail operations would want to move into the legal marketplace?


There is no restriction on who can own an accountancy or tax practice. Indeed anyone can call themselves an accountant or a tax adviser - without the need for any professional qualifications. Even my own body, the ICAEW, long ago relaxed its rules to allow upto 25% of a Chartered Accountancy practice to be owned by non-Chartered Accountants.

The big question

So why have we not seen Tesco Tax (which is more alliteratively attractive than Tesco law anyway)? Why no offering of Barclays Bookkeepers? or AA Accountants?

It's obviously not that these big companies see the provision of legal services (and tax is arguably a legal service) as too far removed from their main customer service offerings? Tesco and others already offer various forms of insurance amongst other non-conventional service offerings under their own brand.

So why the focus on legal services? Is it because it's never been possible before? When the Legal Services Bill was introduced in the Queens Speech in 2006, the Times reported that the "Era of 'Tesco law' is upon us." The Legal Services Act 2007, is now in place although the clauses allowing Alternative Business Structures have yet to come into effect. These will enable big companies such as supermarkets and motoring organisations to own law firms and to employ lawyers and offer legal services directly to their customers.

Mass Tax Services

There is some degree of precedent as regards the lack of interest in branded tax shops in the UK.

When the self assessment tax system was first introduced here in 1996 there was talk of high street tax shops to help those who couldn't do it themselves. Amongst others, H&R Block dipped a toe in the water but the idea did not catch on. This is because there are some significant differences between taxpayer obligations in the UK from the USA where H&R Block is a household name with a taxshop on every street corner.

I've long been waiting for the large insurance companies to offer tax return and related tax services. Indeed this would arguably be easier to arrange than for accountants to provide financial services to clients.

However over the last ten years neither the banks nor the insurance companies have really entered the mass marketplace - so perhaps this is why there is no talk of Tesco Tax.

Transaction vs relationship

There is one key difference as between legal advice and tax return services. Legal work tends to be transaction based rather than relationship based. Could that be the key factor. To avoid the provision of services where an ongoing relationship arises. In this respect annual tax return, accounting and bookkeeping services are very different to legal services.

What do you think? Please add your comments to this posting below.

Monday, June 8, 2009

Free Tax Advice and Tax Help for business start-ups

Many people start up in business without first taking professional advice. That's a fact.

Many of these people are unaware of the services and advice they could get from an accountant. There is also a common misconception that all accountants are the same. They're not. Some specialise in advising business start-ups. Many others are far better at advising only established businesses.

I would always encourage a business start-up to discuss their plans with a suitable accountant. This will provide an objective insight into the feasibility of the plans and financial projections. It could make all the difference down the line - although there is a limit as to the valuable advice you will get for nothing.

One of the issues that an accountant should address are your tax obligations as a new business owner. This is not a subject that the Tax Advice Network attempts to address. Our role is more to provide support and advice in cases of tax investigations and other issues arising from the less common tax difficulties, challenges and difficulties.

But we do get visitors to our website looking for free tax advice - especially in the context of business start-ups. Whilst we don't seek such visitors the challenge is how to help them find what they want even if it's not something that we can provide ourselves.

So I was very pleased that the Tax Advice Network was selected as one of 20 trusted organisations to share some simple new tax support material and tools, tailor-made for small businesses. Included are easy-to-read PDF guides and 'bite-size' videos on a variety of key subject matters - from record keeping and how to avoid a penalty, to PAYE.

We will be incorporating links to some of this material into our website shortly. For the moment here's a link to the relevant items which are being made available through the Business Link website. Do please add your comments to this post to let us know what you think of them.

I'm also posting links on twitter and am curious as to whether that will generate much traffic to the Business link website. So far as I know we're the only one of the 'trusted organisations' to have a twitter strategy so it'll be interesting to ascertain the reach of our message after ReTweets. Please help if you care.

Official recognition of Tax Advice Network as a "trusted organistion"

I received a letter at the weekend from Stephen Banyard, Director Business Customer Unit at HMRC. I'll post a separate item about the detailed contents. For the moment please share my excitement at the implications of this letter - especially in the light of the clarification I have just received.

It includes the line:
"As a trusted organisation, small businesses already look to you for advice. We would like to ask for your help in sharing this important tax guidance with your members. It could save them, and you, time and money."
The Tax Advice Network is a 'trusted organisation'. Well, that's nice. But how many other such organisations are there?

I telephoned the contact number on the letter and was told that Stephen/HMRC had only sent out about 20 copies of the letter. Now I'm feeling quite chuffed.

Regular readers will be aware that this official recognition follows on from a less formal referral from a local VAT office a few weeks ago.