Tuesday, April 6, 2010

"Have a look at this scheme and tell me what you think"

Years ago, when I ran the 'tax support for professionals' team at WJB Chiltern, we were frequently asked to provide a view on the potential success of tax schemes.

Despite being a specialist tax consultancy with dozens of in house tax advisers we chose not to offer such a service. The rationale was simple: Such schemes always carry risks. The promoters invariably underplay these and tap into the taxpayer's natural greed.

A worthwhile independent review can take many hours - obviously, given the inevitable complexity of such schemes and the need to review and consider all related paperwork including both the instructions to Counsel as well as the formal Opinion itself.

I was talking recently with the head of tax at another reputable tax consultancy. He shares many of my views about tax schemes. I was amused when he said he thought he could make a lot more money if he closed his eyes to the risks that pre-packaged tax schemes run. As it is, like any reputable tax adviser, he dutifully considers schemes that his clients purport to have an interest in. He goes through the paperwork carefully to ensure he understands the scheme sufficiently. He then explains the process, the hoped for benefits and the risks to the client, in words of one syllable. This, he tells me, invariably results in the client saying:
"Now I understand it properly, why would I want to go into a scheme like that?"
And, just as I concluded a few years back, there is a limit as to how much you can charge a client in such circumstances for the time and effort involved in reviewing, checking and advising on the scheme - especially if the client decides not to proceed. This is one of the reasons that promoters pay high commissions. It is partly to compensate for all of the conversations and meetings that do NOT result in a client signing up for the scheme.

Within the Tax Advice Network the tax advisers are generally just as reluctant to review third party schemes brought to them by prospective clients. And yet they are all tax experts and well aware of many schemes relevant to their specific areas of expertise. Why would anyone less experienced feel able to provide an informed objective view of a pre-packaged scheme?

What do you do when a client wants your opinion of such schemes?

Previous relevant posts:


  1. It is always useful to remember the basic simplistic advice that;

    If it seems too good to be true then it probably is".

    In relation to tax schemes it is worth considering that in the context of the commission paid to introducers.

  2. Didn't Chiltern get their fingers burnt with their own EBTs though?

  3. Re Chiltern's own EBTs
    I'm aware there were issues with the way that some employees promoted EBTs pre Dextra.

    These issues only became apparent after the employees concerned had left and more experienced colleagues had to try to resolve unwritten alleged over-promises.

  4. Nichola Ross MartinJune 16, 2010 at 12:57 PM

    HI Mark
    I feel I must say something because this whole scheme thing seems to be getting totally out of perspective. It depends on the type of scheme.

    People are constantly asking me how schemes work and in nearly all cases the schemes take advantage of various rules that are there in statute in black and white and it is not too difficult to comment.

    I note the remark on Chiltern's EBTs - these were a good example: the scheme is surprisingly simple, although the promoter does not want to tell you that. I remember Chiltern coming to my firm and it was definitely all "cloaks and masks" then. It is the marketing operation that is the sophisticated part, and if you can pursuade a lot of people that your scheme is better than the next firms' (even if you are basically selling exactly the same thing) there is a lot of money in it.

    I am unsure what is wrong about receiving an introducer's commission. The Advisers on this network pay a fee to be here and a commission when they obtain work. What is the difference in the end?

  5. Hi Nicola
    Thanks for this. To an extent I agree with you but let me address each of your points in tuen:

    1. I can only assume that the types of schemes to which you refer are more straightforwward than those addressed by this and (most of my) other posts on this blog.

    One of the reasons I posted this blog was the credibility of the head of tax to whom I refer. His (recent) experience suggested that little has changed since my days in practice. This is also borne out by countless conversations I have with other tax practitioners, tax specialists and also the less tax expert accountants.

    2. When I was at Chilten pre Dextra everything was open and 'easy' - much as you describe in your first para. I recall attending seminars where all was explained. I don't recall any cloaks or daggers being used by those who promoted EBTs.

    3. The point in the blog post about commissions is simply to explain why they are so high. That is, the relatively low success rate when attempting to secure sales of such schemes.