The area of tax where most accountants are failing their clients
27/07/2010 14:05:14

The area of tax where most accountants are failing their clients

Steve Pipe – 23 July 2010

I have been given advance access to some extremely important research carried out by the Tax Club (www.mytaxclub.co.uk) with 180 practices at the National Tax Conference on 17 June. Its implications are striking.

Here are some of the key preliminary findings

• 90.7% of practices say that really good tax planning has become more important to their clients over the last 3 years, and
• 98.8% think it will become even more important to clients over the next few years
• As a result 60.1% have already seen tax planning work become a higher % of their firm’s total fees

The area where most accountants are failing

Of course, the last statistic also implies that 39.9% have not been able to benefit from their clients’ heightened interest in tax planning.

The reason for that failure seems to be summed up by an informal straw poll I took of the c 500 delegates during my keynote presentation at The National Tax Conference…

… Alarmingly, by show of hands, less than 5% of the audience said that their firm had proactively told all of their corporate clients about ways to use Employer Financed Retirement Benefit Schemes (‘EFRBS’) and other similar tax planning options to extract profits potentially without paying any tax whatsoever.

On the other hand, the firms that had told some or all of their clients about that sort of tax planning reported that they were earning substantial additional fees as a result.

For example, 2.8% of practices in the formal survey said they had earned more than £50,000 in additional fees in the last 12 months alone. And no doubt those totals would have been much higher had they told more of their clients about the option.

A quick reminder about EFRBS

I am no tax technical expert, but my understanding is this:

• EFRBS are a special form of trust that are currently specifically defined and accepted in HMRC’s manuals as a pension scheme.
• There is potentially no income tax or national insurance payable on distribution of profits via EFRBS
• And in more aggressive variants it may be possible to obtain corporation tax relief on the profits being distributed
• There is no formal deminimis for an EFRBS – but they usually make most sense for clients that want to distribute at least £100,000
• You don’t have to be able to set up an EFRBS yourself, since there are several tax providers who specialise in them. So, if you want, they will sign a watertight no-poach agreement with you, and then do all the technical work, take all the engagement risk and share with you the fee that they charge your client in return for your support and marketing services.
• For example, on a £300,000 EFRBS your share of the fee would typically be in the range of £3,500 to £4,000. And remember, you earn that fee even though you aren’t doing any of the technical work.
• It is therefore perhaps not surprising that in the November/December 2009 edition of The Tax Faculty’s newsletter Francesca Lagerberg of Grant Thornton suggested that EFRBS should be a standard component of corporate tax planning in 2010
• Neither of the two Budgets in 2010 have done anything to prevent EFRBS working for this tax year
• But the March and June Budgets do contain the suggestion that EFRBS may not be quite so effective after April 2011. So there is now a real urgency to take action.
• The question every professional firm must ask itself

Would any of your corporate clients like to pay no income tax, national insurance or corporation tax on the profits they take out of their business before April 2011?

The two actions every professional firm must take

If you are 100% certain that the answer to that question is “no”, then you don’t need to do anything.

But if you are not 100% certain (and how can you be?), then there are two actions that I believe you simply must take in order to serve your clients professionally:

ACTION 1 - Identify the best tax provider to help your clients with their EFRBS and other trust based planning in the way explained above (email me on stevepipefca@avn.co.uk and I will send you a step by step guide to how to do this really easily).

ACTION 2 - Systematically tell every single one of your corporate clients about it over the next few months – so that they have enough time to take action before April 2011 when the window of maximum opportunity may close.

In addition, since the research shows that many of your competitors are doing this with their clients, I also strongly suggest that you tell your corporate prospects about it too. There is a very good chance you will win them as clients because of their accountant’s failures in this area.

I hope this helps.

And, as I said, if you need any help identifying the right tax provider please email me and I will send you a step by step guide.

Steve Pipe FCA

stevepipefca@avn.co.uk