Tax, lies and stereotypes

Let's start with the stereotypes. Accountants are steady, boring and cautious. Phillip Hammond rather than Bojo. Well, some are but many aren't.

I've been told many times that I'm not a 'typical' accountant because I'm approachable and easy to talk to. I'll take that as a complement but I can do dull, boring and cautious if I need to.

I had an accountant pal who was (and probably still is) charismatic, energetic and persuasive. He is also a risk taker and his cv is a roller coaster of exceptional highs and near catastrophic lows.

He also has a tendency to be 'economical with the actualite'' to use Alan Clarke's phrase. I found this out to my cost which is why he is now an ex pal. I think this expression is particularly apt. Often it's what's not said rather than what's said by an untruthful person that is most deceptive and damaging. 'Risks? You never asked about the risks'

My ex buddy's gambling tendencies mean that he is willing to push the boundaries with tax planning. This, along with his charm and persuasive skills can be attractive to a hard-pressed business owner. Saving a load of tax - what's not to like?

Well, each to their own but when it comes to choosing an accountant I think risk taking, charisma and persuasiveness are overrated. There lies the probability of early and easy wins, followed by inevitable losses and possibly worse.

As an entrepreneur and business owner I am happy to take calculated risks. I don't want my accountant to be a risk taker too so I'll settle for steadiness and caution every time

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Tax planning makes perfect sense

In this age of austerity, taking steps to minimise your tax bill can be seen by some to be a little selfish. The Social Market Foundation reported last year that the gap between rich and poor has widened significantly in the last decade. So for the wealthier members of society to take steps to save tax, when such planning opportunities are less readily available for the less well off, perhaps increases the sense of unfairness.

We need to make a distinction here between tax avoidance and tax planning. Tax avoidance schemes are often complex and high risk arrangements that take advantage of loopholes in the tax regulations. A high profile example was the case of the comedian Jimmy Carr using a legal but morally questionable scheme several years ago which led to him paying as little as 1% tax on his earnings. HM Revenue and Customs has tightened up the rules on tax avoidance schemes in the last few years. Promoters of such schemes have an obligation to disclose them to HMRC and they have specialist task forces to seek out rule breakers. Many accountants and professional advisors would not recommend avoidance schemes to their clients. Leaving aside the ethical arguments, the risks are high with HMRC winning 80% of avoidance cases the taxpayer chooses to take to court.

Tax planning however, that is, working within the tax regulations to minimise your tax liability, is a sensible approach for many people, particularly those with more complex tax affairs. One of the most famous quotes in tax planning comes from Lord Clyde in a decision he gave in 1929, ‘No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores’.

So what kind of measures would come under the scope of tax planning? Well often this is taking advantage of tax breaks the government has put in place to encourage savings and investment eg maximising pension contributions, making use of annual ISA allowances, using business investment allowances etc. There are also planning steps for married couples and civil partners to spread asset ownership to make maximum use of capital gains exemptions and income tax allowances. Planning the timing of asset purchases and disposals across tax years can also be a useful planning step. For business owners, drawing income from their company in the most tax effective manner is good practice. None of these are radical steps likely to attract the attention of HM Revenue and Customs. With care and often with professional support such steps can help you keep more of your hard-earned income and gains. What you choose to do with the extra money is then up to you, rather than HM Government.

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