Fat cats and gutter rats

The other week my wife and I were in our front garden when a man probably in his fifties came up to us. He said that about three years ago he had washed and scrubbed the soffits and fascias on our house and cleaned out the gutters. I didn't remember him, but my wife did for it was she that had commissioned him to do this when he had visited previously.

This prospecting soffit cleaner (Let's call him Stan Soffit) offered to “do” our house again for £140 while pushing a business card into my hand. I pulled a face because that seemed an excessive hourly rate for the job. The conversation continued:

Stan “OK, mate, I'll do it for £90 cash”

Me (pulling another face) “Actually, I am a tax adviser”

Stan “OK mate, no offence.” (Snatches business card out of my hand) “You won't be needing that then”

Stan the scrubber then turned and trotted to his van, and drove to the next turning to turn round as we live in a cul-de-sac. Coming past again he slowed down and yelled “No offence mate, eh?” before disappearing without prospecting the other twenty odd houses in our road.

Actually I was rather offended. People like him give small businesses a bad name. They are also effectively taking money out of all our back pockets because if they don't pay tax on their earnings, everyone else has to pay more.

Dave Hartnett, Permanent Secretary for Tax (a post he invented himself really) and therefore head of HMRC believes that the small business population makes up a sizeable portion of the tax gap and he may well be right. He thinks that maybe the Chinese idea of a turnover tax would be an effective way of collecting revenue. Of course this would not catch characters who never declare their income anyway. Dave must think that everyone is fiddling their expenses. I think that is a very misguided idea. The big problem is not with businesses submitting fraudulent expense records with their accounts and tax returns. It is with those who don't declare some or all their earnings like our friend Stan (well, no friend of mine).

HMRC keeps coming up with plans for favourable treatment for dentists, plumbers and tutors who have undeclared income. What they need is some joined up thinking to catch those working in the black economy who are evading hundreds of millions of pounds of tax.

Of course it doesn’t make such good headlines as chasing billionaires and multi-millionaires with their tax schemes and tax havens. Campaigners such as Tax Research UK wouldn't get their media interviews out of drive tarmac cowboys or Stan Soffit. HMRC likes the fat cat headlines too because it makes them feel legitimate, but they are failing badly at catching the possibly million-plus small-time tax fiddlers very likely costing the Exchequer more in lost tax.

A turnover tax would be bonkers anyway. I guess it would just in effect be an extension of VAT for service providers maybe with a flat rate, but what about retailers who have high turnovers but lowish margins? It would all be unworkable, often unfair, and would miss the targets.

Having been in my business a long time I get a feeling about everyone I meet in business and indeed also in a private capacity. Darren, our window cleaner, says he will clean our soffits, fascias and gutters for £90, a figure he quoted without knowing what Stan had said. I like Darren too. He is happy to take a cheque; a good sign.

As part of my business I help tax defaulters, which means those who have not made tax returns or who have made incorrect tax returns, to come out and pay their dues. For all those who have either been caught or, as happens quite often, get a fit of conscience, there are so many below HMRC's radar.

Never mind the fat cats. Let's round up the rats robbing us in our gutters.

Accountants don't get it

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Well, some do, but I suspect many who are modern enough to have tried social media marketing are giving up because they haven’t seen results. Why do I think so? Well, I talk to quite a lot of people what I am out and about. I also have a Twitter list of “tax-guys-and-girls”  numbering 133 currently who are all accountants or tax advisers or something pretty close. I have noticed that the stream moves more slowly than it did a year or even six months ago. There is far less tweeting going on in this list.

I have gained work through Twitter, and I have passed work on through referrals, and not only tax and accounting work. Twitter is part of the glue which makes for a community network. Twitter has put me in contact with others in my field whom I could not have heard about through any other network. Many I feel I know quite well through our online conversations. Not all these exchanges are even about business matters. The personal stuff helps give a more rounded picture of a person.

The trouble is that a lot of “professionals”, by which I mean accountants and solicitors, don't give Twitter or other online platforms long enough and they don't get it. They pound out their adverts (yawn) and they send automated tweets to technical articles and say nothing else. They don't find topical things for others to read, they don't talk to each other, and especially they don't listen.

Using Twitter is much like any other sort of networking. You get out of it what real value you put in. No one should (though some do) go to a networking meeting just to hand out their business cards and brochures. Networking is about having conversations. It is about listening more than talking.

The trouble is that some people just don’t have the patience. They don't let their personalities come through, they don't understand and they don't ask for help. It's their loss. Strange, isn’t it?

Accountants and tax advisers marketing? Call them old-fashioned!

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You could call me old-fashioned because I still wear a suit when visiting my older clients, but that is what they expect. Most of the time I live in the modern world, but strangely many accountants and those in allied trades simply do not. They are, as the saying goes “sooo last century”.

What am I talking about? Well, not accounting software, because we all have to be up to date with the requirements of the profession and those of Government. I mean marketing.

“Marketing? What's that?” I have been asked by an accountant friend.

“Don't you do any?” I said.

“No, never needed to. I just get referrals and new clients walk in off the street”

My friend is long established in business and has an office on a busy road in a commercial area. I am pleased he has a good reputation and has never had to think about promoting the business. Probably it has not expanded all that much over the past few years, but even with the inevitable churn of clients (none of us can eliminate churn altogether), he has maintained a satisfactory income and lifestyle. Good for him.

Others do think about marketing of course, but for many, if they have a website, they never do much with it. They don't think about content. The website just sits there. It probably doesn't serve as an attractor of business, and they have a website just because others do. Other than that, marketing consists of an ad in a newspaper or magazine without much thought about the target audience.

Of course some others don't even have a website. They may have reserved and still pay for a domain, and may have been doing that for years because they know they need an email address, even if only just one. They will probably get listed in the free on-line directories, but they are as much use as the paper directories for getting business – in other words no use at all with no website for anyone to click through to.

I think that unless accountants have an office in a prime location they are going to struggle if they don't market. The recession has forced many accounting staff out of permanent employment. They still have to get by and will try to set up on their own. In the future the tech- and web-savvy amongst them are going to out-market complacent old-established firms. 

My friend expects to retire soon, but for everyone else, the message must be “Get out there and market”. What do you think?

Representing the sinners

Image via WikipediaPart of my work as a tax practitioner is to represent those who for one reason or another have not declared their income properly. Sometimes they have not declared their capital gains either. Sooner or later they need help from someone like me.

There are all sorts of reasons why people find themselves outside the tax system. I have certainly heard some tales. I can however see certain trends in the way my new clients might have fallen outside the system.

The innocent

Some individuals do start out in innocence in that they may start a very small business for “pin money” which would be well below the level of income tax or National Insurance. Their business might then take off, they think they ought to have told HM Revenue & Customs before, and they become afraid to do so for fear of retribution. Thus they go on outside the system for several years. At some point they are either caught by HMRC or (as I much prefer) they approach me for help because they simply want to come clean and meet their obligations to the Exchequer. I love people with a real conscience!

The oblivious

Strangely there are some who really never dream that they could possible be liable to tax. These are more commonly those who receive some sort of investment income upon which they “assume”, if they had thought about it at all, that the tax is already paid. Other people in this category may include those in receipt of rents on their property. Yes, there really are some extremely naïve types who have no idea that the Government might want its share of their income.

The not so innocent

This category really knows that they should be paying tax. They just like to live on the edge and take the risk of being caught, but somehow they do not expect to be. They may have earnings or have let property.

The net tightens

It is a popular belief amongst both the public and some accountancy and tax professionals that HMRC does not have the resources to catch tax evaders, and especially small time ones. They think that HMRC prefers to concentrate on the big fish amongst the dodgers by going after the miscreants who have substantial funds in Swiss bank accounts. They believe that the Liechtenstein Disclosure Facility represents the main type of evasion mainly being targeted.

HMRC have other strings to their bow. For example they have been checking the Land Registry and have been finding not only undeclared capital gains realised by property investors, but also significant undeclared rents from such properties. Judging from instructions I have received from new clients who have been found out, this is a very successful initiative.

All are welcome

Helping new clients who want to come out of the woodwork and into the system is very pleasing, and I am happy to assist those who have been nabbed by HMRC too. I don't judge people and in the end they all need help.

The variety of work is hugely satisfying, and once we have established that there is absolutely nothing else which has been forgotten in the way of income or gains, I can get a fair deal.

Of course I don't like tax evasion because dodging obligations to the Exchequer is much the same as taking the money out of our own back pockets. For the small timers, though, whether innocent, oblivious or a bit guilty, HMRC mainly wants them in the system rather than bankrupting them or hanging them at Tyburn Tree. In the end it is better to cough up some money and have someone like me represent them, because afterwards there will be no more looking over their shoulders.

You CAN talk to real people at HMRC

Image via WikipediaJanuary is not my favourite month from the perspective of Self Assessment Tax Returns, though fortunately I avoid maximum stress by not taking on every last-minute prospect, giving my procrastinator clients an early “last warning” and not doing hundreds of tax returns anyway.

The biggest problem in January concerning Self Assessment is in speaking to HMRC employees in call centres who know only what is on their screens, are unable to make decisions on specific requests, don't necessarily have the information we want or are not authorised to give it.

Contrast this. I had occasion to call a Corporation Tax Office this week. The officer was helpful, we did not have a pointless barrage of security questions, she was exceedingly helpful and she changed the tax return periods while we spoke just as I asked. She was maybe a little brusque with a rougher telephone manner than one would get from the call centres, but she did the job and left me feeling happy. Above all, she did not waste my time but helped me solve a problem.

It may sound trivial but it proves to me again that organisations get better results and are more efficient if they empower their employees. I wish this ethos were prevalent throughout the leviathan that is HMRC.

What is your experience?

Tax enquiry frustration

HMRC's job is to collect tax and to recover it where income has not been properly declared. These days, because of the Gordon Brown's “cuts” many HMRC staff are frankly not of the standard they used to be or are actually prevented from thinking for themselves. The current standard may be simply due to lack of training rather than ability. As a consequence they seem to be doing everything by rote.

A typical example is a discovery of some undeclared bank interest. HMRC writes to my firm and to the client. We check what has happened and there is indeed some undeclared interest but the bank actually provided incorrect information to the client and to me at the time the Tax Return was prepared. We write with the correct information and explain that it was all entirely the bank's fault.

HMRC person then writes to us and asks us to explain the omission, which we already have. It is as though no one has read our letter properly. We write back referring to the previous letter and repeating the perfectly reasonable explanation.

HMRC then writes requesting payment of a penalty for carelessness in addition to the tax which is obviously due. Now, there may be technicalities which would allow HMRC to call an innocent mistake, due to a bank's failure to deliver the correct information, careless. However, in any reasonable sense no one has been careless except the bank, which gave its customer the wrong information and HMRC the correct figures.

Once upon a time a Revenue Inspector could apply his or her judgment to any issue and act with a little discretion based on common sense. Now it is a question of sending letters one, two and three quite literally by the book and no matter the circumstances.

I hope letter four will not be in the book because we have written a strong response to HMRC's last effort. Of course they have on their side that it is not always cost effective for the client to resist too much, but then again I may just be in a pro bono mood.

Price of HMRC's delays in dealing with post

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As we know, our friends at HM Revenue and Customs don't look at their post for months after it is received. This has many detrimental effects on the relationships with taxpayers, and also those who have decided to come in from the cold and pay the tax they should have been paying for several years.

If I have a new client who wishes to own up to income received which should have been declared, he or she probably doesn't have a Universal Taxpayer Reference (UTR) and the only way of applying for one is by post. At the same time one wants to send a “marker” letter to HMRC to start the process of getting the individual into the system and establish it is at their own volition in case (a long shot) HMRC get their oar in first. That would theoretically increase the penalty potential which one wants to keep to a minimum.

The trouble is that the first response from HMRC will be considerably delayed. It takes months to get a UTR. It takes an age for HMRC to respond to a marker letter after they eventually read it and then allocate it to a case officer. You might say that offenders deserve what comes to them but once someone has decided to make a clean breast of things, I think it is only fair that they can get matters settled and get their tax (and interest and penalties) paid.

Of course HMRC also wait longer for their money because of their tardiness in dealing with these matters even after we get as far as being supplied with HMRC red spot stickers to mark our correspondence as more urgent than that from the hoi polloi. It just doesn't seem right, but HMRC apparently have 15 million open cases which means issues of any sort including over- and under-payment matters that haven't been resolved. They also have more unresolved than they know about with all those confessions sitting in their pile of post.