Providing tax advice

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I got an email the other day. I won't reveal the sender's identity (there is no need). It asked with honest intent:

I was wondering, as you are an accountant by profession, how you deal with people who come to you for tax advice? Do you state at the outset that you're not there to find ways out of paying tax but to ensure they pay the correct amount according to the letter of the law? Or do you avoid giving tax advice at all costs? It must be a tricky issue striking a balance between running a viable business and having professional integrity in an area where you are very outspoken.

The question is itself fascinating, and shows the absolute mess the profession has got into. What a dreadful situation it is that because I suggest that people pay the right amount of tax at the right time in the right place that I might avoid giving tax advice 'at all costs'. Remember, I do not in any way say people should pay the maximum amount of tax. Just working out what the right amount of tax takes effort, and requires advice.

But to understand that, stand back a moment. I am a bit surprised that there's even an assumption that people might come to see me for tax advice. My practice career (which is ongoing) is as a generalist. I do probably know quite a lot about tax. But I know quite a lot about other things this profession does as well. The biggest problem that our profession faces is simply that there are far too few people who are generalists.

Dennis Howlett has a good blog on this today, having picked up on Damien Wild's blog that 73% of young entrepreneurs don't trust accountants. They're quite right not to as well. Only banks and Business Links mislead entrepreneurs to greater degree as to their capacity to advise. Those bankers who work in small business services are, by definition, risk averse. They have no clue of what it's like to be in business. Ditto most who work for Business Links (although in the latter there may be some honourable exceptions). As for accountants though, as Dennis puts it, there are four sorts:

Moaners - constantly bitching about clients that won't pay for services - lots of those
Mechanics - compliance focused and satisfied with what they get from that activity - lots of those as well
Movers - making a difference to client lives - few
Shakers - wild thinkers who are dreaming up new ways to do business - very few

I could shuffle the definitions a bit, but Dennis is near enough right, in my opinion. Those who aren't happy with accountants have met moaners and mechanics. Moaners are next to useless. Mechanics are competent but should not be client facing. Only movers and shakers can add value. I'll happily put myself in the mover box - because I know I've done that. Maybe I like to shake as well.

The difference between these last two groups and the vast majority (at least 73%, and probably more) is several fold. First of all we listen. Client's don't come asking for tax advice in my experience (25 odd years of it). They come with a problem. It's usually ill-defined, and for that reason difficult to articulate. In which case to assume they know they need tax advice is as likely as the person going to see a GP declaring they have a brain tumour and need urgent surgery being a) right b) worth referring without some further consideration of the likely causes of the problem. The GP would be negligent if they simply accepted the patient's word and did not consider other possible diagnoses. So are accountants who simply supply tax advice when that is asked of them, if that happens.

GPs call the process of listening to the patient 'taking a history'. Accountants are notoriously bad at this. Look at the files of the average firm and find how many notes of meetings there are, let alone notes of conversations and you'll see what I mean. And yet this is the most constructive stage of the engagement between an accountant and their client. Then you begin to identify what the real issue is. Which will rarely be that with which the patient presents (as is also invariably the case when a man goes to see a GP, by the way - and my wife is one if you're wondering where I get these insights from). The same is true for accountants.

To continue the medical analogy a moment longer, if you don't listen you simply supply a 'quack' remedy. In SME accountancy those options might be:

  1. Incorporate to save tax;
  2. Put money into a pension to save tax;
  3. Buy Sage software;
  4. Plan for Inheritance Tax because the accountant is likely to be dead before you'll find out if his advice was any good;
  5. Wangle as many tax deductions as you can where the expense is of limited business value.

Each approximates to a 'benefit' for the client. The accountant is unlikely to be sued. Almost certainly none will 'solve' the client's problem.

When I advise a client I want to find that problem. It may be how to improve their sales (the way to make a small fortune is to start with a big one after all, which can be approximated to a healthy turnover in my experience) but most accountants have no clue how to do that. They've never run a real business (and never, ever take advice from one who has not is my number 1 tip). Alternatively, it may be they just want their stress removed. Very few accountants seem to understand the stress tax planning (even incorporation) puts clients under. And most people hate stress.

I could go on. But the point is simple. You can't practice like this unless a) you know your technical stuff b) you can relate to people c) you really understand business d) you're willing to appear out of the ordinary.

Tax planning will always be part of that - and requires real choices to be made between quite legitimate alternatives. Of course I do that. But by itself I've never found that a solution to a client's problem, not once we've adequately defined it. It's part of a package. And in my experience the client buys the package as a whole. Sure, I make it clear that when it comes to tax I've been risk averse for them, but I emphasise, my aim is to limit their stress in this area to let them take on the real challenges business presents without worrying at night about a tax investigation. It's worked time and again, I assure you.