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Change and challenges
KEY POINTS
- The tax system is too complex say 87% of tax professionals.
- Between 2011 and 2014, 47 tax reliefs were abolished, but 134 were introduced.
- Advisers must add value by interpreting legislation and offering advice.
- Most advisers discuss tax only after the client has undertaken a transaction.
- The ‘other tax gap’ comprises the reliefs and exemptions that are unclaimed by taxpayers.
- The tax profession is challenging, but the future looks bright.
What do you think you’re doing? It’s a fair question and I’ve lost count of the number of tax professionals that told me they never really knew what a tax adviser did until they started the job and their role remains something of a mystery for many outside the profession. The truth is, it’s a wonderful career; but gather a few tax professionals together and soon the numerous unprecedented challenges become apparent.
To better understand the role of the modern tax adviser and their challenges and opportunities, we’ve spoken to many tax professionals and the results are illuminating…
Coping with complexity
Perhaps it is unsurprising to find that 87% of professionals believe that the tax system is too complex. And who can blame them? The UK tax code is outrageously long.
In April 2012, when the Office of Tax Simplification (OTS) published Length of Legislation as a Measure of Complexity (tinyurl.com/OTS-4623), there were 17,795 pages in Tolley’s Yellow and Orange books – the longest in the world. The pace has not slowed. During 2017, tax legislation increased at a rate of more than two pages a day and our bookshelves now bow under the weight of more than 21,000 pages.
Buried within these tomes are more than 1,000 reliefs and exemptions, each with numerous qualifying conditions. And the number keeps growing. In 2011, from a sample of 155, the OTS identified 47 tax reliefs that should be abolished. As the National Audit Office set out in its report Tax Reliefs, between 2011 and 2014 parliament abolished all 47 of those reliefs but left 134 more in their place. Not quite the simplification for which we had hoped.
‘But the length of the tax code is not a direct measure of complexity,’ I hear some readers say. ‘Sometimes it can take more words to say something simply.’
True, but it is a helpful indicator. The OTS put it best: ‘It would be facile to dismiss length of legislation as a factor contributing to complexity – it is a factor, and certainly a psychological one.’
However we look at it, the UK tax code is complex. Yes, we’ve all met the occasional tax professional who contends otherwise, but I take that more as a boast than a statement of objective fact. As a more grounded professional, Mark Aherne, director at O’Brien and Partners, says: ‘The increase in the tax code has made it infinitely more complex than it was when I first started in the profession.’ And this brings challenges. ‘For the general tax practitioner, maintaining a broad awareness can be difficult and time consuming. But it’s a necessary part of the job.’
The more things change
Staying on top of change is their greatest challenge according to 85% of tax professionals.
If you were asked to describe the tax profession, ‘dynamic’ might not be the adjective of choice, but why not? Adapting to change is one of the most important parts of the job. Whether it’s legislation and case law, guidance notes, or compliance procedures, there’s much to keep up with.
Jennie Brown, director of tax at Haines Watts, says: ‘Change is one of the biggest challenges for tax professionals.’ It takes careful planning to ensure the time spent keeping up with technical changes does not detract from time spent advising clients. As Jennie states: ‘Not only do tax professionals have ever-changing legislation to contend with, we have valuable client relationships to build and maintain. They each require a big time investment.’
And legislative change isn’t the only area that’s in flux. Paul Barnes, managing director at MAP, highlights the challenges and opportunities brought by the many new technologies flooding into the tax and accounting space. ‘Disruptive technology is affecting on the role of tax and accounting professionals more and more.’ But he does not see this simply as a resource question. There are commercial factors to consider. New apps are ‘increasing the ability of clients to undertake some areas of bookkeeping and compliance themselves with much greater ease. This reduces the perceived value professionals can add in these areas.’
But the impact of change goes beyond a resource and commercial issue for the modern tax professional. In the age of the internet the role of the adviser is changing. Elaine Kinsella, head of tax at Old Mill Group, says: ‘Historically, being a tax adviser was all about knowledge: you were paid for what you knew. But today, everybody can access that information. It’s freely available. It’s important to understand that our value-add is not derived from simply accessing that knowledge, but in interpreting it and delivering robust advice.’
The same technologies have accelerated the pace of work itself. Andrew Hubbard, former CIOT president and consultant at RSM, says: ‘Technology has sped everything up – both in terms of access to information and the ability to communicate.’ Although there are good aspects, it brings pressures too. ‘With email there is an expectation that everything will be turned round in a matter of minutes. But I’m not sure that in the end the process is that much more efficient than it used to be.’
Late to the party
A common complaint of 61% of tax professionals is that they are able to discuss tax with clients only after a transaction.
The problem of clients getting in touch when it’s simply too late to assist is one we have all experienced. Within the vastness of the legislation there are many reliefs and opportunities designed to legitimately ease the tax burden. But many qualifying conditions are strict, requiring forward planning and the assistance of talented tax professionals.
As Mark Aherne stresses: ‘If a tax person isn’t involved in the conversation early on, opportunities can be missed.’ And it’s not all on the client. ‘It’s a problem I’ve had in the past in some firms, where tax people aren’t really on the ground, dealing with clients day to day. I think that’s where a lot of firms fall down.’ It’s not only an issue for the adviser, or even their firm. As Mark says: ‘Ultimately, it’s the client who suffers.’
The result? Far too often it’s ‘near-misses’ of reliefs that could have been obtained if only the client had got in contact sooner. Without timely advice, taxpayers can be unaware of the valuable reliefs that might have been available to them or simply don’t plan ahead effectively.
The other tax gap
That’s the anecdotal evidence; but where’s the quantitative data? I’m glad you asked because politicians and the press engage in a lot of talk about the tax gap – the estimated underpayment in taxes that arises from errors, avoidance and evasion. However, I’ve yet to see anyone talk about ‘the other tax gap’: the overpayment of taxes due to the underclaiming of reliefs.
Believe me, it’s not easy to quantify the other tax gap. As the National Audit Office highlighted in its report on tax reliefs, HMRC does not systematically evaluate reliefs and exemptions. However, thanks to the publication of tax impact and information notices (TIINs), and other publicly available materials, we can at least draw some inferences on these measures:
- Multiple dwellings relief (SDLT) – comparing the estimates of cost in the TIIN (£150m for 2016-17) with actual claims published by HMRC (£50m for 2016-17), we can estimate that this relief was claimed on only 33% of eligible transactions.
- Marriage allowance (income tax) – based on a recent HMRC press release, only three million of a potential 4.2 million taxpayers have claimed, despite numerous advertising campaigns by the Revenue. This represents ~71% of eligible taxpayers.
- Inheritance tax – here, revenues continue to rise, now reaching a record of more than £5bn. This is despite being a tax that is often considered ‘voluntary’, where appropriate advice is sought.
- Employee shareholder status (income tax, NICs) – woefully underused and claimed by only 2% of expected eligible taxpayers in its first seven months, this was withdrawn soon after.
None of this is categorical evidence and the methodology is a little rudimentary. It’s also possible that the Treasury’s initial estimates were at fault. However, in the context of an increasingly complex tax system and a profession with limited resource, I think it’s fair to take it as an indicator that our system of reliefs is not working quite as intended.
For any tax professional – particularly those who consider themselves proponents of a well-functioning economy – closing the other tax gap should itself be a moral mission. Besides, missed reliefs for taxpayers are missed advisory opportunities for practitioners.
Chin up
Demanding complexity, relentless change and missed opportunities. In the modern era, the tax profession faces a new set of challenges. But this doesn’t mean it’s all doom and gloom. In fact, our surveys indicate a tremendous sense of optimism among the profession. Perhaps Jennie Brown puts it best: ‘I don’t think I have ever seen a more challenging yet potentially rewarding time in my career. Not only for myself, but also for my team and the business as a whole. If we work together and focus on what the future needs to look like and how we are going to achieve it, it is all there for the taking.’
Although technological change may be part of these challenges, as Andrew Hubbard says, this is likely to be part of the solution. ‘The pace of change is really quite staggering. But the possibilities that new technologies bring opens up all sorts of new ways of working, which should lead to greater process efficiencies.’
Sure, the tax profession can be challenging. But the future looks bright indeed. After all, if it was easy, do you think we’d really enjoy it as much? I know I wouldn’t.
