Tax Advisor or Trip Advisor?
It’s alarming how many clients think that the submission of their tax return is equivalent to a thorough review of tax reliefs and planning opportunities.
And the truth is: that’s a problem. For the tax profession.
Why? Well, for one, it’s damn near impossible to command a fee for a service someone already thinks they are receiving. Or one they don’t even know exists.
If we want clients to truly understand – and appreciate – the value the tax profession can bring, we need greater awareness of the distinction between compliance, advisory and planning.
Slice & Dice
Categorising the roles of the tax profession can be surprisingly tricky, but I find the following most useful:
Tax compliance involves looking at transactions and ensuring that the position is correctly calculated, documented and disclosed to HMRC. And – most importantly – all taxes paid on time.
In concept, though not always in practice, compliance will often involve little if any consideration of reliefs or exemptions. Most tax work is concerned with this area.
Compliance is perhaps the most vital work of the tax advisor. But unless you are correcting someone else’s mistake there is often little in terms of “value-add” to the client in performing this task well. It’s a little unfair, given the cost of mistakes (interest! penalties!). But, usually, the best outcome of great compliance work is that the client simply pays the taxes they expected to pay.
Simple Tax Advisory:
Simple tax advice involves looking at transactions and determining what exemptions and/or reliefs may be available. Okay, so this definition is a bit restrictive, but it helps keep things tidy (as we’ll see later).
The client position is considered by the advisor, filtered through the “lens” of their tax knowledge, to determine whether reliefs are secured or lost. But the advice that is given is based on transactions that are fixed (either because they have already occurred, or because they soon will).
Many tax professionals delve into this area, often as part of a year-end tax review alongside compliance work. And there can be real “value-add” given the savings available. But tax still plays a passive role. And the news isn’t always good – particularly where reliefs are lost by “near-miss”.
Tax Planning & Strategy:
Tax planning and strategy requires a more holistic approach. It’s the clients’ underlying objectives that must be understood and advised on. Clients are then guided toward whatever transactions are most suitable to achieve these goals.
Unlike simple tax advice, here tax plays an “active” role. Through the input of the professional, tax is considered – alongside other commercial and personal considerations – at the decision-making stage. This work is necessarily prospective in nature – a simple year-end tax review won’t cut it.
It might sound fancy, but believe me, we all already do this (even if we don’t recognise it). It can be as simple as recommending that the shares are held that little longer so that relief is not lost, or that a more energy efficient heating unit is acquired to secure more generous allowances. Or it can be more complex, like designing an effective estate planning strategy, share incentives scheme, or company reconstruction.
This type of work is usually resource intensive – it requires a close-knit, collaborative effort between the client and their trusted advisor. But the “value-add” to clients can be tremendous.
So that’s the basic concept. To better communicate the distinction I often find myself drawn to an illustrative metaphor… Being a tax professional. It’s all about using your expertise to get clients to where they want to be, right?…
Fun in the Sun
Imagine you are taking a fly-drive holiday from Vegas to LA. The sun is beaming down, as you speed down a desert road. Aviators on. Steppenwolf blasting out the stereo. Your companions? A Compliance Expert, an Advisory Expert and a Tax Planning Expert:
The Compliance Expert is responsible for visas and passports. They make sure that all documentation is up to date, so when you get to where you want to go, you aren’t refused entry. Essential, but expected.
The Advisory Expert is the Tour Guide. They identify interesting landmarks from the backseat, based on what they can see. Their comments are informative and valuable, but reactive.
The Tax Planning Expert is the Navigator. They spoke to you before you set off, to understand your objectives. Whether you wanted to get where you’re going quick, or take a more scenic route. They used their expert knowledge of the area to map the best possible course.
Who would have thought tax professionals would make such great travel companions?!
Back to Reality
Interesting stuff, but why should you care?
Because it is key to communicating the true value of the tax professional.
It’s my belief that we should all seek to be completely clear to clients on the nature of the work we undertake for them. And that includes being up-front about what we aren’t doing too.
Clients value the transparency. And for advisors, it’s certainly helpful when it comes to setting reasonable expectations, and pitching for advisory work.
That’s my theory anyway.
You have a different view?… Let me know in the comments.
Read more from Diagnostax