Attitude to risk may depend on the age of the client or the business. Younger people lean more towards risk, as Michael Pagliari explains in this TV show.
I think that goes back to sort of life cycle questions. As clients are younger and are looking to build assets they may well have a higher disposition towards risk and that might lead them towards more growth-type portfolios. As clients advance through that life cycle and perhaps sell a business or begin to retire then it’s really a question about draw-downs and inheritance tax planning and so on, and portfolios tend to de-risk to some extent. So as you grow through that life cycle portfolios do tend to sort of de-risk over time.
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Informed financial planning can help people maximise residence tax reliefs, as Chris Springett discusses in this TV show.
As you would expect most of our clients own and have one if not numerous properties. As such we get involved very regularly in dealing with property issues that can arise for them, tax on property, given the property market, is obviously a key figure for a lot of clients, and property prices rise and so the tax charge on them also arises. So it’s again making sure that reliefs are available and claimed as appropriate. I’ve also co-written a book on the main relief that’s available on capital gains tax, this main residence relief. So again I get involved quite a lot, even if the client isn’t directly mine, in assisting other members of the team and making sure the claims are maximised.
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Smith & Williamson has a private client tax services sector. In this TV show, Associate Director, Chris Springett discusses this work.
Private client focus means that we see a lot of cases in this area. Main residence relief is always dependent on the specific facts, specific circumstances and the availability of the claim is then, flows through from that. Because we’ve got such a large private client practice, we see a lot of different circumstances, looking at one at the minute involving a garage and how that might impact when the garage has been let out. Again, just different fact patterns and the experience that that gives us, puts us in a very strong position to review and to consider how the relief might
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Tax law is being updated and built upon all the time. In this TV show Smith & Williamson's Chris Springett discusses his role helping people with residential tax.
it’s part and parcel of the job. We have a good technical team here.
We have access to excellent material and that helps us access things such as the case law, a lot of recent case law in this area, from the tribunals looking at the facts of specific cases.
And that just widens the picture and adds a bit of colour as to what do you actually need to start evidencing is this your residence and if so is it your main residence for the relief.
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Tax Law has changed and this affects professional practices. Pamela Sayers from Smith & Williamson discusses some of these changes in this TV show:
I think this year we’ve seen some huge changes in the taxation of professional practices, and perhaps the first greatest change for perhaps sixteen years, primarily as a result of the issue of a partnership consultation document in May this year, and we expect to receive a final version of that around about the time of the autumn statement, which is on 4th December (2013).
There is an attack on service companies where many of our professional practices clients have a service company running alongside, and also the government have asked the office of tax to review ways of simplifying taxation of partnerships, so a lot of changes.
They’re looking to really tackle avoidance of tax, so it comes under the whole ambit of the new guard, the general anti-abuse rule that was effective from July 2013. So in the context of partnerships where there has perhaps been some perceived abuse following the Limited Liability Partnership Act in 2000, so they are looking at ways of preventing sort of the avoidance of tax within those firms.
And one of the main ones being that if you are a member of an LLP it can no longer just be assumed that you are self-employed for tax purposes. And depending on the outcome of the partnership consultation document, this could lead to significantly more revenue for HMRC by the collection of employers’ NI at 13.8%.
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Profitability can be the foremost consideration for partners and firms. In this TV show Pamela Sayers discusses why they also need to be aware of tax changes.
I think what partners and partnerships are saying, that we, the firms are slowly coming out of the recession, beginning to see perhaps a turnover and profits recovering to where they were perhaps four years ago, and now with this sort of attack on the taxation of partnerships this could add to increase costs and therefore still reduced profitability within the firms.
There has to be a general awareness by partners. Even though they might not be involved in the management and the running of the firm, they should have an awareness that there is an attack by HMRC on their own firm, which could affect their drawings, their allocation of profits, coupled with the increased sort of penalty and interest regime from HMRC; therefore, they need to be absolutely up to date with their own personal tax affairs as well to ensure there is no late filing of their returns.
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Record keeping should be done thoroughly from the start. In this TV show Smith & Willamson's Chris Springett discusses property ownership and case law.
Recent case law in the area it really does highlight just the importance of record keeping.
I mean for us in the profession it’s something that obviously we discuss with clients quite carefully to make sure that all the documents are there.
But recent case law where people haven’t been able to prove that they’re using the property as a residence, that alone, it’s their main residence and so entitled to the relief.
Yeah, the case law has been very much based on the fact that these individuals couldn’t produce the evidence.
So even things such as making sure that you’re retaining gas bills and electricity bills to more useful or even more interesting uses of maximising the relief such as making sure your post from the tax authority goes to that address.
So then they can’t claim that you weren’t living there if that’s where they’re writing to you at.
And it’s these sort of matters that, you know, if we can get talking to clients early when they perhaps get their second property or where they’re perhaps looking to expand their property ownership, that we can start from day one, rather than trying to prove something after the fact.
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Generally speaking, there are a lot of similarities. So when you’re structuring offshore income activities through endorsement and sponsorship, these things called image rights, then you may have a corporate structure that’s involved to manage that particular process and it does have some tax breaks to it as well.
And that’s pretty portable, that can go across many sports.
And indeed, frankly, most people with a high public profile, it doesn’t have to be a sports person, so somebody in entertainment industry, the music industry can employ these sort of tactics as well.
I think to be a totally successful sports person you need minimal distractions in your life apart from the thing you’re supposed to be doing and you’re quite good at.
So if you’re a footballer, tennis player, you need to be out there training, practicing, looking after your diet, eat well, drink well, hydration, all that sort of stuff. So to have this trusted advisor that can suddenly come along and say, “Leave the other bits just to me and I’ll take care of that engaging with yourself and your parents, your agents, or whoever it might be, just leave that stuff to us because that’s what we’re good at.
And we’ll leave you to do the stuff that you’re good at.” So it’s a partnership.
It’s an ongoing issue to keep sort of grappling with and keep up-to-date with. It’s … I mean tax is never straightforward usually, there’s various shades of grey all the time in a lot of things that we deal with.
And as I said earlier, tax changes from one year to the next. So it’s just keeping abreast of what the current issues are, but not losing sight of what’s gone on in the past.
Can I answer that by quoting an example that I’ve dealt with some of the motor GP motorcycle riders in the past.
And because they’re usually UK residents, they travel around all over the globe, but when they come to Donnington and more latterly, Silverstone, then if the tax man hasn't had receipt of tax returns and hasn’t had their taxation paid, then they’ll send the bailiff along to the track to try and take away some of the boys toys that the riders that might have.
And all of a sudden if you’re being distracted by some bailiff knocking on your trailer door saying,
“I’d like to take your laptop and your boys’ toys to pay at auction for the tax you haven’t personally settled”, then I’d suggest that perhaps the rider’s mind’s not quite going to be on what he should be doing.
And I’ve had the conversation with some of the team managers and it was a case of, “Yeah, we need to get this sorted so that he’s focused 110% on qualifying initially and then the race itself.”
So going wrong, I mean it can seriously impact if your mind’s not focused 110% on the race and qualifying then yeah, you’ve got some issues.
One of the areas where it’s so easy to go wrong is with VAT.
Classical musicians, like other entertainers are subject to a regime that’s called the Reverse Charge. So when the classical musician performs in another country, they on the face of it would have an obligation to file VAT returns in that country. Now, the Reverse Charge in fact imposes the obligation to file on the person who’s paying them.
But there are tricky things such as complete exemptions for some musicians in some countries, or reduced rates of VAT. One so often sees that going wrong.
And of course if it goes wrong it never seems to go in the favour of the performer. So that can save an awful lot of money.
And so often one finds that people don’t appreciate that the contract that the musician signs is saying, “You will get this amount of money and from that we’re going to make deductions, either the withholding tax or VAT.”
And that comes as a real surprise. It can mean the musician gets a lot less than they were anticipating. So looking at the contracts in the first place, but thereafter damage limitation with how much tax and how much VAT is deducted is how I can make a real difference.
Classical musicians are entertainers. And for tax purposes, entertainers like sports people are probably subject to the most vigorous international rules there are. If someone is based in the UK and only performs in the UK their affairs are relatively simple, they will just submit a UK tax return.
But that’s not the world with classical musicians, their career is very international, a singer, a conductor, an individual performer
And so will be moving around the world. And they will be remunerated in different countries around the world. And that imposes upon them potentially an obligation to file tax returns in all those countries.
Now, there is a regime in place called the Withholding Tax Regime which necessitates the person paying them, so the Opera House, the Concert Hall, to deduct some tax at source.
That in a way discharges their tax liability in the particular country they’ve performed. But suffering that tax in so many countries around the world can mean they overpay tax drastically. In the UK we have quite an enlightened tax regime whereby a musician can submit a claim for all their expenses and indeed their personal allowance that they’re entitled to upfront, and so suffer less tax deduction. But not all countries apply that.
So what I enjoy doing, what I think benefits those musicians most is the analysis of the international tax position and trying to prevent excessive recovery at source.
Then they don’t have to submit tax returns because it’s done on the right basis from the outset. It helps their cash flow and cuts down on compliance.
I enjoy working with classical musicians. I love classical music myself.
I understand where they have come from, the rigorous training regime they’ve been through, their day-to-day difficulties in finding work, in getting sufficient remuneration from that work.
And for them the tax consequences are an element which they’d rather not think about, it’s the last thing they want to concentrate on.
They’re much more concerned about getting their engagements and performing well, getting good reviews etc. So what I enjoy doing is getting that side of things, the accounting, the tax side straight for them.
They’re grateful when it’s sorted, but it’s a problem they’d rather not face until they really have to.
I think there’s a combination of things. The first thing you’ve got to do unfortunately is invest some time in getting to understand what FRS 102 is all about.
And it may be the easiest route is to talk to us and we’ll give you the overview.
You then need to do a more forensic examination to go into individual accounts account codes and understand precisely what the repercussions will be.
Then you’ve got to map out in quite some detail, exactly how you’re going to move from where you are at the moment to where you need to be in the future and then finally you’ll need a process that gives you assurance that you’ve picked everything up and that what you’ve done works.
The implementation of FRS 102 is probably the largest single change to an accounting framework for the majority of companies in a generation. Not only that, it will also impact on profitability of businesses, the way their accounts looks and because of the impacts on tax, it means that there will be proper real money effects as well.
The way that tax is accounted for in the UK, is that the tax payments often, under many situations follow the accounting rules. When the accounting rules change, therefore the amount of tax you have to pay also changes. This means that when you dot the new FRS 102, you will be paying more or possibly less tax, depending on the effect that it has on your profit and loss.
I think people have heard about it. They heard it’s coming, lots of people haven’t really understood the impact it’s going to have on their accounts. And lots of people don’t realise that it’s going to have that real money effect that we were talking about. It is a huge change and the devil is in the detail.
When you throw out all the current accounting standards and replace them with one, that is going to have a huge effect.
Well, it’s very fundamental because although a lot of the terminology is similar, in practice it’s a bit like learning a language and having completely new grammar.
There’s a whole series of series of changes which are quite fundamental, some of which could mean that the financial statements look completely different, profitable businesses suddenly look loss making and vice versa. But there’s a whole stream of things that previously you did not even have to recognise in the financial statement which you now will need to recognise, particularly financial instruments.Well primarily because UK GAAP is on its own. And the world is moving in an IFRS - International Financial Reporting Standards direction. And the thought process is, that if everybody in the whole world applies broadly a consistent accounting framework then there’ll be spinoff benefits, so that investors in Thailand can invest in England or any other country.
I think at the young age, I’ve certainly got some young footballers who perhaps think that they can take on the world, shut the lights out, all that sort of stuff, which perhaps we’re all guilty of at, you know, in our late teens, early twenties.
However, once perhaps they’ve had one investigation from HM Revenue & Customs and it hasn’t quite gone as they thought they would because of the arrangements they’ve got into without seeking proper advice upfront, then it’s a bit of a reality check and it’s, “Okay, I do need to talk to you.
I do recognise the value that you bring to the relationship we have.
And I’ve learnt my lesson, I won’t do it again.”For further information on the impact of UK tax laws for sports stars, watch more of Peter's videos. The key it to get proper advice as to which arrangements are appropriate and not to wait until potential difficulties with HM Revenue & Customs arise. There have been plenty of examples, in football in particular, where footballers as well as clubs have entered into tax arrangements that have been found to be inappropriate by HM Revenue & Customs. In the case of famous footballers, this can result in unnecessary embarrassment and expense later in their careers when an investigation has an unfavorable outcome.
Mark Webb: "If a company fails to look after its tax position correctly two things flow. If there’s tax due there will be interest charges, so the business has got to find that and fund it, and there can be penalties. And part of the issue with penalties, if they’re raised is that they are an actual cost for the business and they’re not tax deductible. There’s two main problems. The first is that if they’ve got to make payments of tax and they should have been made earlier, obviously there’ll be an interest cost, that’s how the Revenue treat late payments of tax. But also if there’s a penalty raised then a penalty situation is, that’s actual money from the business and it’s non-tax deductible in a lot of circumstances. So there’s almost a double hit for that type of business if that happens."