Graham Doubtfire, Tax Partner discusses how technology, tax and sports science all have in common.
At this time of year there are many brown envelopes from HM Revenue & Customs (HMRC) hitting doormats across the country, often bringing with them a dreaded fear of opening them as the recipient knows they will include their 31 July tax bill. If you are one of those taxpayers, or if you pay a lot of tax under PAYE, then I’d suggest there is something in this article for you.
As I write, my football team (Liverpool FC – but please don’t hold that against me!) have just won the Champions League, which compared to the tears from my teenager twelve months ago when they lost the 2018 final was a huge relief. That twelve-month transformation was achieved though many incremental steps, using technology and data available to analyse where changes could be made, both to the eleven players who started on the pitch and also to the whole squad and network of supporting staff. It’s an approach that is mirrored in the tax planning approach we use for our business owners and private clients, for example by spending time getting to know a client, using the latest technology to analyse where they are now and where they want to be in the future and to make changes to improve their net income and assets retained through paying less tax.
Much like professional sports scientists use the data available to them to analyse a player’s contribution, technology allows us as tax advisers to do the same from a tax perspective. The huge advances in Cloud accounting have enabled both me and my client to see their up-to-date profits, what steps they have already taken, and to pro-actively propose changes to improve their tax position. Much like bringing on a substitute can affect the result in a game of football, proposing a change to a client’s approach to tax planning can produce lasting long-term benefits for them and their families.
Many football pundits have commented that Liverpool FC went through a period of stagnation before winning the Champions League. Their recent success has come about through implementing a number of changes over a long period of time to improve what was there before, which is an approach that can also be applied to tax planning. There may be different ‘players’ you can add to your financial ‘squad’: pensions are a great underused example, they’re not the most glamorous player in your tax team but if used properly, they can improve your performance substantially. For example, if I offered to give you £10k if you gave me £6k, most people would do that swap in an instant, but that’s exactly what HMRC give to Higher Rate taxpayers through Pension Tax Relief (which could be the subject of an entire article in itself) and yet most people don’t take advantage of that.
If I analysed the performance of Liverpool FC (or any first-rate sporting team) I suspect that I would find that they have relied on many people outside of the football club to help them achieve their aims. The same can be said of tax planning. A successful outcome often requires the talents of a number of professionals, including, but not limited to, the advice from a Tax Adviser, Accountant, Financial Adviser, Solicitor, Property / Land Agent and Banker. Which begs the question: is it time to bring in another member to your squad?
Remember, tax planning is a long-term strategy. Small incremental gains made over the long term can add up to make a significant difference to the wealth (and wellbeing) of you and your family, and the income that needs to be drawn from your business.
Like the changes sometimes made in the Premier League, there may be events that mean you need to reappraise your current strategy. For example, once you have got rid of the dead wood in your team (perhaps you have paid off your mortgage) there is an opportunity to add players to your squad (so use that additional income to undertake tax planning – swap £6k for £10k perhaps).
There may also be occasions when there is a need to move away from your normal tactics. Rather than the slick passing game, you may need to resort to a long ball tactic. As tax advisers we are constantly reviewing the impact of changes to legislation and case law which may alter the strategies that clients can adopt to mitigate their tax liabilities. This often comes down to the small incremental steps we can make with our clients as a result of getting to know them, their business, their family and making sure that the multitude of tax allowances that HMRC allow a client to use are being fully optimised, whilst making sure that they are able to sleep at night.
If you’re currently feeling the pain of the 31 July tax bill, maybe is it time to make incremental gains by reviewing where you are, or will you feel the same in twelve months’ time?