Is Tax Avoidance Legal? What you must know!

Is tax Avoidance Legal?

Many people are confused about tax mitigation and tax planning, believing it to be illegal following the high profile “naming and shaming” of Jimmy Carr. 

Jimmy Carr famously said, “Now I know why they are called tax returns because 99% of mine does”. Then he wondered why the Prime Minister singled him out.  He may be a great comedian but he is clearly lacking business sense.

Tax avoidance is legal and tax evasion is illegal however taxpayers often confuse the terminology and this confusion has been encouraged by
the HMRC who has introduced the word “immoral” to describe some tax
avoidance schemes. 

What Is tax Avoidance?

Tax avoidance is the legal utilisation of the tax legislation to favour one’s own advantage, to reduce the amount of tax payable.  It is about
organising your affairs in the most tax efficient way, but some may
regard it as the dodging of one’s duties to society.

Is it the right of every citizen to structure one’s affairs in a
manner allowed by law or to pay more tax than what is required out of a
sense of morality?  Attitudes vary from approval through neutrality to
outright hostility depending upon the steps taken in the avoidance
scheme, or the perceived unfairness of the tax being avoided.

How Can You Minimise Your Tax Bill?

Over the past thirty years tax avoidance schemes exploded and were
mostly the prerogative of the super rich.  Large firms like PCW and
KPMG employed expensive tax barristers to find loopholes and create
schemes they called tax mitigation schemes.  This all changed in 2002
when Blair put an ultimatum to firms like PCW threatening them with the
loss of lucrative Government contracts. Most of the tax practitioners
employed by these large firms were made redundant and set up their own
tax boutiques and now the HMRC have a much bigger problem on their
hands trying to police the plethora of different schemes that are now
available to the taxpayer and have adopted a new way of attacking them
by pricking taxpayer’s consciences using the word “immoral”. Currently
there are over 2400 schemes which are registered with the HMRC under
DOTAS (Declaration of Tax Avoidance Schemes) and each one has it’s own
individual number.  This multiplicity of schemes has put the UK
taxpayer in the driving seat because each one comes with QC approval
and each one has to be challenged individually by the HMRC. But the HMRC in the latest Budget is employing an additional 2,500 tax inspectors to investigate these schemes and so it is important that you seek “risk averse” advice.

What Areas Are High Risk In Tax Planning?

Recent case law has focused on schemes where tax deductions are claimed using leveraged finance or where there is the “circular movement” of
money or where self-canceling transactions are used or where there are a series of steps that have no obvious commercial purpose. There are many much safer schemes that avoid these pitfalls.

At Castle Heslop we work with a group of 300 qualified chartered accountants who have researched these schemes and have split them out into the good, the bad and the ugly and we are offering a complimentary “1 to 1” with an ex HMRC tax inspector who is well versed in many of these schemes and can tailor make the strategy for you according to your circumstances and risk profile.

For more information on our, London based, tax clinics please call Debbie Danahar debbie.danahar@castleheslop.com on 020 7831 8666 to book your no obligation place. 

Don’t pay more tax than you legally need to!

BEAT THE RECESSION BY STRESS PROOFING YOUR BUSINESS AND GET MORE LIFE!

by Paul J. Castle, Castle Heslop

In the last year I have witnessed more business failures and hardship than I have seen in my previous 21 years as a practising chartered management accountant.

I have seen very successful family businesses that have traded for generations collapse and I have seen business owners take “runners” and leave no forwarding address. Behind business failure there are often family breakdowns, divorce and sometimes destitution.

This doesn’t need to happen!

Why?

Statistically, 57% of businesses fail in the first year and 80% fail in the first five years and only 4% are left after 10 years. Can running a business be that difficult? Well the answer has to be “yes”. A business is meant to give MORE LIFE but often it becomes the “killing field of the spirit” and business owners become consumed by their business giving up their LIFE to their business.

How?

I think the main reason is that we go to school to be taught to become butchers, bakers and candlestick makers in other words employees. Nobody teaches us how to become a business owner and so we end up hating what we do because:

– we work for clients/customers that don’t appreciate us

– we have staff who are not fit for purpose

– we do most of the “technical work” ourselves

– and the “numbers” are something that we are not interested in because that is what the accountant does, right?

What?

From my experience business owners that run great businesses:

– systematically get rid of clients who cause them grief

– make their businesses “system dependent” not “people dependent”

– continually focus on improving their technology, their team and their systems employ someone to do what they do understand their “numbers”

Your Numbers?

Yes the best business owners don’t leave their numbers to chance!  For example if a business makes a profit of £50,000 is that a good or a bad result?

The answer is IT DEPENDS on your frame of reference.

Frame of Reference 1 – the past

If the business had earned £700,000 for the past three years then £50,000 would be bad. On the other hand if the business only earned profits of £300 in the past then £50,000 would be good

Frame of Reference 2 – your plans

If you planned to make £700,000 you would regard £50,000 as bad. But if you had only planned to make £300 then £50,000 is good

Frame of Reference 3 – your industry

If everyone else was making profits of £700,000 then £50,000 would be bad. Whereas if everyone was only earning profits of £300 then £50,000 would be good.

This means that at the very least you need:

1. Trend reports graphically showing how the performance of your business has varied over the last three to five years

2. Variance reports – showing how your performance compares with your forecasts and budgets

3. Benchmarking reports – showing how your performance compares with the rest of the industry

Benchmarking is critical because  it provides  the best comparisons and identifies their strengths and weaknesses  and an important early warning system.

So what is the answer? Use Key Success Drivers or Key Performance Indicators and show them all on a single page –  which as it name suggests distils all the key numbers into a single sheet.

The One Page Plan starts at the bottom of the page and works upwards starting with the business’s mission/vision/goals

These goals in turn determine the key areas in which the business will have to excel and become the Underlying Success Drivers

Next comes the Key Factors that directly drive the business’s sales costs and cashflow and are so important that they are each given a section of the page.

And finally there are the Key Results that have been generated by all the underlying drivers.

Conclusion:

The recession has made the “numbers” more important to a business owner than ever before. 

The Ten Laws for Business Success

 

Law of Purpose

What is the purpose of yours or any business enterprise? Many people think that the purpose of a business is simply to earn a profit, this is not the case. The real purpose of a business is to find and keep a customer. The majority of your time, over 50 percent of your efforts, and expenses should be focused on creating and keeping customers. This is the life blood of your business.

Law of Satisfaction

The key measure of long-term business success is customer satisfaction and retention. Your ability to satisfy customer’s needs to such a degree that they buy from you rather than from anyone else, that they buy again and again, and that they refer their colleagues and friends is the first law of growth and profitability.

Law of Value

An important law for wealth building and enterprise success is for you to be constantly adding value in some way. All wealth and success comes from adding value. All long-term growth and profitability comes from adding value. The Law of Value states that Every day, you must be looking for more ways to add more and more value to the buying experience.

Law of Loyalty

The Law of Loyalty states that the most important person in the business is the customer. You must focus on the customer at all times. Customers are difficult, disloyal, changeable, impatient, and demanding in fact no different than you. All the same, the customer must always be the central focus of everything you do in business. Continually ‘wow’ the customer!

Law of Giving

In every area of life, you will always be rewarded in proportion to the value you add to others, as they view it. The focus on customer contribution, is the central law for you to become an ever more valuable person, in every area.

Law of Challenge

The most important question you ask, to solve any dilemma, get past any obstacle, or achieve any imaginable business goal is “How?” The best people always ask the question “How?” and then act on the answers that come to them. There is an answer to any question if you first ask the question how.

Law of Kaizen

In a world of rapid change and continuing aggressive competition, you must practice the law of continuous improvement in every area of your business and personal life. This is the Japanese philosophy of making continuous, incremental improvements that keep a business always developing and growing.

Law of Sales Activity

The engine of your business is sales. A high focus on sales development and a continuous growth in sales is fundamental to success. Sales must be active and growing.

Law of Cash

The most important law in business is cash flow. Cash flow is critical to the basic survival. Of every business. You can have every activity working efficiently in your business, but if your cash flow is cut off for any reason, the business can die, sometimes overnight.

Law of Rapid Growth

Every business must have a rapid growth plan. Growth must be the heart of all your business activities. You should have a plan to grow 10 percent, 20 percent, or even 30 percent each year. Some companies grow 50 percent and 100 percent per year, and not by accident.

Success

You should have a growth plan for your business and to fill your sales pipeline by following and implementing the laws above. Follow these laws and your business

My Mountain Top Experience

Do you have self limiting beliefs that restrict you? Is it possible to overcome them?

In March 2011, Jan (my wife) and I went to Sydney Australia. It is a place we used to call home and we visit as frequently as we can.

We were greeted by Jan’s brother who took us back to his apartment that looks over Sydney Harbour bridge and is about 500 metres from the Opera House. He says “we are not staying”, he throws us a soft holdall and tells us to pack for three days. We then go back to the airport and get on his jet. We fly for an hour and arrive
at Surfer’s Paradise airport. As we taxi in, the blades of a helicopter start to spin. We are ferried from the plane to the helicopter and the next thing I know I am flying past the towers made famous in “I’m a celebrity get me out of here”. We fly for about five minutes and come to land on the back of my brother in law’s yacht. The crew come to the helicopter and help us to our cabins. I look at my watch and I have been in Australia for precisely three and a half hours! And I have ticked off four things from my ” bucket list” already! (the bucket list is a list if things you want to do before you die)

We freshen up, go on deck and Jeremy Clarkson walks on board. He is followed by James May and I then had a surreal experience of talking to James May for twenty minutes in a cabin on my own. It transpires he is a great guy, just like you imagine him to be (keeps making jokes about Jeremy Clarkson), has two firsts and is a concert pianist to boot!

Five and half hours have passed by and Jan and I need to go to bed as we are both jet lagged. We bid our farewells and crash out. I woke up at 3:30 am went on deck and continued one of my LinkedIn discussions. I started by saying “you’ll never guess what I have just done in the last 24 hours” and then preceded to tell them I was looking at the Versace Hotel (made famous in “I’m a celebrity”) it was hot and I could hear the sea water chuckling. This is when I had my “top of the mountain” experience as I could see all the glass ceilings that either I or others had put over my head throughout my life.

The questions were no longer “why haven’t I done this with my life”, “why am I such a failure compared with my brother in law” instead it was “how can I use the little time I have left of my life to make a difference”. A “burning desire” had been born and even if I achieve no more than I have already achieved I have done far more than I had expected and every day is a bonus. I started looking around for role models and Jamie Oliver came to mind he is passionate, wants to make a difference has integrity and a good value system. Winston Churchill had a burning desire to become Prime Minister and at an age when others retire 65, he took on the might of the Nazi empire and won. What self belief! You are never too old to change your mind set.

The moral of the story is stop feeling sorry for yourself and go out and make a difference. You might not win a popularity contest. I think it is fear of what other might think that holds people back. I don’t care anymore.

I have been liberated!

News Release


Paul J. Castle announces the launch of Castle Heslop Associates

Paul J. Castle and his team has launched a new brand with an expanded service offering expert accountancy and business consultancy to London and the South East.

Effective January 1st 2012 Castle Heslop Associates will operate under the leadership of senior managing partner Paul J. Castle and junior partner Charmaine Heslop-Williams.

“People want financial success but many people actually have a difficult relationship with money that holds them back and gets in the way. We not only handle everyday tax and accountancy affairs we show entrepreneurs how to get unstuck, to find the money that is already in their business, to gain control over their finances, and to become free so that they can focus on the areas of their business that actually thrill them.” Paul J. Castle, managing partner.

Paul is an experienced accountant, consultant and professional speaker.

This is not just about a new brand and a new website the change is a reflection of an innovation in service. Everyone at Castle Heslop works to deliver sensational accountancy services at affordable prices. More than that Castle Heslop provides innovative consultancy services to businesses looking to get to the next level. We have the team to deliver the results your business needs.

Where to go when the banks say “No!” and they will!

You want to turn your brilliant idea into wealth, so you need to build a business that you can sell. Right?

But you need investment and you understand how banks work and you know banks won’t give it to you. So what can you do? Here are 3 ways of funding a business without a bank!

The first step is to write a business plan.

It must place a value on what you want for the business when you sell it. You paint a picture of what the business will look like when you sell the picture to raise money. How many people it employs, how much profit per employee it makes, a definition of the perfect customer, the “pain” your product or service is addressing. You explore the routes to market and then devise your marketing strategy. You have a clear picture of the “perfect buyer” for your business. How large his/her business is, what he/she hopes to achieve buying your business, why he/she would buy your business etc.

Then you use your plan to raise money.

Where do you go?

Most people at this point waste their time by going to a bank. They have all their great ideas turned upside down, produce lots of pretty graphs and detailed forecasts only to be told at the end of a six month intensive process the bank likes your idea but is not prepared to fund your business unless you give them the keys to your house and car.

Alternatively you could consider releasing shares in your brand new shiny company in return for investment. Under the Enterprise Investment Scheme (EIS) an entrepreneur can release up to 30 per cent of the shares in order for the investor to receive a tax refund from the Government of 30 percent.

Supposing you release 30 shares at £5,000 each then you as the business owner will receive £150,000. The investor will get back from the Government £1,500 per share, so the cost of their share is only £3,500. In addition, provided they keep their investment in your company for over three years then any gain they make from the sale of the shares is free of CGT. (Under the new Government guidelines that govern Seed Enterprise Investment Schemes (SEIS) investors will get a 50 percent tax rebate from the 1st April
2012).

Who will invest? Family, friends, suppliers, customers, mentors, your professional advisers – anybody with money and believes in your idea!

If you don’t want to sell your business you may wish to consider “inward investment” from investors seeking UK passports.

If you are an investment banker living in Dubai, Bahrain or Beijing you may wish to relocate to the UK and if you do not have ancestral ties then the only way to get a UK passport is via an Entrepreneur’s visa. The overseas investor has to invest a minimum of £200,000 into your business and as a minimum he/she has to have a directorship, but it can be an unpaid appointment. The UK Government stipulates that the company must employ two new members of staff from the proceeds of the investment.

A third source of finance for the more mature company is restructuring.

I am currently working with a company that is owed £1.0 million but owes £1.2 million. Using the device of a Company Voluntary Arrangement (CVA), this company is turning it’s debts into an interest free loan of £600,000 payable over 5 years this translates into a monthly payment of £10,000 pm. So over the next 90 days the company will receive £1.0 million from it’s old debts but only be paying out £10,000 per month.

In three months time the bank account, which is in zero funds at the moment will be swollen with cash receipts.

As their adviser, I am then project managing a business turnaround that will introduce tight controls, improve profitability, find new routes to market and devise an appropriate succession programme.

Is there gold at the end of the rainbow?

If you know where to look there is money for almost any business with a solid business plan but it is not at the banks!

The secret of profitable pricing

Economists claim that prices are set by market, but they are wrong.

Prices are set by people running businesses, people like you. And they are among the most important decisions you will ever make. Get them right and you could be on the road to fame and fortune. But get them wrong and your business will be doomed to failure.

Why so many businesses get it wrong

To prove that setting your prices is one of the most important things you will ever do, let’s start by looking at an example.

Example

Last month WidgetCo made £500 profit selling 1,000 Widgets.

Last Month’s Profit and Loss Account

£

Sales (1000 Widgets at £10 each)                                  10,000

Deduct: cost of sales (1000 Widget at £7 each)            (7,000)

_____

Gross profit                                                                            3,000

Deduct: fixed overheads                                                      (2,500)

_____

Profit                                                                                       £500 profit                                                                                                               =====

WidgetCo has commissioned some market research which suggests that they have two options:

Option A –            They could increase their sales volume by 20 per cent if they reduced prices by 10 per cent to £9, or

Option B –            They could put up their prices by 10 per cent to £11, but then would lose 20 per cent of their sales volume.

When we ask them what WidgetCo should do, most entrepreneurs have no hesitation in saying something like: “Go for option A. It is always worth selling more, and anyway, WidgetCo gains more in volume than it loses in price, so it must be profitable”.

Are they right? Unfortunately not. And it’s precisely because so many people get this question wrong that their businesses get into very real trouble.

So let’s continue with our example by seeing what WidgetCo’s profits will be next month under each of the two options

Next Month’s Profit and Loss Account

Option A         Option B

Reduce             Increase

price                 price

£                      £

Sales (Option A: 1200 at £9 each)        10,800

(Option B: 800 at £11 each)                                       8,800

Deduct: cost of sales

(Option A: 1200 at £7 each)          (8,400)

(Option B: 800 at £7 each)                                       (5,600)

_____              _____

Gross profit                                                      2,400               3,200

Deduct: fixed overheads                              (2,500)             (2,500)

_____              _____

(Loss)/profit                                               £(100) loss       £700 profit

=====             =====

As you can see, under option A (ie the price cut) WidgetCo makes a loss and is heading for disaster. It is actually worse off than it was before the price cut. And it is much worse off than it would have been if it had increased its prices.

There is nothing very special or unusual about this example. It simply illustrates a fundamental point that is all too often overlooked: stimulating sales by cutting prices may boost your top line turnover, but it can just as easily devastate your bottom line profits.

Like many other companies, WidgetCo will not only be able to generate bigger profits by increasing its prices. But by reducing its sales it will also need less cash to finance debtors and stocks, and by eliminating customers at the cheaper end of the spectrum, it will probably reduce the amount of money it loses as bad debts.

As a result, when it increases it prices WidgetCo becomes a leaner, fitter business, providing a higher rate of return using less working capital. In contrast, when it cuts prices under Option A it becomes a lame duck. Choosing the right pricing strategy can be the difference between success and failure. Is your business an Option A or an Option B company?

There may, of course, be times when you can prove that lower prices will lead to higher profits. For example, in the case of WidgetCo, Option A’s 10 per cent price cut could have been more profitable than Option B’s 10 per cent price rise, but only if it lead to at least an 80 per cent increase in the number of Widgets sold! Ask yourself, is that likely?

All of this illustrates the general rule very nicely: if you can prove that the demand for your products is very sensitive to changes in price, then cutting your prices may increase your profits.

But never, never, never simply accept the naïve equation much loved by salesmen that:

Lower prices  = Higher sales = Higher profits.

The truth is that convenience, habit, concerns over quality, and the “better the devil you know than the one you don’t know” syndrome, all make many customers reluctant to switch allegiances for the sake of a few pence or per cent in price. If you don’t believe it, ask yourself a few questions. How often do you switch your allegiances from a favourite supermarket, garden centre, pub or restaurant just because a new one has opened up offering slightly lower prices? How often do you even realise that they do offer lower prices? How often are you prepared to pay just that little bit more for a product or service that you know, understand and are happy with?

So if you want simple equations, try these two instead:

Lower prices  = Lower profits (until proven otherwise)

Higher prices = Higher profits (until proven otherwise)

Pricing for maximum profit

Customers care about prices. But they are certainly not the only thing they care about – and your business and marketing strategy should mirror that fact.

In other words, you should never compete on price alone. Instead you should start by making sure that what you are offering exactly meets the needs of your customers. And then you should sell it to them on the basis of “best value” rather than “lowest price”.

What is “best value”? As we see it, “value” is the gap between the benefits a customer perceives he is getting and the price he perceives he is paying. So offering “best value” means offering a bigger gap than anyone else.

The three keys to offering best value are to make sure that:

1     Your products and services are exactly what your customers need and want – ie they offer the best and most appropriate combination of benefits

2     Your customers fully understand those benefits – ie because unless they understand that what you have to offer is special, they will assume it is average, and that means that you’ll only be able to charge an average price

3     Your prices are presented in the best possible light

Get these three things right and customers will happily pay you more than ever before.

13 ways to charge more without losing customers

1     Offer guarantees  Customers will part with their money more readily, and pay a higher price, if they know that they can get their money back if something goes wrong.

2     Provide sensational service   Study after study has shown that customers are willing to pay more if you give them great service. Research also suggests that companies providing great service grow twice as fast as those with bad service.

3     Make the price seem insignificant  Perhaps by breaking it up into little bits and expressing it in terms of pence per day or pounds per usage. This “trick” is one of the keys to the success of the National Lottery – ie they have been able to persuade almost half the country to spend £100 a year by breaking the annual costs down into seemingly insignificant £1 tickets.

4     Reduce discounts  In many industries discounts off list prices are the largest single group of costs – and yet they are usually given with little or no senior management involvement or authorisation. Considerable savings can be usually be made by tightening up discount authorisation procedures. Savings that lead directly to higher net prices and profits.

5     Use creative discounting   For example, replace flat rate discounts (eg “10% across the board”) with step discounts (eg “5% on the first £1000, 15% on sales above £1000”). Not only do they look more impressive and encourage people to buy more, but they often also work out cheaper.

6     Describe as investments  Describing your price as an ‘investment’ rather than a cost can often go a long way towards persuading customers to buy.

7     Less than expected  Repeatedly tell your customers that you may have to put up prices by, say, 20% – but then only actually increase them by less than 20%. (how far below 20% you pitch the eventual price rise should depend on your assessment of the true depth of their “horror” when you make the initial suggestion). By making the eventual price rise less painful than your customers were expecting, you can turn a potentially damaging increase into a triumphant success.

8     Soften the blow  Try to reduce the prices of some items in your range at the same time as increasing the prices of most other items so that you soften the bad news with some good news, and make a point of dwelling on the latter.

9        Explain why  Be prepared to explain why prices have risen, perhaps as a result of cost increases, and point out that, had it not been for improvements in your own productivity and efficiency, the increase would have been even higher. Better still, explain that the price has increased as a result of improvements to the quality of the product. Emphasise the enhanced features, improved packaging, increased reliability, enhanced customer support, faster and more convenient delivery and any other factors which make the product better and therefore worth paying more for.

10   Justify your prices  It is vital to have a strong justification and defence for your high prices prepared in advance. This is likely to include knowing the prices of your most expensive competition, demonstrating the savings and benefits from your product and demonstrating that your product is hugely superior and therefore slightly more expensive because.…

11   Use “Non‑price” increases  For example, consider charging extra for installation, delivery, insurance, handling, storage, urgent orders or rapid delivery. You could also try increasing your minimum order size and introducing a surcharge for any orders below that threshold, revising your discount structure, slimming down the specification of your product and stripping out any expensive features that are of only limited value to the customer, and charging interest on overdue accounts.

12   Change the package  If a customer tries to knock you down on price, don’t change the price, change the package. In other words, never simply crumble on price, Always trade a price reduction for some concession from the customer eg a larger order or cash up-front.

13   Trade for referrals  If all else fails, you can always trade a once off price cut for referrals. We have developed a brilliantly effective script to help businesses like yours do exactly that. So ask us and we’ll explain how it works.

Visit our website

10 things you don’t know about me

                                   

I attended a networking event in which an attendee was encouraged to provide intimate details of her life.  It gave me an idea for my first blog.  Ten things you don’t not know about me:-

  •  My father had a pie and mash shop in Camden Town which still trades as Castle’s Pie and Mash
  • I was born in North London and moved to Bromley when I was 10
  • My Mum and Dad recently celebrated their 60th wedding anniversary
  • I met my wife Jan when I was 15 and have been married for the past 32 years
  • I lived in Australia for two years
  • At the age of 24 I backpacked around the world with Jan
  •  In the picture above I am driving Inspector Morse’s car with my wife
  • I have two grown up children a married daughter who lives in central London and a son who currently works at Crest
  • I qualified as a chartered management accountant in 1986 and became the MD of The Crest Partnership in 2004
  • I made my maiden parachute jump unaided when I was 22

I guess you could say a very boring and conventional life and yet it has never felt that way.  I have been grateful for stability in a turbulent world and the knowledge of running a business which I learned from my Dad.  We have used family values to build a stable loyal workforce which has served our clients well.  Our philosophy has always been if we treat our staff like “kings and queens” they in turn will treat our clients like “kings and queens”.   On the whole this strategy has been successful which is why we have received 68 recomendations 38 of which I have made visible on my Linkedin profile for people to read.  I hope you take the time to read them.