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!

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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.

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.

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