This initiative is called Making Tax Digital (MTD) and is part of the UK’s plan for a more digital future, but not all businesses are ready. If you’re one of them, here Damon Anderson, Director of Partner at Xero explains what you can do to avoid huge fines.

1. Check your eligibility

If your business makes more than £85k each year in taxable turnover, Making Tax Digital for VAT will apply to you from April 1. After this date you won’t be able to complete a paper-based VAT return, or complete your VAT return online at the HMRC VAT portal.

If you suspect your business will soon fall within the VAT threshold, keep records digitally using HMRC-compatible software to stay within the rules.

2. Act now

If you’re eligible, first you need to find an HMRC-approved software vendor. Xero has bridging software to make it even easier to make the switch and it’s MTD tools are now live, are free for Xero users and allow you to:

• Know when VAT returns are due
• Keep a history of the VAT returns that have been filed
• Calculate how much VAT is due
• Identify the method of payment
• Post VAT returns in real time

MTD for VAT will change to the way businesses file their tax, so there’s no escape. If you’re not sure where to turn, speak to an accountant who can advise you. To help small businesses and their advisers to comply, we’ve also created Dexter the digital tax adviser who is putting a friendly face to the legislation.

Keep in mind that some VAT-registered businesses have a deferred start date of October 2019. You can find more information on eligibility here.

3. Know your penalties

HMRC can charge a maximum penalty of £500 for failure to keep the required VAT records. But don’t panic: HMRC understands Making Tax Digital is a big step, and while penalties will apply to record keeping requirements, it is expected to be sympathetic where the trader has made reasonable efforts to comply.

There’s no doubt that businesses are dealing with a lot at the moment and HMRC has said they will not pursue record-keeping penalties when businesses are doing their best to comply with the law. However, eligible businesses should still make the effort to comply by 1st April.

4. Embrace it

Millions of businesses already do so much of their business online, from banking, paying bills to interacting with their customers or suppliers, and many already using accounting software and are seeing the huge benefits. By moving to digital tax, many of the existing paper-based processes will be put to bed, allowing businesses and their agents to devote more time and attention to growing and nurturing their business.

Making Tax Digital will make tax filing simpler and more accurate. The sooner you get used to digital tax filing the more time you’ll have to grow your business.

Kim Hau, Senior Proposition Manager for ONESOURCE Indirect Tax, Thomson Reuters explains what emerging technologies actually mean and how will they help today’s organisations to interact with tax regimes around the world.

Tax regimes, legislation, and government systems are evolving. The shift towards real-time interaction will not slow down anytime soon and this is impacting the tax departments of businesses around the world. As emerging trends change, the way government systems are deployed and the technology they use will impact upon tax legislations around the world. Multinational organisations need to keep pace and embrace technology while ensuring they still comply at the speed of business.

If businesses aren’t familiar with the acronyms RPA, AI or even heard the term Blockchain then they need to learn about them, fast. They are no longer phrases from a futuristic text but actual developments in today’s technology and businesses.

1. Robotic Process Automation (RPA) is, essentially, software robots that mimic human tasks across applications in a non-invasive way. If a process can be documented for someone else to follow especially if it’s a potentially error-prone process, high-risk or manually intensive, or done so frequently that it’s just not a good use of time, then it’s a good fit for RPA. Companies will find that some of their tax processes will fit this bill and free up resource to work on more important tasks.

2. Machine Learning and Artificial Intelligence (ML/AI) are two concepts often related and used interchangeably. Machine learning generally describes algorithms used by machines to teach themselves. Artificial Intelligence is used more broadly to describe the ways in which machines can perform tasks intelligently. Simply put it’s about taking a big population of data, learning patterns about that data, and then revising and training algorithms automatically to get better over time. Machine learning doesn’t have to be as sophisticated as self-driving cars. Think about how Amazon, Google, and Facebook use machine learning algorithms to improve recommendations, suggestions, and news feeds. Some of those capabilities are being applied to finance and tax today, particularly in areas where accurately categorising, grouping, or classifying large volumes of data frequently is part of the process. Ingesting data from a dozen different ERP systems and getting it lined up for tax compliance and reporting is an obvious place where it can make a difference to business.

3. Blockchain has been integrating into the business world far sooner than many predicted and as such there is a growing belief that it will radically change the way in which value is exchanged and how items are tracked and traded. Banking, insurance, voting, land registries, real estate, and stock trading are all examples of areas and industries where Blockchain is likely to impact.

While much of the publicity around Bitcoin is related to hackers and the cryptocurrency bubble, much of the real Blockchain activity seen so far is centered on the distributed ledger itself and the ways in which it’s going to disrupt middle men, or intermediaries, by connecting the transacting parties directly. From a positive point of view it is believed that Blockchain will speed up transactions and reduce cost while reducing fraud and increasing transparency.

At its core, Blockchain’s a distributed ledger that records transactions — and many of those transactions will be taxable events which is why it matters to tax. The details around Blockchain are complicated but suffice to say there’s a reason so many governments and industries are actively experimenting with Blockchain projects.

From a tax point of view, it’s likely that Blockchain will impact the tax department via governments and tax authorities pursuing digital strategies around e-government and that technology used by tax to stay compliant will have to adapt to this evolution.

With these developments in mind multinational companies should focus on incorporating technology trends that will assist in managing tax requirements rather than just putting out fires when the next major tax initiative comes along.

HMRC’s Making Tax Digital (MTD) is the perfect opportunity for businesses to be proactive and developing processes that are nimble enough to adjust to change. Tax should focus on what it can control, like the preparedness of systems and the scalability of processes, in order to adapt to the next change. Today, keeping pace with specific rate changes and regulatory modifications is largely a function of tax technology platforms. With HMRC’s October deadline there’s never been a more obvious time to implement solutions that enable and empower tax departments.

While there are some risks associated with e-filing, there are benefits as well when completed correctly. E-filing can save you time, money, and reduce the number of errors that used to accompany traditional paper filing methods. You may even be able to get your refund sooner. The risks associated with e-filing are easily avoidable and should be carefully considered this tax season. Here are 5 tips for e-filing your taxes safely.

1. It’s important to know that tax scams and fraud can affect anyone! Every year people are shocked to find that their taxes have already been filed by someone else under their name in order to receive their tax return. Be aware of phishing emails that claim to be sent from an IRS representative or a tax service informing you that your account has been locked and needs your login information. These emails usually carry a malicious download or dangerous link that infects your computer with malware or spyware. The most important thing to know is that the IRS will never contact you via email. They will also never show up unannounced at your doorstep. If a real claim is being filed against you, you will receive a warning letter in the mail first. If you happen to receive an email from a tax service that appears to be fraudulent, it is wise to call and confirm their inquiry.
2. Having trusted antivirus software installed on all your devices will give you the best protection while filing your taxes. It will ensure that no dangerous spyware is able to record your information during the process. Sometimes, scammers will obtain various pieces of information that they need from different devices of yours. Because of this, it is smart to protect all of them with the appropriate software.
3. Make sure you are using a secured wireless network when accessing important information of any kind. Opening any tax-related information on an unsecured network, like those found in public places, may be putting your information at risk of being compromised. Make sure you are only divulging personal information to encrypted sites. These sites will display “https” in the URL, not just “http”. If a financial transaction is being made on the site, there will also be a padlock icon at the beginning of the URL that will verify it is protected. Both of these are symbols that guarantee the site will be securing your information from any third party looking to intercept it. You should also verify the spelling of the website. For example, a popular tax service is TurboTax.com, whereas a hacker may set up a site seemingly similar but the URL will be TurboTaxx.com. You may be surprised that this simple switch could be enough to trick an unsuspecting tax filer.
4. A common mistake made by many is ignoring software updates as they pop up. It’s important to stay up to date with the latest version of your operating system and applications. This keeps you best protected from potential threats as many updates are made after a security breach has been detected. Also, periodically updating your login credentials is a great way to keep scammers away. This is just as important as making sure that your passwords are different from account to account at the initial stages of creating the account. You want to make sure that they are strong, including letters, numbers and special characters.
5. After filing your taxes on a specific device, back up all tax-related documents to an external hard drive and delete the information from this device. This will act as another added layer of protection in case that device should become compromised in the future. This is always a good practice for all of your internet-connected devices that carry important information.

These are some of the ways you can help steer clear of identity theft through tax fraud prevention. Unfortunately, identity theft isn’t always avoidable, but identity theft protection can help you recover from damages. Tax fraud can drastically affect the financial wellbeing that you have worked so hard to preserve. For those interested in building upon their financial health, it’s important to note that this can go beyond just your credit score and investments. It may be time to consider investing in your cybersecurity this tax season.

Senators Elizabeth Warren and Bernie Sanders and freshman Representative Alexandria Ocasio-Cortez, have all proposed major tax increases on wealthy Americans. History shows that the United States has not only survived, but thrived when the rich had higher marginal tax rates. But how much would increasing rates actually raise, and what could it do to the economy? The real reason to tax might be to decrease inequality itself.

Finance Monthly speaks with Dan Peters, the Managing Partner of Valentiam Group – a firm focused on transfer pricing and valuation that spun out of Economics Partners in 2018. Dan has practiced transfer pricing and tax valuation for over 25 years, and previously led global practices at KPMG and Duff & Phelps.
Valentiam currently has 7 Partners and about 20 professionals in the company’s offices in New York, Dallas, Salt Lake City, Los Angeles, Seattle and West Palm Beach.

The firm serves clients from the middle-market to the largest and most complex multinational firms and focuses exclusively on transfer pricing and valuation matters, which are primarily for tax purposes – such as property tax valuation, valuation of legal entities within a related-party group structure, or valuing specific intangible assets.

All of the firm’s Partners are leaders in their specialties and Legal Media Group lists each of Valentiam’s transfer pricing Partners as ‘Leading US Transfer Pricing Advisers’.

Below, Dan tells us more about the work they do and the things that set them apart from other tax advisories.

 Tell us about the beginnings of Valentiam Group? What inspired the founding of the company?

Valentiam Group’s origins date back to when I started my own practice in 2009. We ultimately entered into a collaboration with Economics Partners in 2013. EP later sought and found a transaction to be acquired by Ryan and Company, which was finalised last year.

Everyone from my original team and several of the other Partners that have been with us for many years weren’t interested in that transaction, so we decided to establish an independent firm focusing on our specialties. So we tried to create Valentiam as a perfect platform for 2019, rather than 1919.

So we tried to create Valentiam as a perfect platform for 2019, rather than 1919.

What was the process of creating the new brand like? How did your clients react to the new brand?

Creating Valentiam in 2018 was a lot different than starting my own firm a decade ago. We used ‘crowdsourcing’ to help us choose a name, design a logo, and develop our website. It was astonishing to see how radically different and better that process can be when you use technology.

Our clients have been incredibly loyal to us. My experience in our industry is that clients are primarily focused on the quality of the adviser and the work product that they produce. None of that changed with us when we rebranded as Valentiam and the transition has been as smooth as we could have hoped it will be. In fact, our clients are as excited as we are about the new platform and what it means for them.

What are the company’s overall principles, beliefs and mission?

Our mantra is that the firm’s purpose is to support our advisers and clients. There are three actors in our business – the advisers, the firm, and the clients. We fundamentally believe that way too much of the value in other platforms is attributed to the firm.

The typical firm ends up bloated – with Senior Partners acting as administrators and the overhead part of the firm unnecessarily consuming resources that should be invested in serving clients in a better way or paid to the advisers. All this drives up costs and thus, prices for clients, and results in the actual advisers earning only a small fraction of what is billed to the clients. This is why our core principle is that our primary focus should be on serving clients and developing our team of advisers.

Our other mission is to be an independent provider of transfer pricing and valuation services, as we understand the synergies and complexities between them and we see the value in being independent.

Combined, these differentiators allow us to reward and grow our top performers’ careers, providing our clients with better advice and fairer billing rates.

What makes Valentiam Group a different platform for both clients and professionals that practice transfer pricing and valuation?

Our platform is optimal for both our clients and our professionals for three reasons. First, we are extremely low overhead. We have no Partners who are administrators – actually we don’t have administrators at all. I spend the great majority of my time advising clients. We either outsource administrative functions or leverage technology to perform the routine functions of a professional services firm.

Second, all of our professionals share in the success of the firm as our compensation model has more risk and reward than what the industry typically offers. That helps align the incentives of all of our professionals to be focused on serving the client.

Third, we have a much flatter structure than our competition – it’s really an ‘apprentice model’, where our young professionals work directly with Directors and Partners. Our staff/Partners ratio is roughly 1.5 to 1 - compared to leverage ratios of about 8 to 1 in big accounting firms.

Combined, these differentiators allow us to reward and grow our top performers’ careers, providing our clients with better advice and fairer billing rates. It also allows our Partners and younger professionals to work closely together in the trenches on client matters, which is satisfying for both sides.

How do you best help companies set their transfer prices and manage their transfer pricing risks?

Setting transfer prices is by definition subjective, and we sometimes say that we are only limited by our imagination in thinking of how third parties would transact with one another.

But in today’s world, the transfer pricing risks that our clients face – which obviously include tax risk, but also reputational risks and even the risk of disruptions to operations – as a result of inappropriate transfer pricing are so great that we have to be extremely careful to ensure that the advice we give to our clients is absolutely correct and defensible.

We can’t be certain that what was acceptable in the past will be so in the future. Our clients need to be sure that the economics of what we do are sensible. The best way we’ve found to do that is to ask: “Would both parties agree to this price or value?”. We make sure that our analysis holds up for both the buyer and the seller.

What makes your property tax advisory business unique?

Carl Hoemke, who leads that practice for us, has been an innovator in the property tax space throughout his career and has developed property tax compliance software that is market-leading. He focuses on valuing complex assets for the largest companies who have the highest property assessments.
Carl is planning to make us the key player in the complex property tax valuation area - we’re going to do some exciting things in the next 12 months!

Setting transfer prices is by definition subjective, and we sometimes say that we are only limited by our imagination in thinking of how third parties would transact with one another.

Why do you focus on valuation for tax purposes?

Tax Valuations require the practitioner to understand tax. We see tax valuation studies that are fundamentally wrong because the adviser didn’t understand the purpose of the transaction, or the risk profile of the entity within a larger group. Since we focus exclusively on tax matters, we believe we do this work better than other firms.

What are the synergies between transfer pricing and tax valuation?

It starts with the skillsets of the advisers. The training, databases, methodologies used – there are more similarities than differences in the skills required to perform a valuation study and a transfer pricing study.

It then extends to the issues we face – one can’t be a complete transfer pricing adviser without being able to value assets, and you can’t really do solid tax valuation studies without being expert in transfer pricing.

We believe that our approach to addressing these two services in a single practice gives us a competitive advantage in attracting young professionals to our practice and in providing our tax clients with the most expert service possible.

There’s nothing like waking early on Christmas morning and rushing downstairs to open your online tax return...

It may not be your idea of a fun Christmas tradition, but if you use the extra time off over the festive period to get your tax return sorted, you can see in the New Year with a clear conscience and a paid bill – instead of the guilt pangs and nagging worry that hit the 5 million people who are still likely to be putting it off.

You don’t have to devote Christmas Day to it; there are endless less exciting days over the festive period, when a tax return may actually help break the monotony. You have to ask yourself whether you usually have a particularly memorable 28^th December – and whether you’ll really be missing out if you spend a few hours with your tax return instead.

5 tricks to make your tax return simpler

1. Check you can get into the system in advance

Before you do anything else, sign into the Government Gateway. If you’re doing it online for the first time, you’ll need to sign up, and wait up to seven days for your code to arrive. If you’ve used the system before, sign in now and check you haven’t forgotten your log in details.

2. Spend some time on your preparations first

If you’re not great at filing, don’t try to do everything at once: day one should be about tracking down paperwork, and ordering copies of anything you can’t find.

This includes certificates for savings accounts or dividends, pension statements, proof of any employment income and a P11d. If you work for yourself, you’ll want bank statement, sales invoices, receipts for expenses and paying-in books. If you received income from letting property, you need letting agreements, and bills for expenses and management fees.

3. Make sure you’re claiming for everything you can

Check that you’re claiming for all the reliefs and exemptions available to you. This includes pension tax relief and gift aid for higher rate taxpayers. Government figures show that only 22% of higher rate taxpayers claim the additional relief on gift aid they’re entitled to – but it can really add up.

If it seems like a lot of bother to claim for something, check if there’s a simpler option. If, for example, you are self-employed and work from home, you can do the calculations and count some of your household bills as expenses. Alternatively you can just use the flat rate of £10 a month for 25-50 hours a month, £18 for 51-100 hours, and £26 for 101 hours or more.

4. If in doubt, get help

There’s loads of great information on the HMRC website, which has really improved in recent years. You can find the answer to almost any question that’s likely to crop up. There are also plenty of guides and videos offering tips to save you time and money.

If you can’t find what you’re looking for, then other than on Christmas Day, Boxing Day and New Year’s Day, you can phone the self-assessment helpline. Unfortunately, the closer you get to the 31 January deadline, the busier the helplines get, so you could spend some time on hold. However, if you stick with it, you can get the guidance you need.

5. If you’re going to need an accountant, get a move on

If you already know that nothing will persuade you to touch your tax return over Christmas, be honest with yourself about whether you’re going to need an accountant to sort it for you, and contact them before the break. Don’t leave it until January, when accountants are snowed under, and many won’t have the time to take new clients on. Professional help will typically cost between £100 and £300, so you’ll need to decide if it’s worth the expense.

With the enforcement of IFRS 16 ahead of us, as of January 2019, Nick Turner, Country Manager UK & Ireland at Anaplan, discusses with Finance Monthly the potential opportunities therein.

There’s nothing quite like ringing in the new year. Along with the promises of fresh starts and renewed perspectives, it’s that time of the year that we can set—and dare not forget—lofty goals to achieve in the 365-days ahead.

Effective 1st January 2019, IFRS 16 marks one of the first significant changes to lease accounting standards in 40 years.

The new year represents more than an annual reset button and it ushers in more than new beginnings. It also brings deadlines. This rings especially true for corporate finance teams this year, as the IFRS 16 deadline looms.

Effective 1st January 2019, IFRS 16 marks one of the first significant changes to lease accounting standards in 40 years. If they haven’t already made the adjustments, businesses now have a very limited time to ensure that future accounting processes will meet compliance.

Unfortunately, for companies addressing these changes through spreadsheets and aging technology, time might be ticking even faster because these manual tools can turn such operations into a lengthy, burdensome, and complex undertaking.

What IFRS 16 means for businesses

Beginning on the first day of the year, new standard IFRS 16 will be implemented by the Financial Accounting Standards Board (FASB) and the International Accounting Standard Board (IASB). This standard will impact company balance sheets and how many businesses that rent or lease will operate in the future.

The changes are designed to make it easier for outsiders to compare the performance of different companies.

The new IFRS 16 requirements will eliminate nearly all off-balance-sheet accounting for lessees. Further, it will impact commonly used metrics such as EBITDA and gearing ratios. Why? The changes are designed to make it easier for outsiders to compare the performance of different companies.

Although the changes in performance metrics will make it easier to compare and contrast, they may also affect credit ratings, borrowing costs, and even stakeholders’ perception of a company. This makes it vital that companies understand and prepare for the effects of this new leasing standard.

Technology that turns arduous into effortless

Even though time is winding down on the IFRS 16 deadline, businesses still have an opportunity to implement a solution that can quickly fulfill its requirements—and many are turning to cloud-based, Connected Planning solutions.

Adhering to the new standard with spreadsheets and legacy tools quickly turns burdensome; in contrast, Connected Planning technology supports rapid implementation, easily interfaces with existing enterprise resource planning (ERP) databases, and calculates large volumes of data in real time. Connected Planning gives decision makers instant insight into how to optimise their company’s lease management strategy in context of the new regulations.

The deadline for IFRS 16 approaches and businesses have to determine the best way to comply with the new leasing standard soon. Connected Planning technology offers a way to tackle the complexity of the standard with ease.

Almost 9 in 10 finance companies could be eligible for Research and Development (R&D) tax relief on new products and services but only 41% of them have ever claimed, Catax has revealed.

Businesses in the finance sector are missing out on millions of pounds even though 89% of them have developed new products or business process in the last two years, spending an average of £351,594 on these innovations, research shows.

This means these companies are in line for valuable R&D tax relief that the government provides to encourage innovation.

But despite three quarters (77%) of finance firms being aware of R&D tax relief, less than half report ever claiming it, the Catax study shows. This is either because they don’t think they qualify or they incorrectly believe that it is expensive and time consuming and ‘would not know where to start’.

A quarter of finance businesses do not realise they can claim R&D tax relief if they develop a new product or service while more than a third of the business managers said they ‘did not know’ if their firm had ever made a claim, according to the Censuswide survey.

The national average for the number of firms that have ever claimed is 36.8%, which puts finance companies ahead of many other sectors despite the fact they are missing out on a huge number of claims.

Executives believed the average value of an R&D tax relief claim in the first year to be just £27,254 when the true figure is almost double that, at £49,000 for firms in all sectors nationwide. R&D doesn’t even have to have been successful to qualify and claims can be backdated at least two years.

Catax CEO, Mark Tighe, commented: “The finance sector is missing out on tens of millions of pounds in R&D tax relief each year – despite claiming to be experts in finance. Many companies still think that R&D is all about science laboratories and test tubes and simply do not relate it to their own innovations.

“We need to get away from this way of thinking. The vast majority of finance companies invest hundreds of thousands each year on developing new products and services which would make them eligible and yet less than half are actually claiming.

“Finance executives looking to improve margins and efficiencies must take a proper look at their R&D tax relief entitlements. Most good R&D tax relief specialists will work on a commission basis so concerns over costs should be dismissed.

“New products and services do not even have to have been successful to quality for R&D tax relief because it is all about encouraging innovation.”

R&D tax credits can help to reduce a limited company’s corporation tax bill or be claimed as a cash sum reimbursement from the HMRC. R&D tax relief only applies to those businesses that are liable for corporation tax, including businesses making a loss.

(Source: Catax)

Following the autumn budget announcement yetrerday, Finance Monthly has heard the initial reactions from experts at top accountancy firm Crowe UK. From Corporate Finance to Small Businesses and IR35, there are tax implications for many…

Matteo Timpani, Corporate Finance partner:

Entrepreneur’s Relief (ER) remains an attractive, and essential, tax incentive that drives UK innovation and entrepreneurship. That said, it is disappointing to see amendments made to the relief which may impact the ability of certain individuals to benefit from it in the short term. There will be a number of mergers and acquisitions (M&A) transactions currently in progress which will likely be put on hold to ensure participants are able to qualify for Entrepreneur’s Relief in due course.

This change only emphasises the importance of business owners taking specialist advice, and being prepared, long in advance of the time they are considering succession and exiting their business. We await the specific details of when this change will be implemented but anyone who is considering selling their business in the next 12 months, and is unsure if they, their management team and/or other shareholders will qualify for ER, should seek advice now and consider immediately the implications of this change.

Tom Elliott, Head of Private Clients:

It is not surprising to see The Chancellor reaffirm the government's commitment to Entrepreneurs' Relief, albeit with tighter conditions (qualifying period doubled to two years). However, it might have been more effective if the minimum shareholding requirement was abolished altogether – this would incentivise all employee shareholders and not just the C-suite.

The changes to Capital Gains Tax (CGT) reliefs for the sale of main residences look like an attempt at modernisation. Lettings relief has changed so as not to apply to the AirBnB model - relief applies only for shared occupation. The shortening of the ‘period of absence’ from 18 to nine months for Principal Private Residence relief will need to be monitored closely, as any slowdown in the housing market (where it may take more than nine months to sell) may result in an overall reversal.

Rebecca Durrant, Private Clients partner:

It was pleasing to see the personal allowance and higher rate tax brackets raised a year early, but it will be interesting to see whether the Chancellor treats this as a ceiling. Rates could now be frozen for following years, which would turn the tax cut into a hike very quickly. In the mid to long-term, this may not protect the inflationary impact that a no deal Brexit may have.

Phil Smithyes, Managing Director, Crowe Financial Planning

The move to raise the personal tax allowance to £12,500 and raise the higher rate tax threshold to £50,000 from 6 April next year is a move that should be welcomed by most pensioners, making their pension savings go that much further.

Under the pensions ‘freedom and flexibility’ rules, individuals could take up to £16,666 each tax year from their pension fund before they begin paying income tax. This is achieved through a combination of 25% tax-free cash (£4,166) and the new £12,500 personal tax allowance. Careful planning will help pensioners money go that further and minimise their liabilities to tax in retirement.

Susan Ball, Head of Employers Advisory Services:

In April 2017, the government reformed the IR35 rules for engagements in the public sector and early indications are that this has resulted in an increase in compliance within the public sector. This will now be replicated for the private sector, but a reasonable implementation period is vital so the effective date of 2020, and the fact the rules will only be extended to large and medium sized private businesses, are both sensible steps. The Chancellor clearly took on board the feedback from the consultation process over the summer. Engagers should start planning now based on the experience of the public sector in order to have an effective procedure in place for the start date of April 2020.

Laurence Field, Corporate Tax partner:

The Chancellor's statement was made against a background of political uncertainty, mixed economic signals and an increasingly protectionist agenda from many of our trading partners. Tax is one of the most politically high profile things a government can do, and this was one of the most political budgets a Chancellor has had to deliver for decades.

The UK doesn't raise enough tax to keep providing public services at the current level, especially given the aging demographic. A tax system that raises more tax will need to be more efficient, perceived to be more fair and find new 'pockets' of wealth or bad behaviour that can be taxed without political risk.

An autumn budget also has the advantage of kicking the can down the road given that the majority of changes will only kick in from April next year if not later. However, this is the first glimpse we have of the type of post Brexit fiscal landscape the government wants to create.

The announcement of a potential digital services tax (DST) makes sense. Global companies need to be seen to be paying their 'fair share'. They don't have votes, so are an easy target. Playing tough with the digital services tax is politically attractive even if this causes conflicts with other tax jurisdictions. It is unlikely such measures will find much opposition in Parliament given the ground has been well prepared. How our trading partners (and particularly the US) react will be the real challenge. Retaliatory measures will not help the British economy. Therefore by outlining a timetable to introduce measures in 2020 he has provided cover for trying to get international agreement. Talking tough, but deferring action makes other parts of the Budget more palatable.

Elsewhere, plastics have found themselves in the environmental firing line and it was an easy, and politically popular decision, to try and find ways of taxing its use. Requiring more usage of recycled plastics is a way of stimulating that industry while being seen to be tough on pollution. The challenge with all sin taxes is that if they are too effective, the source of revenue will dry up. The damage that plastics can do is all too obvious, the Chancellor is no doubt sincere in his desire to reduce our use, but would no doubt be grateful if industry doesn't take action too quickly.

Finance Monthly delves into the potential impact of an ‘Amazon tax’ and the alternative solutions that can help the struggling British bricks-and-mortar retailers.  

With a series of high-profile collapses and CVAs, including the recent turbulences that House of Fraser is faced with, Britain has seen its fair share of high-street horror stories in 2018. Stores like Toys R Us UK, Maplin and Mothercare are all facing extinction, whilst online retailers such as Amazon are stronger than ever, cashing in $2.5bn per quarter and paying less and less corporation tax with Amazon’s UK tax bill falling about 40% in 2017, and it paying just £4.6 million ($5.6 million). In times like these, the UK retail industry has naturally called on the Government to review its outdated corporation tax system and take action to help the struggling high street. Chancellor Philip Hammond has in turn announced that he is considering a special retail tax on online business, dubbed the ‘Amazon tax’, in order to establish a “level-playing field” for online retailers and high-street shops. But is a new tax really the solution that will balance the market out? Will it be the solution that traditional trade needs? 

Is Amazon’s Existence the Biggest Problem?

Consumer habits are changing rapidly with the continued growth of online shopping, but the truth is that the extraordinary success of web traders is only one of the aspects to consider when looking for the reasons behind the decline in traditional retail. And even though a hike in the tax that Amazon pays may seem like a necessary and logical step, it will be nothing more than a minor distraction from the bigger issue and something that will mainly benefit the Treasury.

It is worth noting that the UK store chains that have collapsed recently did so due to not having the right products at the right prices, not staying up-to-date with consumer trends, not targeting the right customers or not investing enough in their businesses. Surely, online-only merchants have transformed the trade landscape and the UK tax system needs to be adjusted in order to reflect the current retail dynamics – especially when Amazon’s tax bill for 2017 was only £4.6 million on £2 billion of sales. But is the fact that the web giant is paying such a low amount of tax the reason for the collapse of a number of bricks-and-mortar retailers? I think not.

Moreover, as Bloomberg points out, an internet shopping tax could end up backfiring and hurting the bricks-and-mortar retailers it is intended to help. According to the British Retail Consortium, in 2017, more than 17% of sales were made online. Over half of them were with businesses that also have shops. Thus, retailers such as Next Plc, which has both online and offline businesses, could face “a double tax whammy”.

The Real Problem

Driving restrictions around city centres, increased parking charges by local councils and state demands such as minimum wage legislation and Sunday trading laws have had a negative impact on bricks-and-mortar retail. Then there is the main challenge in the face of sky-high business rates which have been the bane of countless entrepreneurs trying to establish a high-street presence. In an article for The Telegraph, Ruth Davidson wrote that the UK retail sector, which makes up 5% of the country’s economy, is paying “25% of all business rates, over £7 billion per year”. One might argue that in order to help bricks-and-mortar retailers and keep British town centres bustling with thriving commerce, politicians could perhaps work towards reducing the financial burden they’re faced with, before punishing web giants for offering an easy and convenient way to shop in this digital era. In order to keep up with their online competitors, traditional stores need to focus on technology innovation and redesigning the experience that the modern-day customer expects. But most importantly, they need the budget to do so and a reduction in business rates for high-street stores could be one way to provide them with some extra cash to invest in technology.

Another thing to consider, as Andrea Felsted suggests, could be raising business rates for offices and warehouses and cutting them for shops. That would “address the disparity between shopfront-heavy retailers and online-only businesses, which rely on distribution centres to serve their customers”.

A potential Amazon tax for all web-only retailers will not help bricks-and-mortar retail to innovate. Surely, it will level the playing field, but apart from that, all we can expect will be a slowdown in online shopping without doing anything to solve the current problems that traditional traders are struggling with.

Tajudeen Akande is Senior Partner at PKF Nigeria (PKF Professional Services) and a member of PKF International - a global network of legally independent accounting/business advisory firms bound together by a shared commitment to quality, integrity and the creation of clarity in a complex regulatory environment. Here, Mr. Akande tells us about the transformation of the tax system in Nigeria, as well as the challenges of providing tax advice in the African country.

What would you say are the challenges of providing effective accounting and tax advice in Nigeria?

The main challenges of providing effective accounting and tax services in Nigeria include:

• The Economic situation of the country, which has constrained people’s ability to pay for professional service, having to, in most cases, resort to use of quacks and unqualified people.
• Regulators – Professional accountants in Nigeria are regulated by the Financial Reporting Council of Nigeria (FRCN) as well as two professional accountancy organisations operating in the jurisdiction—the Association of National Accountants of Nigeria (ANAN) and the Institute of Chartered Accountants of Nigeria (ICAN), and of course there is the Chartered Institute of Taxation. The multiplicity of bodies saddled with the responsibility of regulating the practice of accounting and taxation is a challenge to practitioners in terms of proper monitoring and discipline of erring members.
• Challenges in the area of tax practice include:
• Lack of clarity on taxation powers of each level of government (There are three tiers of Government in Nigeria);
• Insufficient information available to taxpayers on tax compliance requirements thus creating uncertainty and non-compliance;
• Use of aggressive and unorthodox methods for tax collection by tax authorities;
• Failure by tax authorities to honour refund obligations to taxpayers.

How has the tax system in Nigeria transformed throughout the years?

Nigeria’s tax system has evolved a lot over the years - from the pre-colonial era to the latest tax reform codified into a National Tax Policy.

In the traditional Nigerian society, the formalisation of taxation was practically non-existent. Citizens were only exposed to a variety of levies as dictated by paramount rulers and different traditional rulers created their different forms of taxes and levies.

To achieve conformity and uniformity in taxation, Raisman Commission was set up in 1958 by the colonial Government, which advised that basic income tax principles should be introduced and standardised across the country, which was accepted by the Government. Thus, direct taxation was incorporated into the constitution of the Federal Republic of Nigeria, after which the Companies Income Tax Act and Income Management Act of 1961 were established. This marked the foundation of Nigeria’s modern tax laws.

As a result of the increasing complexities in commercial transactions and glaring issues relating to practical interpretations of the laws, the Acts were repealed and reenacted giving rise to Companies Income tax Act CAP C21 LFN 2004 and the Personal Income tax Act CAP P8 LFN 2004, as well as other tax regulations which have changed the face of tax administration and practice in Nigeria.

Nigerian taxes are currently administered through the three levels of Government, as outlined in the Taxes and Levies (Approved List for Collection) Act (Amendment) Order of 2015.

The National Tax Policy (NTP) was first published in 2012, as part of the efforts to entrench a robust and efficient tax system in Nigeria. This was reviewed in 2016 in response to the rapidly changing commercial environment and persistent low tax to Gross Domestic Product (GDP) ratio.

Recently, Nigerian tax administration has been reshaped and expanded to focus on international tax. Various measures have been put in place to curb base erosion and profit shifting, so as to improve government revenue. Some of these measures include Transfer Pricing Regulations, Double Tax Treaties and Multilateral Agreements. Also, the tax payment system has been automated. Tax payers can now pay, generate receipts and even file tax returns and obtain Tax Clearance Certificate (TCC) online.

What are PFK Professional Services’ philosophy and top priorities towards its clients? How has this evolved over the years?

PKF is a global family of entrepreneurial minds working together, pooling our collective resources, experience and skillsets to add significant value to clients. We combine our understanding of local regulations, international perspectives and grasp of niche markets to create a simple, seamlessly executed approach. When you engage with PKF, you can be confident that the work will be carried out by dedicated and experienced professionals. We know the importance of having teams who have real sector experience.

The PKF ethos is about working together. We believe in giving teams the same encouragement as the individuals within them. We pursue a philosophy of shared responsibility and shared success. The most distinctive feature of PKF practice is our attitude towards our clients. Our people are good at building and developing relationships. This means getting to know our client’s organisation to understand their long-term needs.

Website: https://www.pkf.com/pkf-offices/africa/nigeria/pkf-professional-services-ng-lagos/

Daniel D. Morris is the Founding Partner of the Silicon Valley, Los Angeles, and Portland (Oregon) based CPA firm, Morris + D’Angelo, which focuses on servicing entrepreneurial families and their businesses. The firm utilises an integrated and holistic approach designed to help customers navigate the most complex and sensitive of matters.

Below, Daniel discusses the impact of Donald Trump’s new tax legislation, as well as the things that make Morris + D’Angelo unique when compared to other tax and business advisory firms in Silicon Valley.

What have been any recent tax policies or reforms in the US and how have they impacted your clients?

In December last year, President Donald Trump signed new tax legislation that changed the landscape of business and individual taxation. Corporate tax rates have been reduced by 40% and initiated a quasi-territorial tax system for corporations. Individual tax brackets have likewise been reduced, albeit only slightly. Individual based tax deductions have been significantly curtailed while increasing allowable standard allowances. Self-employed and associated pass-through businesses in most categories will also see reduced rates.

The most notable challenges the new legislation created are in the international arena. The new provisions created a global tax on intangibles (called GILTI) and imposes an effective 10.5% corporate level tax with the remainder excluded from income under the aforementioned quasi-territorial regime. Global structures owned and operated by individuals, families, estates, trusts, joint ventures, and pass-throughs pay a GILTI at upwards of 37% and do not receive the corporate level territorial exclusion.

This corporate versus individual disparity is creating terrific drama and challenges as advisers and taxpayers regroup their thinking as to how best to navigate global business operations while avoiding excessive taxation.

Morris + D’Angelo reacted swiftly to protect our customers’ options while providing best-of-class advisory and choices. This is an ongoing process as the legislation is so radically different in approach than the previous underlying taxation philosophy that served our country so well for nearly seventy years, that the primary concept we champion is to “hold on and prepare for more changes”.

Tell us about Morris +D’Angelo’s key priorities towards your clients? What differentiates the company as opposed to other tax and business advisory firms in Silicon Valley?

Our priorities are clearly developed around providing world-class services and options to a selected group of customers. Unlike traditional firms that charge by the hour and have a shotgun approach to customer attraction, selection, and retention, we utilise a more sniper-driven process.

Our customers share the following characteristics:

• They are closely held and family driven enterprises, meaning we do not seek publicly held companies, non-profit associations, or most regulated type enterprises.
• They are multi-jurisdictional, meaning they are or will be operating across both state and national borders and they require what we term ‘deep generalists’ that understand the complexities associated with global enterprises and who personally have developed networks of qualified advisers to assist in local matters while having a coordinated professional at the helm of global design, compliance, and outcomes.
• They frequently have family offices where we are the advisers to the family to help them achieve success in their coordinated endeavors.
• They will likely be invested in real estate as developers, landlords, commercial operators, property managers, and similar real property business activities.
• They will be engaged in technology-driven enterprises as investors, inventors, executives, and advisers.
• They will be profitable at levels that can afford our services and where there is ample cash flow to execute enhanced business operations.
• They are awesome people. They contribute to the well-being of their communities, they respect others, they promote good citizenship, and they are pleasant to spend time with. We invest in their success. Accordingly, we avoid toxic personalities.
• We live our famous trademark as we are “Not Just Another CPA Firm”.

What would you say are the challenges of providing effective tax and business advice to entrepreneurial and family-based enterprises?

Challenges, of course, are certainly situational as no two families are alike. The most common challenge is likely gathering their full attention. Entrepreneurs are doers and they are hyper-focused on achieving measurable results and rarely invest in activities that require them to reflect and ponder their futures.

Additionally, there are inherent conflicts among generations in regards to desired outcomes, where to invest the family attention, and the legacies to be fulfilled. We’re also often faced with the, unfortunately, common challenges of blended families due to divorce, or changing demographics relative to marriage and family, and the likelihood of a geographically and/or societally mixed marriage (e.g. mixed religions can create estate and inheritance issues should people of mixed faiths marry, have children, and reside in countries that base inheritance laws on religious attributes compared to for example common law or civil law countries).

On top of this, the availability of information to both the lay and professional person exponentially increases the challenge. While the internet is great for research and ideas, it fails to provide context, wisdom, or judgement. True professionalism integrates knowledge, context, and experience to blend a better result. Accordingly, there are conflicts upon perceptions of what options might be available, in the minds of customers, compared to the conclusions provided by professionals. These conflicts are best resolved by active engagement, communication, compassion, and listening. These are hallmarks of our firm. We leverage both ears before we exercise our one mouth.

What are the most tax efficient structures for US entrepreneurial and family-based enterprises?

This depends on the context of the specific case. For global enterprises, operating in a traditional cross-border CFC (controlled foreign corporation) environment, the most tax efficient structure today is likely a corporation, as it limits the global GILTI tax impact, provides for territorial tax benefits and domestic tax (on domestic earnings) of 21% or less.

For real estate type businesses, pass throughs like LLCs and Limited Partnerships are likely to provide better after tax cash flows due to reduced tax rates on real estate activities and a single layer of taxation.

As for more common business, my advice is to model out their cash flows and determine which of the available models provides the best tax-based results, ease of management and control, long-term family considerations, privacy matters, and asset protection.

I should note that trusts are generally overlooked as an operating vehicle, but they can provide many benefits of ownership along with control, asset protections, and longevity. This is something that our customers frequently consider.

How can entrepreneurs structure their business portfolio in such a way that their personal tax liability is mitigated?

Our recommendation for the families that we advise is to utilise dynastic trust concepts where the trusts are formed in excellent asset protection jurisdictions. These protector-driven trusts mitigate the risk associated with claims, allow for multi-generational transfers, and provide protection for the family’s daily operations.

What are Morris + D’Angelo’s goals moving forward?

Our goals are to continue to expand our offices to more geographies with our targets to include Dallas, Miami, Washington, DC, New York, London, and Geneva. We will continue to grow our cross-border and multinational services dedicated to helping families achieve their goals, objectives, and success. We will remain nimble, flexible, and current as it relates to technology, economics, and governance. Finally, we will continue to have fun each and every day as it makes life easier and certainly more enjoyable.

Website: https://www.cpadudes.com/

About Daniel D. Morris

In addition to his work for Morris + D’Angelo where he serves customers in over 20 countries and 25 states, Dan is also the Co-founder of The VeraSage Institute, a think tank dedicated to helping professionals improve their pricing and customer centric economics. He’s been an author/instructor with professional CPA and related associations since 1998 and has been an adjunct professor for Foothill College located in Los Altos Hills, California. Dan is the only American to hold the prestigious Post Professional Graduate Diploma in Private Wealth Advisory - a programme sponsored by the Society of Trust and Estate Professionals in the UK.

Daniel has served numerous regional and national professional associations (California CPA Society and the American Institute of Certified Public Accountants) where he’s held several leadership positions including President of the Silicon Valley/San Jose Chapter along with the state-level governance council. He is also active in FinTech, including the blockchain and associated crypto currencies and is frequently interviewed by regional and national publications.

About Morris + D’Angelo

Morris + D’Angelo’s registered trademark is Not Just Another CPA Firm – and this really is the case! The company never charges clients by time incurred, but instead, they price for purpose which ultimately means that the customers pay for the results they’ve managed to achieve.

The firm was founded in the Silicon Valley in 1994 and over the years, has helped startups and entrepreneurs that have changed the world. The team at Morris + D’Angelo listens and understands what their customers want and need and strives to deliver results in abundance. Along with the company’s physical offices, Morris + D’Angelo has a personally crafted network of affiliations throughout Europe, Asia, Australia, the Caribbean and Latin America. The firm coordinates services in a timely basis in nearly every location that deliver results that are instrumental for success.