The Institute for Fiscal Studies has widely criticised the tax system by saying it is too complicated. Paul Johnson, a director of the IFS, has given several examples to illustrate the Government’s failure to improve the way it works.
One example of “tax complexity” is the Government’s decision to raise the threshold for income tax but not for National Insurance contributions. Johnson says this “has resulted in more than one million low-paid workers paying NICs but not income tax”.
The excellent Seth Godin blog delivered another incisive reminder recently. At one level my introduction to this article represents unashamed plagiarism. At another it is paying tribute to a simple statement of the obvious, as ever, eloquently and clearly put. I prefer the latter interpretation and would strongly encourage you (if you don’t already) to sign up to the blog. So here is the content I am referring to – short but very sweet.
The proven way to add value?
“Do extremely difficult work. That seems obvious, right? If you do something that’s valued but scarce because it’s difficult, you’re more likely to be in demand and to be compensated fairly for what you do.
“The implication is stunning though: when designing a project or developing a skill, seek out the most difficult parts to master and contribute. If it’s easy, it’s not for you.”
Its sentiment resonates strongly with us at Technical Connection. It is effectively the principle that our business and all of our services is built on.
It certainly applies to our Techlink Professional service, reporting and interpreting hard stuff, keeping you up to date with the high value stuff and providing answers to hard questions stemming from real-life client cases.
But enough about us, let’s talk about you.
Clients will only pay for the service and advice that you deliver that satisfies the “Three Cs test”, namely:
- The challenge is Complex;
- The Consequences of “getting it wrong” are detrimental;
- The challenge Cannot be “self-served”
A bit trite, admittedly, but there is more than a grain of truth in it.
People will largely be more predisposed for hard stuff, with scary possible outcomes, which they cannot easily do themselves. Anything with tax involved has the capacity to satisfy the “Three Cs test”. And the same, largely, goes for pensions.
Just consider the recently proposed pension reforms, incorporating both pensions, obviously, and tax considerations. The Government has recognised this kind of complexity deserves to have some accessible guidance associated with it.
There has been plenty written about this subject and there will be plenty more over the coming months. But for many, even the Government recognises that more guidance will not be enough to enable an individual to reach a decision about exactly what choices to make, and that is where regulated advice will come in. But it will possibly be given to a more informed (and therefore more engaged) client – I certainly hope so. The FCA recognises “best practice” demands providers and advisers do not abrogate their responsibility to keep their clients informed – especially those in drawdown or considering imminently their retirement choices – say over the next 12 months.
Given the array of choices (and consequences) available to the would-be retiree and the fact the position post-5 April next year is unknown, the challenge could not be more difficult.
A good understanding
Every intensification of the drive to reduce the “tax gap” brings new areas to understand. Legislation (and its impact) and litigation, for example, require would-be retirees’ advisers to have a greater understanding of relevant legislation. Most would-be retirees will require their advisers to have a good working understanding of the “lay of the land” so they can give them guidance and advice on the issues that matter to them, without later discovering they have adopted a course of action which has missed out on some important impediments or opportunities. Sounds difficult? Embrace it. People will pay for it.
The “underbelly” of regulation and legislation conceals a few traps but it can also deliver valuable (and, to the point of this article) valued means to be proactive with the right clients.
I am not saying those striving for tax and pensions simplification should not continue to do so – they should. Just that the harsh reality of tax and pensions “simplification” to date seems to have yielded a state of affairs that has done anything but. And this is a reality that should (and must) be embraced by advisers.
Tony Wickenden is joint managing director of Technical Connection