It’s not fair

Last week, Rishi Sunak the conservative chancellor of the exchequer proposed to increase corporation tax rate from 19% to 24%, a move designed to raise £12 billion next year and £17 billion the next year. Is this wise? – The tax increases are a drop in the ocean compared with the £3 trillion of debt and an anticipated unemployment figure of 2.5 million.

While the British economy struggles to get back on its feet – is it wise to hit businesses where it hurts – on profits destined for expansion of the business and future employment?

Of course, the devil is in the detail, but as a Fellow of the Chartered Institute of Tax at first blush I think this is unfair and wrong; for two reasons.

First, a Conservative Government is voted into power to give employers the best chance to expand and grow their business, make more money for their investors and employ more people. Most business owners have struggled this last year, many are debating whether to take back employees from furlough or to let them go. Maybe this tax hike will make the decision easier for them – let them go!

With an increase of corporation tax any plans businesses may have had to save and expand to employ more people may now be scuppered and many will decide not to take the risk - what is the point? If the plan was to expand and then to exit with gains to be taxed at 45% why suffer the pain?

Of course, it is politically attractive to soak the rich to pay for the burdens the Government is facing following this unexpected pandemic – but biting the hand that feeds it is not the way to get out of this mess.

People often forget that it is not just the rich who run businesses – it is also the electrician, the plumber, the builder and the decorator – they employ staff, take risks and tend to vote conservative, this tax hike for them is a slap in the face.

The other threat faced by increasing the tax rate is simply that businesses can and now will move. Why carry on your business in Britain if you can run it out of a nearby financial centre and pay zero corporation tax?

Of course, the plumber, decorator, electrician and builder cannot take their business abroad but any business which is digital with the possibility of being international can.

The Government should not forget that lockdown has proved to many businesses as well as people that they need not be located in central cities; they can be based anywhere in the world; with much lower tax rates.

Of course, the Government does not make it easy to relocate abroad with complex anti avoidance legislation to trap the unwary but it is far from impossible, in fact I have four cases on my desk right now; one based in Guernsey, one looking to relocate to Jersey, another looking to set up in Isle of Man and the fourth looking to become non UK tax resident altogether.

For these four clients their primary goal is to grow the business, none of the them want fancy life styles; yachts or flashy cars, they all love what they do and decided to move before the tax hike, if any one of them had any doubt about the move – it is now a no brainer – and as a result HMRC will get nothing!

Businesses, if they are to grow more often than  not need investors, but these investors are taking a risk – the business may not succeed, but they take the risk because the gain when the business they have backed makes a gain is rewarded with a lower rate of tax – capital gains tax. What is the incentive to an investor if the gain is taxed as if it were income?

Cranking up the tax rate to match income tax rates, is not a rich man’s perk it is an incentive for an investor to risk his money on an expanding business. Without this incentive is will be harder for businesses to find backers to enable them to grow, and without growth –the Government cannot expect to raise revenue from an expanding economy, inevitably there will be business stagnation.

But the real headache in these tax hikes is for the investor looking to his investment for income.

Let’s take Ted. For the past twenty years Ted built up a hotel chain, he has 300 staff and at the age of 68 would like to slow down a bit. His plans were to sell the hotel chain and invest the proceeds in his son, Max’s care home business with the idea of living off the dividend income from his investment.

Let’s assume Max’s business makes £1,000,000 income this will be taxed at the higher tax corporation tax rate of 24%. When a dividend is paid to Ted it will be then be taxed on him at 45% if he is a higher rate taxpayer – but remember this revenue has already been taxed at 24% - and there is not a full deduction of this tax against the monies Ted earns from his investment. To say that Ted should pay the same rate as Max who makes earns a salary from his hard work is scandalous – Ted pays a much higher rate of tax than Max on the underlying revenue – and unless he is prepared to work for the business – cannot take an income as a salary.

Although we need to wait for the details, the chances are that the tax on the revenue made by companies on investors – is likely to be well over 50%

Ted now has some hard business decisions to make – should he carry on working and abandon the idea of a sale – and where will Max go to look for investment in his business for expansion. Sunak has just made it much harder for both businessmen to expand, grow and employ more staff – to my mind this is sheer madness.

With this disincentive for investors in mind, businesses seeking to expand, may now need to look to their bank for backing.

But choosing the right bank is not easy – listen to John Cross of Mirabaud bank in Geneva podcast here to find out why.

If you have any comments on this or any other of my Notes please let me know.

Episode 31 -

Banking, John Cross: Mirabaud

In Episode 31, Caroline Garnham talks to John Cross, a Senior Vice President of Mirabaud, an international banking group that provides a clientele of private and institutional investors, companies and finance professionals with highly customised investment, private banking and asset management services. Caroline talks with John about the business of banking and how banks like Mirabaud make its money.

Remote networking through Carolines Club is easy and fun

List on a piece of paper five people who are in your network and write alongside their name what you think they do for their clients – if you struggle, are you able to recommend anyone in your network to your clients for their services –what I call a culture of care?

Caroline’s Club is about matched speed networking, zoom meetings where you meet like-minded professionals and hear their stories of what they do for their clients

Stories are fun and interesting – and are 20 times more likely to be remembered. This is why our matched speed networking zoom calls are all about the stories of our private client professionals and what they do for their clients.

Of course, each ‘story’ is anonymous; we are told not to disclose the real family circumstances and the names are changed to preserve the confidentiality and privacy of our clients.

Here are some examples of what we heard last Thursday at our first matched speed networking zoom meeting…

Garnham Family Office Services – Caroline Garnham

John, over the last twenty-five years, had built a considerable importing business and had invested the profits in a substantial property portfolio of commercial warehouses around airports.

He came to see me because he was concerned as to what would happen to his empire on his death – John is 75.

John’s concern was that he did not own his business empire; it was owned by Swiss trustees and the trust was set up by his father in 1996 on his death.

But the beneficiaries were not only John and his family, but also his sister Janet and her family. He recognised that Janet should benefit – but did not think if fair that she should be entitled to 50%

After exploring the options, we set up for John a Special Purpose Trustee and appointed John’s advisers onto the board – taking care not to make it UK tax resident.

We then started negotiations with Janet in Canada to appoint to her and her family a portion of the trust.

Both John and Janet where delighted with the outcome.

VGS Recruitment Services – David Nield ‘THE CHALLENGE’

At 3pm on Tuesday 18th August our Client, (Asset integrity / Health & Safety Provider), contacted me to say a large nuclear construction site had been given a non-compliance warning because a key part of the project was lacking a Fire Safety Consultant.

Our Client had been given 24 hours to source a Fire Safety Consultant otherwise the Nuclear Authority would begin preparations to close down the project until someone was found.

This would have been disastrous.

The Solution.

Within 3 hours, through our Database and Supply Partners, VGS assembled a list of potentially suitable Candidates.

One of these Candidates had been engaged with the Client 2 years ago on a non-nuclear assignment. One of my Colleagues took references which were so positive we had no concerns about putting them forward with a recommendation, (he came recommended not just by VGS but also by one of our Client’s own Colleagues).

By 1pm the next day the Client and Candidate were on a zoom call and by 2pm the Client had decided the Candidate was perfect, so much so they offered him the role.

To summarise, within 24 hours VGS was able to identify, reference and arrange interviews for the perfect Candidate who is now undergoing the security clearance process with a view to start on Monday 24th August.

We achieved this within 24 hours.

Our secret, - VGS takes the time to thoroughly understand our Client’s needs so that in a time of urgency we are able to quickly, with the minimum of fuss, provide the perfect solution.

We value long-term relationships because it allows us to gain a deep understanding of a Client’s needs, only by understanding them are we able to satisfy them so readily.

Castellet Consulting – Zoe Cousens

I undertook an Investment Review for a client with an investment portfolio valued at CHF114 million. The long-term capital growth objective was not reflected in the portfolio structure, being considerably underweight in equities compared with benchmarks and peer group.

I also noted that the bond issues were denominated in USD rather than CHF although there was no requirement for USD income thereby creating unnecessary currency risk.

The portfolio also held structured products which had been classified as equity; although this type of product is illiquid and has different fundamentals to equities. The rationale for these investments was not clear although the IMA stated that the investment manager could take 3.5% commission from these products!!!

Other areas of concern were high turnover and a lack of diversification with no exposure to asset classes such as infrastructure, precious metals and property.

Performance was also disappointing as the portfolio had consistently lagged its benchmark.

I raised a number of Action Points as a result of which a saving of CHF330,000 in annual fees was achieved.

Territt Associates – Martin Territt

As I mentioned during our Zoom meeting, I’ve recently relocated from Brussels to Dun Laoghaire, a town of 27,000 inhabitants, and four yacht clubs. It’s often called the Monte Carlo of the north!

As a professional lobbyist, I come across many interesting cases, but the one I’ve chosen to share with you was absolutely fascinating.

A major multinational, headquartered in Europe, was running into difficulties with its cross-border trade between the EU and Britain via the Channel Tunnel. It had engaged an Italian law firm, for reasons unknown, to advise but, one million euros in fees later, there was no solution.

In exasperations, the enterprise’s public affairs company approached me to see if I could sort out matters.

Over 48 hours, I carefully perused all the documentation, precisely identified the problem and proposed a solution.

Four densely typed sheets of paper set out the precise problem they were encountering; the legal background and legal remedies available; precedents; the political, social and financial consequences of action and inaction; identified the key players in the European Commission and the European Parliament to be lobbied; and recommended a logical course of action with tight timelines.

The company accepted my advice and had a successful outcome. The only problem for me was that I did not get a million euros in fees!

If you would like to join Caroline’s Club and take part in our matched, speed networking zoom calls click here to register.

Investigate the rich

Wealthy people are increasingly being investigated to tackle tax evasion. Following the Panama Papers leak HM Customs and Excise (HMRC) said it would intensify its crackdown on those hiding assets offshore.

Last year 2019-20 HMRC launched 430 investigations into sophisticated tax evaders, including wealthy individuals and companies, a 26% increase on the previous year and 65% higher than the 260 investigations it launched in 2017-18

Episode 21 -

HMRC Sophistication, Andrew McKenna: McKenna Tax Consultancy

In Episode 21, Caroline Garnham talks to former co-head of the team responsible in HMRC for offshore compliance and fraud – Andrew McKenna now CEO of McKenna Tax Consultancy. Caroline and Andrew discuss how sophisticated and intelligent HMRC is now in obtaining and processing information and data. Andrew tells Caroline that due to Covid-19 HMRC is under pressure to produce more revenue and will naturally start where the money is – the rich. As Andrew said during his podcast HMRC will ‘hit the wealthy hard’.

Investigations related to the Panama Papers are estimated to have brought in more than £190million in extra tax last year according to Treasury data. This was raised by investigating the clients of just one institution – imagine how much tax it could raise once the information is known from all financial institutions across the world!!!

Raising tax from investigations is highly lucrative. HMRC can not only charge the tax lost but is obliged in addition to charge a minimum penalty of 100% with a maximum 200% and can also press criminal charges.

The Financial Times quoted Brian Peccarelli, chief operating officer for customer markets at Thomson Reuters as saying ‘The increase in investigations is tangible evidence of how hard HMRC is working to stamp out criminal activity among what are a key group of tax offenders’

In March HMRC sent out thousands of letters to individuals according to the Financial Times ‘warning them that failure to declare foreign income could lead to them facing criminal charges’.

My fear is that those in receipt of these letters simply do not realise that they are playing with fire, if they put them on the ‘to do’ list and then do nothing about them. This response is sheer madness. Failing to co-operate with the HMRC is likely to increase the penalty charged from 100% towards 200%.

As Andrew McKenna Podcast Professional member of Carolines Club and former joint head of compliance and offshore investigations at HMRC says, the Government has invested heavily in artificial intelligence systems which not only collate the information at its finger tips from self-assessment forms and VAT returns but also from data exchanged by about 100 tax authorities under the Common Reporting Standard a 2014 OECD agreement to help offshore tax probes.

Every financial institution across the globe with foreign accounts is now obliged to collate the information on its foreign customers and exchange this with the countries in which their customer is tax resident.

If the information received by the tax authority does not match with the individual’s tax return, then HMRC will, in due course, send out a nudge letter.

Of course the taxpayer is at a serious disadvantage; first he or she does not know what information has been received by the tax authority, and may not be aware that the advice or opinion they have or are relying on with regard to the offshore funds may be out of date or simply wrong!

I personally have seen hundreds of opinion letters written by professionals who live abroad which are worthless, or which are years out of date or which are simply wrong. Added to this there are numerous cases where the advice given was correct but simply not followed to the letter – again a serious error now that all sensitive private information is available for tax inspectors, across the globe, to see.

Reliance on advice which is out of date or wrong is no defence to the non-payment of tax or the imposition of 100% minimum tax penalties.

Then the taxpayer can be excused for thinking that his personal private information held by his Swiss banker is protected – it is not.

Although Filipo Noseda partner of Mishcon de Reya  and Podcast Professional member of Carolines Club is trying to establish that the exchange of information under the CRS is illegal as being in breach of the EU’s General Data Protection Regulations and has been successful in front of the European Court of Justice – it has not stopped Governments across the world from continuing to exchange this personal and private information.

So, what should you or a client in receipt of a ‘nudge’ letter from HMRC do?

The first rule is to TAKE IT SERIOUSLY AND ACT ON IT IMMEDIATELY–seek advice – from a lawyer such as Garnham Family Office Services.

Remember only correspondence with a lawyer is privileged and need not be disclosed – and remember if you hesitate in seeking a second legal opinion on the grounds that it will be expensive – the cost of advice will be nothing when compared to fighting HMRC, paying tax, plus up to 200% in penalties.  

We need to meet

Dame Sharon White caught my eye in the press last week. White is the new boss of John Lewis who faced a baptism of fire ‘courtesy of Covid 19’. We all know that sales during lockdown have moved from offline shops to online – leaving shops with lower footfall and high overheads – nothing new there.

However, what White is proposing is radical – she wants to ramp up the Partnership’s financial services, move into garden centres and ‘turn department stores into affordable housing’.

But how will this affect our lives….

White’s proposal is in line with the Government’s plans to ‘revolutionise’ England’s planning laws. Last week, Robert Jenrick the Housing Secretary, announced that he would tear up the ‘outdated’ planning rules which he says have held back development and kept young people off the property ladder.

He wants a new system which will make it easier to convert derelict buildings and empty shops into affordable housing. Jenrick wants to make it easier to turn disused commercial space – which is likely to be on the increase post lockdown – into residential property.

For decades the UK has failed to hit targets on housebuilding ‘in 2018, just 2.25 homes per 1,000 people were built in the UK compared to 3.6 in Germany and 6.8 in France

Some say the real drag, however, is not the planning system but the big developers who sit on ‘tens of thousands of sites’ with planning permission in the hope their assets will increase in value’. Currently there are one million homes given approval in the past decade still unbuilt.

This may be set to change post lockdown. If there is an increase in stock and hopefully a limited time window for a tax incentive – these developers should start building – there will certainly be demand.

Employees post lockdown will not want to put up with the long commute to work in jam packed public transport. These people will happily live in a converted John Lewis department store in Oxford Street close to Oxford Circus and walk to work in the City or West End!

At weekends rather than travel to Oxford Street for a day’s shopping they could go out of town to huge garden centres where they could walk about large spaces of plants and home furniture, buy all their domestic appliances as well as check out what is in fashion.

People are social human beings – we like company – but that does not mean we like being crammed together in tight spaces where disease and infections thrive, when travelling. Air travel for example used to be a joy, now it has been dehumanised – standing in long queues, told to take off shoes, belts, jackets and emptying laptops and mobile phones into separate bins.  Remember these procedures were introduced to keep our travel safe, now we need to wash our hands, keep our distance and cover our face – like airport safety precautions I cannot see these procedures going away.

We will all need to get used to less travel, more work through remote connections, less conferences and face to face networking.

This is why I have set up Caroline’s Club where private client professionals can meet and network through online zoom calls curated to find the right people with whom you need to mingle quickly inexpensively and efficiently. This will leave you with more time and money to spend on holidays, social life and family. If you would like to register click here

Of course, this will mean change and for some people change is upsetting. They like being surrounded by people it blocks out their inner fears of ‘not being good enough’ Without people to work alongside these fears surface; financial fears of being made redundant, fear that without an office they will be overlooked for promotion, fear that they can never learn without being surrounded by mentors and opportunities. We all have fears – some rational, many not.

The person who has helped thousands of people face and overcome fears is Britain’s no 1 therapist Marisa Peer and her breakthrough ‘Rapid Transformational Therapy’ who is our podcast professional of the week.

Marisa when growing up was told that the best she could hope to be was a nanny because she was simply not ‘good enough’ to be anything else.

When young she was engaged by Jane Fonda to work in her exercise classes. Many of Jane’s celebrity clients were troubled by bulimia, alcoholism and chronic gambling. So, Marisa started working with them and it wasn’t long before she had a steady stream of clients. She gave up the fitness classes and the rest is history.

In Marisa’s experience most of us think we are not ‘good enough’; the block to our success, which is why her teaching and philosophy is focussed on ‘I am enough’

To listen to this week’s Podcast Professional Marisa Peer, click here.

Episode 30 -

Britain’s No.1 Therapist, Marisa Peer: Marisa Peer

In Episode 30, Caroline Garnham talks to Marisa Peer, she is a world renowned speaker, Rapid Transformational Therapy trainer and best-selling author. Marisa has helped thousands of people face and overcome fears and is Britain’s No. 1 therapist. Caroline talks to Marisa about her book 'I Am Enough: Mark Your Mirror And Change Your Life', listen now to hear firsthand what Marisa has to say about the thought of "I am not good enough".

A Risky Business

Last week I saw an interesting headline in the Weekend FT on the front page ‘Goldman Sachs settles 1MDB case with Malaysia for $3.9 billion’

Tim Leissner, a former top Goldman Sachs partner in Asia, pleaded guilty to having conspired with others, to circumvent the bank’s internal controls. He worked with Mr Low the alleged instigator of the scandal to bribe officials in Malaysia to secure the lucrative bond work for the bank

Goldman Sachs received $600 million in payments for this work, but despite this eye-popping fee it denied any wrongdoing and contends that Mr Leissner acted without the bank’s approval.

It is easy to point the finger after an event to say who should have known what or done something sooner -but criminals are clever, and accidents happen…

Mr Leissner, now married to fashion designer and model Kimora Lee Simmons, was a lady’s man. He fell for the lifestyle and glamour offered by Mr Low and now admits having personally profited from the scheme. He has agreed to forfeit up to $43.7 million.

This case also shows just how canny Goldman Sachs is. Although expected to pay between $6 and $7 billion it in fact paid only $2.5 billion together with a promise to make up any shortfall from the sale of $1.4 billion of assets seized by the Malaysian government including a $250 million yacht, several hotels in the US and a $33million Bombadier jet. Goldman Sachs is confident that the seized assets will meet the estimates and there will be no shortfall to pay.

Also, in the news last week was the German electronic payments transaction service Wirecard which collapsed on June 25th owing creditors more than E3.5 billion (almost $4.00 billion). A gaping hole was discovered in its books which its auditors EY said was the result of a sophisticated global fraud. EY was the auditors of Wirecard for more than 10 years but failed to spot that 2/3ds of its sales were faked.

Markus Braun the chief executor officer of Wirecard AG was arrested by German authorities on June 23rd.

Another heading from last week in the FT ‘Watchdog fines BDO over insurer audits’. This is a blow for BDO because it is relatively minor error and a first for 30 years. The Financial Reporting Council said that the UK’s fifth-largest accounting firm failed to meet a number of technical standards during its 2014 and 2015 audits of AmTrust because it did not sufficiently examine the work of third-party actuarial experts on the company’s accounts.

The watchdog fined BDO £200,000 which was reduced to £160,000 for early admission of its errors. However, it said the breaches were ‘not intentional, dishonest, deliberate or reckless’.

Whereas this is a blow for BDO it is a minor impairment, when compared to its competitors. The FRC fined the Big Four firms of KPMG, PwC, Deloitte and EY (together with a few smaller firms) a combined £43million in 2018.

No business organisation whatever its business; advice, manufacture, developer, retail, hospitality and so on, or wealthy individual is free from risk – and with risk comes potential loss – which is then hard to make up.

In our series of private client podcasts published on ‘How to Keep your Money’ on Spotify and Apple I Tunes we hear private client professionals give advice, provide assistance and help their clients ‘Keep their Money’ whether from natural disasters, excessive taxation, family disputes, third party litigation , poor investments, fraud, corruption, kidnapping, theft, reputation risk, cyber-ransom, and many, many more – all these risks can be mitigated with advice and planning – but then there is always a residual risk which can be covered by insurance if you want to avoid any loss and ‘Keep your Money’.

This week’s private client professional is Simon Fenn, partner of global family owned insurance company Lockton, whose area of expertise is professional indemnity insurance.

We as professionals can put in place the right protocols, rules and safeguards in our business and in the business and personal lives of our clients, but as the above three recent examples illustrate, these measures cannot protect businesses or wealth from criminal activity or negligence. This is why it is necessary to have an expert who can not only assess the risks a private client professional or their clients may be exposed to, but also to insure what cannot be mitigated – if losses are to be avoided.

Insurance is the safety net which seeps into every nook and cranny of life, work and business – for peace of mind and asset protection insurance is a cost worth paying for. To find out more listen to Simon Fenn professional indemnity insurance expert and partner with global privately owned insurance company, Lockton.

Episode 29-

Professional Indemnity Insurance, Simon Fenn: Lockton

In Episode 29, Caroline Garnham talks to Simon Fenn, Partner of global family owned insurance company, Lockton. Insurance is the safety net which seeps into every nook and cranny of life, work and business – for peace of mind and asset protection insurance is a cost worth paying for.