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Article by Chris Erwood.
When and why use tax software? Chris Erwood talks to Adrian Miller of Michelmores (the user) and Jerry Rihll of Digita (the designer).
Adrian Miller: Trust and Estate management law is constantly evolving - changes need to be swiftly embraced with its complexities duly digested. The loudly trumpeted but decidedly unwelcome inheritance and capital gains tax changes to accumulation and maintenance trusts and interest in posession trusts requires a deal of assimilation by trust practitioners - they simply cannot afford to make mistakes and the client takes refuge in the assurance that they will not do so.
Increasing complexity demands increasing technological support but with this comes opportunity. Trust lawyers who are serious about expanding their practice need to ask probing questions of the software that may support their tax services. It needs to fulfil all the necessary functions in a cost-effective way and be able to handle any and all changes in the law which will affect determination of the trust tax liability. It is a pre-requisite that such software must be easy to use, reliable, adaptable and fully supported.
Jerry Rihll: There are many reasons why a trust practitioner should seriously consider using dedicated tax software to assist with the tax compliance of the trusts they manage.
The first and perhaps most obvious reason is that it can save time. This must be recognised as a key incentive since every professional remains sharply aware that time equals cost. Preparing the initial return for a trust client using software will typically take no more and often less time, than to prepare the tax return manually. However, since most of the information is stored and automatically rolled forward, there are huge time savings to be made in the second and subsequent years.
The tax return information can be reused in other ways, for example to automatically produce R185s. This automatic production can reduce the time spent otherwise spent on this routine but nonetheless important task - this is of immense benefit for those trusts with a large number of beneficiaries. Add to that the instant generation of schedules, reports and the important tax calculation itself, all of which can be done at the press of a button, and the time savings really do come in to their own.
A most important and often overlooked consideration is the reduction of risk by elimination of those all too frequent clerical errors which could otherwise result in harsh financial penalties as well as alienation of the client. Where figures do need to be used more than once, perhaps on the tax return or to calculate the trust's tax liability, or to provide beneficiaries with tax certificates, there is the ever present risk that they may be manually entered or copied incorrectly. With dedicated software, once a figure has been entered, it will be replicated accurately wherever and whenever it is needed.
When used in conjunction with Internet filing, this is ensures that the correct figures are used by HMRC to calculate the tax liability - this avoids time wastage whilst eliminating the risk of the tax return being lost or mislaid. This of course will come into its own once the full impact of the Carter report is put into practice in 2008.
Risk remains a key concern for the tax professional and this is greatly heightened by the current complexity of trust tax legislation which causes the tax calculation itself to flex and adjust almost annually. Season this with the knowledge that this calculation must pay attention to the different rules applicable to the trust status, income type and tax interpretation of capital/income source and the scope for human error is increased fourfold. Modern tax software is programmed to recognise and identify these issues with such application reviewed and amended annually to accurately reflect legislative changes. This serves to eliminate risk by ensuring accurate calculation of the appropriate tax liability.
Adrian Miller: Providing a service to the client is more than just undertaking and it must go beyond the job in hand. A private client lawyer is routinely required to demonstrate and deliver "added value". The preparation of tax returns and administration of personal trusts is time-consuming but nonetheless the client has the right to demand that this be done in an accurate and compliant manner.
Real added value comes from providing confidence to the clients that their tax affairs are in good hands and that the financial data held is used positively to support the full range of their wealth management issues. Instant access to client information and comparative financial data is essential not only to carry out this compliant tax preparation role but also enable the provision of advice on the high profile issues of strategic tax planning and tax mitigation.
It is self evident that the more time that can be saved on amending internal systems to reflect changes in Trust law and in tax calculations, the more time can be spent on those 'added value' areas of client service.
Jerry Rihll: It's reported that most users of mobile phones benefit from only a small percentage of their capabilities. Those adopting financial solutions software need to ensure they don't make the same mistake but instead opt to maximize the full range of cost-effective functions that software can perform.
By way of example, a fully integrated software system will post trust income directly to beneficiaries' tax returns and where a client has a range of matters, including business issues, the same data may be used for Final Accounts and Business tax for trading trusts.
Adrian Miller: Training is an important issue for all tax and legal professionals. Michelmores and STEP West of England, of which the firm is an active member, are fully committed to providing the best training opportunities to STEP students, those STEP professionals who wish to change disciplines and those who simply wish to update their knowledge base. We have no doubt that by contributing to the development of specialist software we are more clearly identifying real issues and enhancing the facilitation of the training programmes.
Jerry Rihll: Many trust practitioners are already achieving tangible benefits from the cost savings and reduction of risk derived from their use of software, and are using the time saved to enhance the service they provide to their clients. The right Software doesn't just speed up the tax return preparation process, it supplies a range of planning tools which amongst other options provide a 'what-if' function to test various possible scenarios.
Trust practitioners who have equipped themselves with the premier software tools rapidly discover that they can be much more confident in their dealings with clients complimenting the delivery of a more rounded tax service.
