If firms pay more attention to tax ‘leakage’, they could attract and retain more clients in a difficult practice area.
There was an interesting divide in evidence at the recent Gazette roundtable on commercial property.
By way of background, this is a part of the legal sector that has undergone huge change over the past decade. In particular, the property market chaos that attended the financial crash and the recession led clients to share the economic ‘pain’.
Cue low margins and demands for enhanced service. As property investment business Palmer Capital’s Christopher Digby-Bell candidly put it, there is still an ‘oversupply’ of lawyers: ‘I haven’t had to tender a job, large transaction, for a long, long time, because I’m able to go to two or three lawyers with a pretty good idea of what the price is that I’m wanting to pay and what they’re going to accept, and they do. I think that’s very tough on [law firms] because, yes, we want value for money, but we don’t want to actually pay for it.’
The only factor mitigating against such a Dutch auction was where the personal relationship between client and lawyer was particularly strong. Another attendee was able to cite clients she had had for 20 years, through moving law firms. As Digby-Bell noted at a previous roundtable, a strong personal relationship with a lawyer was the only thing to give a client pause for thought when it came to seeking more-for-less very assertively.
Such relationships are bound to have put a break on the downward descent of fees and the upward surge in demands, but are not a robust business plan alone.
Attendees from the roundtable sponsors, capital allowances recovery specialists Catax Solutions, raised the issue of ‘adding value’ – which in the case of Catax’s experience, would include spotting the ‘tax leakage’ – whereby ‘value’ is lost. As Catax’s David Elliott explained: ‘Unless the vendor actually brings the value into their tax computation, the new owner, the purchaser, can’t claim any tax relief and neither can any future owners on that property. So, in other words, there is a loss of taxation, or leakage of taxation, from the property ownership chain.’
Wedlake Bell’s Suzanne Gill was able to note a client who had been a fan since she secured capital allowances for him on a transaction. But for others, such ‘added value’ seemed non-core to their aims. Many just refer clients to their accountants to check on tax matters.
Leave aside that on capital allowances it clearly doesn’t work – the amount that’s gone unclaimed is fairly staggering. Even where it is a case of professional ‘horses for courses’, looking back over the transcript of our discussion this strikes me as the wrong attitude.
I say that for the simple reason there are a growing number of discreet areas where accountants may not reciprocate with a client reference back to a law firm.
For example, though KPMG’s ABS says it does not aim to go head to head with traditional law firms, the list of areas where it looks to advise underline the fact that an ‘instruction’, framed differently, brings in KPMG lawyers in a way that ‘loses’ some of those instructions – a leakage that, like the loss of capital allowances on a property, could be permanent.
Eduardo Reyes is Gazette features editor