Interview with Chris Etherington from PwC

Join property expert Alex Goldstein with Chris Etherington from Price Waterhouse Cooper (PwC) of Leeds in this highly topical interview based around what PwC do, tax planning, structuring and understand their thinking behind the controversial accountancy practices in the news!

Interview with Chris Etherington from PwC

Alex: It’s great here to have Chris Etherington from Price Waterhouse Cooper in Leeds. And Chris, getting straight to the heart of it, I know everyone’s really heard of PwC and Price Waterhouse, and it’s one of those massive UK names, but what underneath it all do you actually do?

Chris Etherington: Thanks for inviting me on, Alex. So, yeah, PwC, it’s one of those words that you see bandied around in the press being…we’re just a large accountancy firm. We work with huge, global conglomerates and things like that. And it’s actually, like you say, it’s a bit impenetrable as to, what do we actually do. So in terms of getting down to the nuts and bolts of it, we are essentially problem solvers.

We do a whole variety of things. I can list a whole different load of different services that we do. I do tax advice, we do legal advice, we do investment advice, we do deals to help people buy and sell companies. We do the boring stuff like the accountancy. Now, my colleagues in accounting won’t thank me for saying it’s boring, but that is what we’re known for. But we do so much more. We help people get debt funding, a whole host.

Alex: So sort of numbers and a bit beyond?

Chris Etherington: Absolutely, yeah. Obviously, it’s numbers-based, but we’re not all just mathematicians.

Alex: Possible common misconception is the types of clients that you help. And I know you’ve mentioned that you do help some of the UK’s best names out there, but just give people a feel, because obviously you’ve got those people, but I picked up that there was actually a bit of a slant and a change.

Chris Etherington: Well, I…to tell you what I do, I just work with individuals, and most people would be surprised to hear that, probably. I’ve spent the past decade of my life sitting at the same desk, helping clients of all shapes and sizes, if you like. So I’ve got clients who are guys in their bedroom with an internet business to 98-year-old grannies. So there’s all, sorts and it’s not just your high-net-worth Russian oligarchs, or what you might think it might be.

Alex: Again, yeah, a common misconception, it’s great to clear that one up. And what about companies? On the company side, because, again, you’re often seen to be acting for some of the big guys out there, but I think it’s fair to be said, at the moment, you’re quite interested, as a company, in the SMEs of this.

Chris Etherington: Yeah. I mean, if you just took what we call it as private business, and what that basically means is working with individuals, typically owners of managed businesses and privately owned businesses. And if you took that out of PwC in itself, that would probably be the fifth-largest accountancy firm in the country, just that bit of PwC. We do a lot. If you look at how many FTSE 100 companies are there in Yorkshire, there’s some, but there’s not a huge amount. So over two-thirds of what we do is working with entrepreneurs and their businesses. And that’s not just huge ones. It’s tech startups, to very large, privately-owned businesses. So it’s everything in between.

Alex: If you are a small or medium-sized businesses, why would you look to the PwCs rather than, say, accountancy firm down the street, so to speak? What is the difference? What are you actually getting?

Chris Etherington: At the end of the day, you’ve got the benefit of having somebody that is focused on the SME market but has the benefit of having a global firm behind them. So we can help you from day one as you grow and invest our time, we’re quite happy to invest time to start with certain businesses. So I’ve got a lot of guys who are tech startups, and there’s not a huge amount I’m going to be doing for them, but I just spend time with them on a day-to-day basis to help them grow with them, and in the future there might be an opportunity for me to help them with something.

Alex: And I suppose, from what you previously said, it’s the fact that you’ve got all these different departments and sub-divisions and all different types.

Chris Etherington: Yeah, say somebody’s trying to export to a European country, for example, never done it before. Well, we’ve got offices all over the world. I can pick up the phone to somebody and find someone over there that can help move…

Alex: Yeah, so you’re getting the PwC network, which you can’t obviously get from your high street guy, and you are the one stop sort of financial [crosstalk 00:03:59].

Chris Etherington: That’s why I said basically we’re problem-solvers. So if you have a problem with your business, generally I can find an expert, because it’s such a big firm. There’s usually somebody who does an everything, a little niche expert. I mean, I’ve been in the firm over a decade, I still don’t know what we do. It’s so much there, but usually if you pick up the phone, there’s somebody I can turn to or something.

Alex: And just talk us through, because it’s very much a hot topic at the moment, this whole sort of tax avoidance. You’ve obviously got all the Panama papers. You’ve got David Cameron supposedly being caught out, according to some of the papers. Emma Watson, the actress, she again bought it through the Panama company. What’s the viewpoint on this? Because, again, I think it’s very much a misconception when people sort of talk about taxation and the different structures. Talk us through. What is legal, what’s illegal, what’s the grey area?

Chris Etherington: Yeah, it’s a hot potato. They have a mine field to go through. It obviously sells papers and that’s why it’s been all over the press for the last five or so years. Before then, I think the tax world was very different. Broadly, the important point to know is tax evasion. That’s the really bad thing. That’s illegal now. Tax avoidance, that’s legal, so one is a criminal matter. If you’re doing tax evasion, there’s still plenty of people out there doing that. I mean, if you look at what the budgets and things when the chancellor stands up with his little red box and so on, he says how much I’m going to recover from tax evasion, there’s plenty of people out there doing it.

Alex: And that’s effectively money laundering…

Chris Etherington: That’s criminal. Yes, it can include money laundering, just people not paying their tax, basically defrauding the government.

Alex: Yeah, and then the difference, flipping over to…

Chris Etherington: Obviously, we don’t do any of it. Tax avoidance is, yeah, a much broader term. And, again, that is brandied around and becoming more of a dirty word in itself. It comes down to confusion. You mentioned it. How do people understand what is genuinely just financial planning and what is avoidance? And if you look at what the law says, there’s case law basically going back donkey’s years, which goes along the lines of, and I probably paraphrase badly, that somebody is entitled to arrange their affairs in a way that helps minimise their tax exposure. That’s perfectly legitimate. But if Parliament didn’t intend this to happen, are you manipulating the rules, are you finding a loophole and exploiting it, that’s tax avoidance in their view and they don’t like that, for obvious reasons. It’s not what they want. Whereas they are obviously happy with financial planning. Tax avoidance is so broad, you could say you’re investing in [inaudible 00:06:37]. That, in a sense, is…Yeah, you are arranging your circumstances to pay less tax because there is a government-sponsored tax relief that you can invest [inaudible 00:06:50] like that.

Alex: So effectively it’s your role to take and do the tax advice and take you, your clients, and their pot of money, no matter what it is, and take it up to the line, but it’s set out effectively by HMRC, but you don’t cross it because then, as you said, you’re getting into serious, sort of nitty-gritty territory and you’re bound to be caught out. And that’s where, if you like, the Daily Mails of this world and the media have picked up on it and arguably twisted the facts slightly?

Chris Etherington: Ultimately, it comes down to there are thousands of pages of legislation now. It’s impossible for the layman on the street, ordinary citizen, to understand really what the tax rules are. It’s so complex now. When I started, you had a couple of books, and it’s now 12. It’s impossible. I can’t read all of that. You have to have specialists in each individual field. And just doing stuff like a tax return for some people was impossible because there’s absolutely no way you can self-assess without some help. So a lot of what we do is actually to try and help people understand what the rules are.

Alex: It brings, as some might suppose, nicely, in terms of, again, another term that’s sort of bandied around, predominantly by the media, in terms of offshore funds, whereby you say, “Well, I’ve got my pot of money and it’s held in the Channel Islands or it’s over in the British Virgin Islands and all of that.” And, again, it’s tarnished with a similar sort of brush. Are those sort of setups legal, illegal? What are the advantages, what are the disadvantages? Again, it’s a term possibly misunderstood. But where are we at, at the moment, in terms of legislation and what’s possible?

Chris Etherington: Yeah. Like you say, there’s a lot of potential in things like Panama. Before then, there was non-doms that came up in the election campaigns and stuff, and a lot of these terms are thrown out into the press and it’s like, oh no, non-doms are bad, Panama is obviously bad, offshore structure, that’s awful. And the trouble is, a lot of people aren’t really interested in the detail. I love tax. A lot of people don’t. Yeah, I know. I’m fairly unique and I chose to do this. Most people fall into the profession. Unless you get really into detail, and that’s not gonna sell papers, is it, if you’re going to get really into the detail of it.

So it is quite easy for things to get misconstrued. I mean, just turning to the Panama situation and David Cameron’s. So he invested in, essentially, shares in an offshore vehicle and it was set up by his father. I don’t know all the details. I haven’t looked at it that much in all the specifics, but broadly it was an entity which paid UK tax. It was distributing its income each year and David Cameron would have had to declare that on his tax return. That is the same as you investing on a blue chip company on the stock exchange as anybody else would. You could do that in an ISO or whatever. If it’s paying the same amount as UK tax, as it would be in a UK entity, then what’s the problem? But people say offshore and tax evasion and tax avoidance…

Alex: All together.

Chris Etherington: Yeah, you just read the headline, don’t you? There are things to be uncovered and it’s perfectly legitimate for people to look at Panama and things like that and see if there is…I’m sure there will be untoward things that are in there to be uncovered. It’s 11 million documents, I think. It’s gonna take somebody with a fine-toothed comb to go through it all, but…

Alex: Time will tell on that one, time will tell. Bring it back ’round. In terms of property investment, again, the buzzword is how you structure it for tax efficiency, capital gains, inheritance tax, company structures, how do you actually sort of structure purchases nowadays? Because, again, there’s so many obstacles of their sensible ways, obviously above board, as we’ve said, that you can actually structure that to purchase. What should one actually look out for as a property investor?

Chris Etherington: Okay, ultimately, it’s a bit [inaudible 00:10:38] a little bit. It really comes down to your personal circumstances. There’s not a one set of rules. This is the right thing for a property investor to do. One person’s situation may be completely different to another person’s. You might have somebody who’s married and in a property partnership, say. You might have somebody who’s just doing it by themselves. You have to take all of that into account. I mean, if you’re married, you might think about things like who’s earning more. A lot of the changes at high level, some of the bigger ones that were announced were around restricting the amounts of relief you can get on your mortgage payments. So that’s gonna be restricted to basic rate, 20% relief essentially, whereas in the past you would’ve got 40%, or if you’re an additional rate tax payer, if you’re lucky enough to be one, 45% relief. So that’s a big dip in terms of how much…It’s coming phased in, so over the next couple of years it’ll become 75%, 50%, 25%. I won’t throw numbers around.

But in those circumstances, you might think, “Well, okay, if my wife isn’t earning anything, well, maybe she should own some of the properties. If we’re going to acquire some more, maybe she should do it rather than me.” The issues with Stamp Duty Land Tax are interesting. I mean, you’ve got obviously this new 3% surcharge. From people I’ve spoken to, it’s not necessarily something that will change the behavior that they’re looking at. It’s more a case of, “Oh, this is an extra cost we’re gonna have to incur.” It’s like a business expense. It’s just something we have to take into account when we’re setting our events and so on to try and get the right sort of profit in the long term. So, unfortunately, I think whilst the idea is to disincentivize, I guess, the landlord [inaudible 00:12:14] market, I suspect it will just be passed on to the tenants in due course.

Alex: That’s my fear, but again, we will see, because it’s very early days. Talk us through, Chris, because I know a lot of people are bandying around ideas of if we’re looking to buy property, we’ll put it in a limited company structure. And there’s limited liability partnerships and all of that. If one is looking to acquire properties, what are the things you actually need to think through in the structures as well?

Chris Etherington: Yeah, well, I mean, you’ve got to think about what’s commercial first, what’s good for you. I mean, there are benefits to being in a company, there are benefits of being in a partnership, things like limited protections, one, but there’s also things like who’s gonna lend money to me. It’s easy to obtain finance when you’re an individual. If you buy to let mortgages it may start to get harder, but it’s my understanding is it’s harder to do it through a company even it is. The tax things to think about are, well, yeah, there are some tax changes and not all of those tax changes apply to the companies. In particular, that mortgage interest one’s a big one.

So there’s a distinction there. If you can get lending through a company…and actually some people are so worse off that after these tax changes come through, in earnest, once they’ve been phased in, you could end up making a loss after the tax cost. That, in itself, could mean that basically there’s no point in being in business, frankly. So what are you going to do about it? One of the considerations might be, well, can I incorporate? Well, that might be one [inaudible 00:13:43]. You’ve got to think about what the other implications are, the Stamp Duty Land Tax issues and so on. Like I said before, what you’ve got to do is look at your individual circumstances and then decide which structure is best from the outset.

Alex: Yeah, and take some pretty specialist advice as well, because, again, the great thing with PwC is just so many different departments and areas of expertise. You’ve just got to declare everything from your personal circumstances and really, I think, hand it over to you guys for you to navigate.

Chris Etherington: Obviously, I’d be happy to do that. The key thing is taking that sort of advice earlier on rather than later. It’s much easier to plan for the future than it is trying to unravel something from the past.