A new competitive challenge has arrived on the high street to threaten the livelihoods of tax advisers. Lloyds TSB has decided that it should offer tax return preparation services for its 11m general current accounts customers. Until now, Lloyds TSB's private bank has provided tax return preparation solely for its high-net-worth private clients.
This summer, the bank has decided to extend the service to the broader base of customers. As the first stage in the roll-out, the scheme has been introduced to Platinum and Premier account holders. In 2008, the service will be made available to all current account holders.
One of the most salient selling points of the service is that it is cheap. It will almost certainly undercut most high street chartered and chartered certified accountancy practices. Lloyds TSB says it is offering a basic tax return for £99.
This is bread and butter work for high street tax advisers. They have struggled to compete over many years with unqualified accountants who specifically target the tax returns business. Unqualifieds see tax returns as easy money. In many cases, they leave a trail of devastation behind them.
But this competition has been low on resource and poor in marketing and service delivery. A national bank brand with 2,000 retail outlets and sufficient funds to promote the service heavily is a different story.Scepticism
Many senior tax practitioners are sceptical that Lloyds TSB understands the tax returns preparation market. They believe that the bank will discover that clients want something more than a cheap tax return. 'This is not a commodity; it is a relationship,' says Francesca Lagerberg, director of Grant Thornton's national tax office.
Other senior figures are bemused that the bank is entering a market which was contested a decade ago. 'Nothing has changed,' says former ICAEW Tax Faculty chairman Mark Lee of bookmarklee.co.uk.
When self-assessment was introduced 10 years ago, several basic needs tax preparation services sprang up. Most of these have disappeared, adapted or changed beyond recognition. In many cases, taxpayers received poor quality service and went to members of the ICAEW, ACCA or Chartered Institute of Taxation for assistance.
The essence, say senior tax practitioners, is that the tax return preparers misunderstood the need for quality service and their business model failed to meet the needs of the market. Some 10 years on and Lloyds TSB has decided to give it another go.
But Lloyds TSB has entered the market with a competitive package that will - if nothing else - put considerable pressure on the profits of high street tax advisers.
Paula Tallon, head of direct tax for Chiltern, says: 'I have many clients who are tax accountants and I am genuinely worried for them. I do not necessarily think that they will lose business to the bank. But the charges for the Lloyds TSB services are much cheaper than for most practitioners. This will put price pressure on the accountants.
'This must be a loss leader for Lloyds. It is uneconomic to provide a tax preparation service at these levels.'Three-tier facility
The bank's tax return service was originally a function solely of its private bank. Now it is offering a three-tier facility for its Platinum and Premier current account holders. If this takes off, it will be made available to all customers in 2008.
Jacqueline Pateman-Jones, head of wealth protection at Lloyds TSB, says: 'High street advisers should not be concerned. This is merely an extension of our service to our wealthier clients. Tax return preparation has traditionally been one of the services that we offer to our clients in the private bank.'
Pateman-Jones says that customers can choose from three levels of service depending on the complexity of their needs:
• Online (£99): suitable for people who are either employed or retired with up to 10 different sources of investment income.
• Standard (£199): ideal for those who are receiving rental income or receiving income from abroad.
• Complex (£249): suitable for people who are receiving rental income from a number of properties, those who are self-employed and individuals who are not resident for UK tax purposes.
The service is provided by Pateman-Jones's tax team at Lloyds TSB while clients with more complex tax return preparation queries will be introduced to KPMG. The bank's marketing for the new service will be limited as Lloyds TSB adopts a suck-it-and-see approach.Loss leader?
At first glance, a cheap-as-chips service for high-net-worth individuals runs contrary to prevailing wealth management theory. Wealthy individuals consciously seek out highly qualified tax advisers - people who can give them imaginative strategies for tax planning. Clients are prepared to pay for what they get and so Tallon's idea that this is a loss leader for the bank may hit the mark.
This view is supported by Lee who says he does not understand the Lloyds business model. 'I think that someone in the bank has been to the US and seen the success of H&R Block,' he comments.
Lee says that the bank has not done its research. 'A decade ago, several tax preparers set up in the UK but they have all gone by the wayside. They were inspired by the US. But there are several profound differences between the UK and the US. First, everyone in the US must complete a tax return. In Britain, the vast majority of taxpayers are employed and are covered by PAYE. And most PAYE taxpayers do not need to make additional declarations. Second, US taxpayers usually make payments on account. In many circumstances, there will be a refund from which H&R Block takes a percentage.'
Lee says that the US tax code is even more complex than the British. This means that engaging a tax preparer is inevitable. Much of the rationale for a sustained UK business model falls away in this analysis.
At present, Pateman-Jones says the practical work will be done by the bank's tax department. Should the venture take off then how will the bank staff it? Pateman-Jones will not talk market share or number of putative customers. She is evasive on the nature of the resource to provide the service.
If there is a popular take-up of the service, where will the tax staff come from? The bank says it will refer customers with complex queries to KPMG. But it makes no economic sense for KPMG to handle basic tax returns for £99. KPMG says it is not being asked to do the routine work.
Hercule Poirot, that doyen of detectives, says that it is possible to deduce the presence of an unidentified party who has not yet revealed himself. If Lloyds' business model is successful, then it is highly probable that the bank will need an accountancy partner to deliver the tax returns.
It would not be profitable for a Big Four firm so almost certainly a mid-tier partner might be appropriate. One of the diversions of what passes for summer this year could be to speculate on the identity of Firm X, which is sufficiently large to be able to be the outsourced partner, but which can survive on the income levels of the deal.Taxpayers and account holders
• Around 9m people must complete tax returns every year
• Nearly half (44%) complete forms without professional advice
• 32% contain errors
• Lloyds TSB has 2,000 branches and 11m current account holders
When self-assessment was introduced several businesses offering basic tax preparation services were opened. Among them were:
Tax Assist Direct - intended to be a turnkey franchise. Operates today as Tax Assist Accountants, the accountancy and tax service for small business.
Simplitax.com - established by Clark Whitehill (now Horwath Clark Whitehill). Now run from Newport, Gwent. Describes itself as a national network staffed by ex-Revenue tax staff.
Levy Gee - the old City firm offered a basic preparation service. The firm was ultimately the foundation of Numerica, one of the three consolidators. Numerica was broken up with the bulk of the practice being absorbed by rival Vantis. The rest of the firm merged into BDO Stoy Hayward.
Tax Shop - started by former Chartered Institute of Taxation president Gerry Hart who saw it as a high street franchise. The practice was absorbed by H&R Block in its bid for the UK market. H&R Block concluded that its business model did not suit Britain and withdrew.