In 1978, economist James Tobin proposed a tax on cross-border currency transactions. This tax would occur every time a stock, bond or derivative was purchased or sold.

This concept may now be implemented in the EU. Its aim is to slow down the number of speculative dealings and provide a vital source of revenue. A vast volume of transactions is seen to contribute to volatile currency markets and economic instability.

Economic and ethical arguments are used to support the tax. The European Commission acknowledged potential detrimental financial impacts whilst using these arguments to justify continued support. For advocates, FTT is an essential reaction to the increase in foreign exchange trading.

Opponents have reacted quickly with a number of reports being published. Current criticism focuses on the negative socio-economic impact of financial trading shifting away from the EU. In London, thousands of people work in foreign exchange markets and, according to Allister Heath, approximately 45% of currency trading is in the ‘swaps market’. Ernst and Young argued this week that FTT would damage the GDP of EU states and AIMA stated there would be significant harm to EU cross-border trade.

International financial instability calls for a new international structure but is Tobin Tax the answer?

By Beth Horne
Researcher, Tax In House & In Practice
T: +44 (0) 2070 092 0137
E: bhorne@morganmckinley.co.uk

Allister Heath, cross-border currency transactions, financial transactions tax, James Tobin, robin hood, Tax, Tobin Tax

ICB Chairman, Sir John Vickers this week published a report which he feels will ultimately safeguard the UK banking system and separate the ’casino’ style risks the City has been perceived to be taking with domestic savings. Two of the main highlights of the report are: 1) ring-fencing domestic deposits and leading banking away from ’trading-book’ activity; and 2) increasing the capacity to absorb losses.

Ring-fencing

Separating retail banks and wholesale/investment banking divisions is a move seen to be protecting the taxpayer. The implications of this though are flexible and, somewhat murky at this stage as banks will be lobbying to understand exactly what levels of flexibility there will be. The fact that ’universal’ banks will no longer be able to cross-sell products to one anothers customers and in effect work in a ’third-party’ style of relationship will have a number of potential outcomes. This will also affect organisational structures as retail banks must now have boards of directors independent to investment banking divisions – in theory creating different company cultures.

This is one step removed from the separation of the universal banks, but in itself does also create opportunity. As organisations restructure, there will be opportunity for new talent to come in approaching things with fresh eyes and the potential to guide the implementation of the report’s recommendations and ensure the future rigour of the firm. We may see, new departments and role functions created to be the interface between the parts of the business either-side of the ring-fencing.

Increasing the capacity to absorb losses

Enhanced regulatory control over the sector is nothing new and it is important to remember that there are already measures in place such as Basel II and the subsequent implementation of Basel III.

The Vickers Report is suggesting that UK banks will need to exceed internationally agreed Basel III recommendations against risk weighted assets (RWA) to somewhere closer to 17-20%. This will have huge implications for the sector, particularly as banks are already struggling to raise capital in the current economic climate.

The impact of all this on the recruitment market may at first sight appear bleak, however there are absolutely opportunities for certain areas of the recruitment market to flourish through this transition period.

The demand for individuals with regulatory (Basel III), Capital allocation and RWA experience is already high and will now will go through the roof; creating more opportunities for people to enter this specialised area. As the importance of these functions is instilled throughout the industry, we expect to see more candidates seeing regulatory risk management as an area they can enter and continue to grow and develop their careers as the perception is they will always be in demand.

Summary

It is important to remember that this legislation will affect only the UK banks. There is a feeling that the Vickers Report could create a two-tier banking system. Banks that are affected by the ring-fencing will need to safeguard their staff from overseas banks operating in the UK as they will not be affected by the reforms. These firms may be seen as more attractive options to staff due to the comparatively lower amount of red-tape.

The next few months will be telling as banks will be lobbying hard to minimise the impact and cost of this legislation. There is still a large grey area in the policies outlined which will need to be clarified to ensure transparency throughout the industry.

The Chancellor George Osborne has vowed to give clarity on how this legislation will be put into place by the end of the year. Until then, we will all wait and follow with interest…

Banking, banks, Financial Services, legislation, profits, retail banking, Tax, Vickers, Vickers system

Over the coming weeks, Morgan McKinley’s In-House Tax team will guide you through the process of moving from practice to an in-house environment. In this first blog, Paul Miller discusses how to differentiate yourself from your peers through a tailored CV.

So, you’re ready to take the step into your first in-house role. When starting your search you will discover that you are competing against a number of your peers who have similar experience and qualifications. The big question is; how do you set yourself apart and not only gain interest from a prospective employer but also that elusive first interview?

It makes sense to start by thinking about why you want to work in-house and what the key differences are. By working in-house your ‘clients’ will change from several companies or groups to one group. This group will more than likely comprise several departments and a high number of stakeholders all requiring input from the tax team. You will be dealing with a wide range of people with varying experience and many with limited tax knowledge.

By understanding how your role may change, you can start to think about the skills a future employer will be looking for and how you can demonstrate these on your CV.
Pankaj Shah, Head of Tax at Investec advises “the information an applicant gives has to be relevant to the organisation and the role they are applying for.”

Therein lies the answer. If you are applying for a role at a bank highlight your knowledge and experience with the financial services market; if you are applying for a compliance role, demonstrate your knowledge of the compliance / reporting process. It sounds simple but be specific to the job you are applying for using examples and show why you are one of the most suitable candidates available in the market.

Clearly outline your industry sector experience and where relevant provide examples of clients you have worked with. A strong selling point will be to give information related to any secondments you have held as not only will this demonstrate your technical ability but also that you understand the cultural differences between working in-house and practice.

Discuss with your recruitment consultant the specific skills (both soft skills and technical knowledge) that are required for the role you are applying for and how best to pitch yourself for the position. This will make a significant difference throughout your job search and may prove the difference between success or disappointment. All in all, your experience will remain the same but it’s all in the presentation!

cv, moving from practice to in-house, Tax

Those of us in the market for a new company Ferrari or Bentley will be shocked and saddened to hear that from April 6th the current £80,000 maximum list price cap on vehicle tax will be removed. As a result of this the level of tax top executives pay on their company supercars could quadruple.

Many senior execs are cruising around in company-owned Ferraris, Bentleys, Aston Martins and Lamborghinis, and pay a maximum income tax of £14,000 and NICs of £3,584 pa under the current rules. They’re in for a shock. From April 6th a high-flier driving a Ferrari with a list price in excess of £220,000 will pay a total tax and NICs bill of almost £50,000, an increase of over 180%.

Second hand cars are no bargain either because HMRC charges car benefits on the list price; the price of a brand-new vehicle. Therefore, a five-year old Ferrari purchased for around £65,000 will have a tax bill based on its list price of £175,000 resulting in a total tax and NICs bill of around £40,000. This doesn’t seem like a very good deal to me.

Originally introduced by Alistair Darling in 2009 at the recession’s lowest ebb, increasing the tax rate on executives driving supercars is an easy target for the government. It’s hard to argue against a tax on a select group of wealthy individuals driving cars completely inaccessible to most but in reality it’s hard see how this can make much of a dent in the UK’s enormous national debt.

On the other hand, I think we’re likely to see fewer supercars on the roads over the coming years; that’s not necessarily a good thing either aesthetically or in terms of improving confidence in the economy.

ferrari, Tax, vehicle tax

From January 2011, VAT is set to increase to 20% in a move the Chancellor expects to raise around £13billion annually, to pay off the UK’s monster deficit.

Many have welcomed the changes, heaping praise on the government for avoiding any additional reliance on income tax payers. This move towards indirect tax has also been popular with other European governments.

That’s all well and good but as a regressive tax, any increase in the rate of VAT was always going to be controversial. Predictions as to how this affects household budgets average out at around £400 annually; this could hit poorer families very hard indeed whilst high earners are unlikely to feel the pinch in quite such a painful manner.

The effect on business is likely to be mixed. For those unable to recover all the VAT they incur, the increase will represent a significant hike in operating costs. For businesses close to the edge, this could be the final straw. The winners are likely to be the biggest companies, able to absorb the costs gaining market share at the expense of smaller rivals.

In the public sector, the NHS for example is likely to feel the pinch as the increase will reduce the amount of real cash available for frontline services. Other key public services are likely to suffer similar effects.

As the increase will take much needed spending power out of the economy, there’s a real possibility of it affecting our fragile economic recovery. Growth figures over the last six months have been outstanding but concern is growing that this spending flurry could be the result of an increase in spending prior to January’s VAT-fuelled price-hike. A higher rate of VAT will not be the sole cause of a double-dip recession but currently, the economy needs all the help it can get.

Morgan McKinley, Tax, VAT

The Exchequer’s coffers are running on vapour and tax avoidance presents a soft target for politicians. On Monday, Nick Clegg claimed that “ethically wrong” legal tax avoidance costs the economy £42 billion a year. As a tax recruiter, I was particularly interested in whether this might have an impact on the taxation professionals that I work with.

Clegg’s Robin Hood approach is an obvious means for the Government to rake in some much needed cash. My colleague William Hepworth discussed the tightening of transfer pricing rules in Taxation 2 magazine this week so raking in some extra cash through taxation is already on the agenda.

As always though it’s not as simple as closing a couple of loopholes and suddenly the deficit is paid off. Quantifying the impact of tax avoidance on the economy is complex stuff. Business leaders argue these funds are reinvested in job creation: taking people out of the benefits system and getting them paying tax. Ultimately, the Exchequer wins anyway.

Furthermore, high net worth individuals are often entrepreneurs, contributing to the economy in areas too numerous to quantify. They’re also geographically mobile; remove the incentive to be here and they’ll be off quicker than you can say private jet.

Clegg’s ethical argument is also complex. Is it wrong for someone like Philip Green to run a business employing thousands of people in the UK with a turnover in the billions whilst himself being resident in the tax haven of Monaco? Is investing in start ups or venture capital unethical? Is investing in an ISA unethical?

Our tax system is a pretty fine balancing act between encouraging investment in quality business in the UK and ensuring people pay a fair amount for public services. Cutting down on tax avoidance strikes me as great party conference PR but ultimately it’s a minefield. Amidst all these conflicting interests and arguments it’s hard to quantify their success/failure anyway which itself is most convenient don’t you think?

Exchequer, Government, ISA, Legal Tax avoidance, Nick Clegg, Philip Green, Tax, Tax Avoidance, Taxation, Taxation 2, Venture capital, William Hepworth

Recently, there has been much scaremongering regarding the prospect of a W-shaped recession. In my opinion, people have got carried away, as it’s not all doom and gloom from where I’m standing.

The trouble stems from the Bank of England’s downward revision of their projected growth figures for 2011 from 3.5% down to 2.5% as well as Mervyn King’s ominous description of the recovery as “choppy”. Judging by the newspaper headlines last week, you could have been forgiven for thinking that our fragile confidence was about to be destroyed.

Do not be misled though as I would prefer to look at all this as the bottle being half full rather than half empty. The Bank of England is forecasting 0.7% growth for the last two quarters of 2010 and growth in excess of 2% next year. The Office for Budget Responsibility is also forecasting growth around the same level. Last year, we would have revelled at the economy growing at all, so 2.5% is still very encouraging.
Certainly, with regard to taxation, activity is increasing.

So far the focus has been on Indirect Tax and Transfer Pricing; understandably so, given HMRC’s desire to tighten the rules. Perhaps more encouragingly there has been some increase in corporate tax hiring. So far this has been limited but given the more general nature of this area, it’s an excellent barometer.

There is still little movement at the senior end of the market currently as senior tax professionals are choosing to stay put as present. However, with a bit of economic growth and some more confidence, they will become more inclined to move on and then we’ll see demand return.

My view is that the recovery is going to be slow and possibly “choppy” but it’s still a recovery and that’s definitely cause for positivity.

Bank of england, Corporate Tax hring, HMRC, Indirect tax, Mervyn King, recession, Tax, Transfer pricing

As a fan of both sport and tax, I was interested to hear of Usain Bolt’s decision not to compete in the Aviva London Grand Prix. We understand it’s not because he’s scared to face his big rivals, Tyson Gay and Asafa Powell, but wants to avoid the tax burden following the ruling in [André] Agassi v Robinson in 2006.

Agassi decided that sportsmen competing in the UK are liable for a 50% tax rate on  appearance fee and a proportion of total worldwide earnings. As Bolt earns a fortune from product endorsements, this means that if he only raced five times this year, HMRC could tax 20% of his total earnings. His appearance fee alone for next month’s Grand Prix is reported to be £166,000 –  so we’re talking big money!

The media are currently reporting that Bolt’s decision could affect London 2012, September’s Ryder Cup and England’s bid to host the 2018 FIFA World Cup. Let’s not panic! The government tends to exempt participants in major sporting events, Agassi was decided in 2006 and there has been plenty of world-class sports action in the UK since then.

However, exemptions are often inconsistent and depend on arbitrary judgement of what constitutes a major event. Many big names were missing from the pre-Wimbledon warm-up at Queen’s Club in June and, whilst Tiger teed off at St Andrews today, major names have been conspicuous by their absence at other big events in the UK’s golfing calendar.

As we were once led to believe that the Teenies were to be the decade of sport, the time has come for some clarification. We’ve an Olympics and a Rugby World Cup in the diary already and we’re bidding for the FIFA World Cup in 2018. As UEFA have expressed previous concerns and in the context of the rollercoaster ride that has been our 2018 bid, the whole thing could benefit from clarification from HMRC.

It seems unfair to tax sportspeople who have a unique double identity as sports hero and international brand. Companies compartmentalise worldwide operations by dividing themselves into various legal entities leaving only transfer pricing as an issue.

2018 FIFA World Cup, Andre Agassi, Asafa Powell, Aviva london Grand prix, Ryder Cup, Tax, Tyson Gay, Usain Bolt

Though the word “tax” was mentioned 50 times during the budget speech,  tax didn’t feature that highly in the budget last week.  With “jobs”, “support” and “help” getting 26, 33 and 31 mentions respectively, this was more of a budget of politics than economics.   As we in tax recruitment normally know better than to try to call our candidates or clients when the budget speech is on, this year saw a surprising number of calls come through to the team during what is normally a quiet few hours as the eyes of most tax specialists are glued to the television… 

Many of the people I spoke to were not expecting much and post- budget the overwhelming feeling is that of a “non” budget described by various people as “a damp squib”, a “non-entity”, “very dull” and “a wash out”.    With no changes in terms of VAT, Corporation tax or CGT and the changes to personal taxes having already been announced in the pre budget report not much changed.  

So, not much change for the tax world from this budget.    However, harking back one year and onto the  Senior Accounting Officer regulations, responsibilities associated with this are now a regular feature on most manager level in house tax job descriptions…

budget, Tax, tax in house jobs, tax jobs

We spend a lot of time in this job looking forward and planning for the future and seldom take the time to stop and reflect on things previous. Our company conference on Saturday offered that time for reflection and provided a reminder of how tough times were in financial services back at the start of 2009…

 
Back in the business after Christmas in Cape Town but with a number of key people still enjoying a well earned break – it has certainly felt busy these first couple of weeks back at work. We didn’t expect to see such a significant jump in new job vacancies coming onto the market compared to this time last year.  December figures also showed an impressive 24% hike in recruitment activity compared to December 2008 (Morgan McKinley London Employment Monitor – December 2009).

 
Morgan McKinley’s 2010 Hiring Market Outlook Survey of 124 City HR and line managers re-iterated the view that this year will present professionals in London with a wide choice of career prospects – 83% of respondents expected hiring to increase over the coming year.

 
Whilst remuneration is likely to become one of the biggest challenges for employers over the coming months, it is the demand for experienced talent across the sector that will probably create the key personnel challenge, with employees being “poached” by competitors.

 
Having witnessed a degree of professional migration over the last 18 months it is encouraging to see London promising greater opportunities for experienced career minded professionals within an established global infrastructure in the coming year.

 
We’ll have to wait and see how the tax and regulatory environment evolves and the extent to which global talent gravitates to London …

2010, Finance Jobs in London, Finance Managers, Financial Services, jobs, London, new jobs, Positive attitude, Tax