Jonathan Howe is a corporate tax partner in the Financial Services team at PwC. He heads up the insurance tax practice, advising insurance companies, and is also responsible for those at pre-manager grade working in Tax nationwide. Jonathan spoke to The Gateway about his role at PwC and the opportunities for graduates within the company's tax division. How is the tax department split up at PwC?
There are two main areas. Firstly, corporate and indirect taxes, which involve dealing with company taxation and VAT. Secondly, human resources consulting (HRC), which includes employee taxes, but also covers areas such as compensation and benefit packages, employment law and immigration.
As people develop they tend to specialise in particular industries. For example, in financial services there is a deep specialism in understanding both the transactions companies make, and also the specific tax rules which are applied to them.
People also specialise by market sector. So some people could specialise in advising the FTSE 100 type companies, while others might work much more closely with owner managed businesses and smaller entrepreneurs - although it's rare that someone specialises in one area to the extent that they don't deal with any other area at all.
How does the work done by the various teams differ?
Depending on your area of specialism the knowledge required is different. So to advise a major bank that has one hundred tax professionals of its own, you need a detailed understanding of the bank's transactions and the tax related to them. This is different to advising a small retailer with no tax staff.
There could also be a different skill set involved. Working with the board of a FTSE 100 company requires different personal and relationship skills to working with an owner managed business. The individuals require different help and support.
Why might a company use your services? What sort of problems do they come to you to solve?
A small company that doesn't have any in-house tax knowledge of their own might come to us for relatively simple tax advice: "I have a tax return to complete. How do I do it?"
Another company might ask, "We're undertaking these transactions. What pitfalls have you seen in the past? How can we manage them? Are there other ways of doing this that we're missing?" Here we're providing primarily our experience with similar transactions, rather than just expertise on the law.
Because of our range of clients, we'll go from a private individual looking at their tax return to the largest multi-nationals in the world. So they can require very different services.
How might you reduce the amount of tax that your clients pay? Can you give an example of how that works in practice?
The law taxes different transactions and arrangements in different ways. Consequently, how you choose to structure a transaction determines how much tax you pay. A very simple example is selling a business: depending on whether you receive shares for it or you sell it for cash you may be taxed in different ways.
Another example might be a UK company looking to set up a business in Ireland. Should they do it via a branch in Ireland, in which case they'll pay total tax on their profit at 28%? Or should they set up a separate company in Ireland, in which case they'll only pay Irish tax at 12.5%? There are a number of companies that had Irish branches and one of our roles was to help them consider restructuring and setting up an Irish company instead.
Could you walk us through the type of advice you might give to a company that was considering an M&A deal?
If we were working for the acquirer in an M&A deal, we would carry out several roles. Firstly, due diligence: we would review the target's tax affairs and try to understand how its tax position affects its value; and we would look for particular risks within that company that might cause us to discount the price an acquirer was willing to pay.
We would also look at how the acquirer is raising finance to make the acquisition. Are they entering into a rights issue, issuing bonds or do they already have the cash? If they're using cash, is the cash in the UK? (Whenever assets move across a border there is a tax implication.)
Then we look at the acquisition structure: do they buy the company from the UK? Are they better off buying it from a holding company offshore? If they're an offshore company, do they buy it from the parent in America or do they buy it from the UK or Ireland, for example. We will also look at the position of their people. How will people be integrated, how is reward harmonised, how do we incentivise key staff post acquisition?
How important is that work? Have you had situations where the decision on whether a deal goes ahead hinges on your tax advice?
Absolutely, it can be very significant. In the last couple of years there have been a number of transactions that have not gone through because of tax risks within the target.
It's not just M&A work where it's critical - tax affects everything. If you're moving assets, capital or people then there will be a tax implication. If you miss something in the UK it could cost you up to 28% of your transaction, which is usually very significant. You may also lose people from a personal tax point of view - there's been a lot in the press at the moment about the risk of senior people moving abroad as a result of the 50% tax rate in the UK.
How does the day-to-day work that graduates do in tax vary from other areas of the professional services, such as audit or transaction services?
Our audit practice carries out most of the audit work, but if you join tax at PwC you'll still do the tax part of an audit - i.e. checking that the accounts properly reflect a company's tax position. You'll also do transaction services. Again, our transaction services team does most of the work themselves, but they don't do the tax work.
In tax you get the best of several areas: I do audits and get the benefits of being on site with clients and understanding accounts. I work on big M&A deals, on refinancing transactions, and I do tax compliance as well. Working in tax gives you a very wide understanding of what companies do.
What would you say the best thing about working in tax is?
I think it's the variety. If you're interested in business, it would be hard to find a career that gives you a wider variety, encompassing audit, compliance, transactions, regulatory and legal work.
What advice would you give to graduates who are interested in a role in tax?
It's not just about being bright; we have a huge number of very bright applicants. At PwC our business relies on making relationships and dealing with people. It's about empathy: understanding the needs of individuals and companies, and helping them solve their problems. We are looking for graduates who will be able to do this - that's want differentiates you in the market.