Thankfully saying Goodbye to 2009

My expectations for 2009 as a year for recruiting were very low, and the year has very much met my expectations. It has been a very bleak year in the market, and of course the tax market has not escaped the pain.

Looking forward to 2010, I think conditions will remain difficult, but I suspect will be a slightly more free market as companies and business plan for their recovery, and hence recruit for the recovery. Any yes, tax rules and legislation continues to become more complex and onerous, and hence a need for astute tax professionals.

In the meantime, may I wish a wonderful (and white) Christmas, and a very peaceful New Year to all readers of this Blog, and indeed to all tax professionals.

Financial Meltdown? Yes, but what about tax jobs?

By Simon Godley

Since Sept 2007, I have blogged a few times on this subject (see Credit Crunch - Impact on Tax Jobs and State of the tax job market?...and let's be honest!). I have previously painted a rather bleak picture for the market outlook over the next few years, and now it is clear that that partly painted picture has become reality, with the 15th, 16th or 17th Sept 2008 now lodged firmly into the history books forever as the black Monday (or Tuesday or Wednesday) when the credit bubble finally burst and showed its real venom.

Also this afternoon, I have sat and listened to Gordon Brown deliver his labour party conference speech - facing up to today's dire state of financial markets, but at the same time telling us how strong the UK economy is, and how well labour have done to 'create' 3m new jobs since 1997.

I do have some respect for Gordon Brown - as he said in his speech today, he is a serious politician needing to deal with some serious problems, and I think he will probably try to do all he can to rescue the country from financial doom. But he lost quite a lot of my respect when he supposedly claimed a few years ago that the UK has moved on from a boom and bust economy. This was an amazingly silly statement from a UK chancellor, given that ever since Columbus discovered America in 1492 has there been several speculative bubbles (coupled with a large credit situation) and they have without exception always burst. And this is a phenomena that will never stop happening. It is clearly part of human nature to get excited and greedy about something (eg a new discovery or technological innovation) and as a result value a market at a price now that will not be actually be seen for many many years to come. When we realise this, its too late, and the bubble inevitably bursts. This time round, it seems to be property and commodities, coupled with a vast amount of balance sheet trickery by the investment banks. We clearly learnt nothing from Enron!

But what about jobs? Well here we will see a knock on boom / bust. Gordon Brown's 3m jobs that the Labour party has created will undoubtedly be followed by a dramatic rise in unemployment from 1m to possibly up to 3m in the UK, thereby cancelling out the good work.

And what about tax jobs? Well, at the moment this seems a little harder to work out. Partly because the Big 4 firms, the largest employers of tax people, have not yet properly shown their hands as to their position on staffing levels. I think over the last year they have lost people through natural attrition (which might be, say 5%, for example) and they are generally not replacing these people. They have not yet made any announcements on redundancies - some are saying that they are not recruiting, whilst others are saying they are still recruiting (when they are presented with a very good candidate).

So what will happen? My prediction is that the Big 4 will make redundancies, and it will affect the tax teams. This will be particularly acute in tax teams that thrive on M&A work (specifically acquisitions) or structured products. I think there will be a few rounds of redundancies, possibly the first one will be in Q1 of 2009, possibly earlier. I think waves of redundancies may continue into 2010. On the in-house side of the market, I think there will be many job losses amongst the middle and front office tax teams from the banks. Within broader commerce/industry, there will probably be a good level of corporate consolidation, and in-house tax roles may suffer where there is overlap of job functions. Aside from that, I don't think in-house tax teams will be reduced much, unless they are forced to reduce in numbers because of broader cuts that are taking place in head office functions.

So the next few years will be very difficult for a lot of tax professionals, in that the tax job market simply can't be immune from what will be a depressed employment market. But how long will it continue? I have now revised my forecast from my blog article in June this year and I think confidence to generally start recruiting again will be in 2011-2012.

Gosh, I feel like a major doomster. On the slightly brighter side, I think the tax job market may benefit in 2 ways. People who concentrate on tax compliance and reporting will continue to be in demand. Also, the government are bound to raise taxes, and they will possibly do it through more corporate or indirect taxes, so there will remain the desire to have tax consultants (in practice) and/or in-house tax people looking at ways to reduce those increasing tax burdens.

That's my prediction, most of which is gut feel rather than any concrete evidence, but only time will tell the full story.

UK Corporate Tax people - where are you?

By Simon Godley

Through my contact with clients and my awareness of current tax vacancies in the London market, particularly on the commerce/industry side, it seems that industry is really struggling to find and recruit UK tax accountants. I am referring to the classic scenario of a UK plc or multinational looking to hire a 'tax newly qual'. The hiring company initially envisages this as quite a straight forward exercise, thinking that there is probably quite a lot of them floating around, particularly after the ACA or CTA results are released. But it isn't, and more often than not it ends up being a disappointing, long and fruitless process, sometimes resulting in the company hiring someone from overseas with a non-UK tax background (NZ tax qualifieds are quite popular) or internally transferring someone from an accounting division and training them into a tax role.

So I thought this situation of the elusive UK Tax Accountant was worthy of further debate and investigation. I thought firstly I would initially try to guesstimate how many corporate tax (CT) newly qualifieds there are in London in 2008. I stress this is a rough estimate, but I think it gives a useful ball park figure.

I know that there was approx 120 tax graduates taken on by one of the Big Four in London in 2005. From this number, I have extrapolated to cover the London Top 10 firms (which will cover the vast majority of the large company CT market). I have then made some assumptions about what proportion of the tax graduates will stick with it through their 3 year training contract to qualifying. For example, there will be a percentage that will fail their ACA or CTA exams, and drop out of a tax career. There will also be a percentage who will simply decide it's not for them. I then assume, of those that qualify at ACA, a percentage will decide to take their qualification and use it in a different sector e.g. banking or management consulting, and therefore leave the tax market in 2008.

The number that I arrived at was 270. Let me clarify what this is - this is the estimate number of corporate tax newly qualifieds in London from the professional firms in 2008. Once again, I stress that this took some guess work, as it is not the sort of figure you can look up and find quickly on the Internet.

But wait - I think the majority (possibly 60% or so) of this 270 don't do any tax compliance or accounting work. The Big 4 firms in London have very much focused their CT divisions on planning/advisory, and a large number of CT qualifieds (even at newly qual level) no longer do tax compliance work. And it is the compliance and accounting experience that commerce/industry is looking for when it looks for a 'tax newly qual'. So this 270 could be easily reduced to c.100-120 CT newly qualifieds in London (that still do tax compliance work).

So this is now starting to explain why industry may struggle to hire UK Tax Accountants. Of a city with a 10 million population, there might be c.100 tax professionals who have the right skills to move across to industry as a Tax Accountant.

We then add to this the efforts on staff retention that the accounting firms use to keep their people e.g. overseas or internal secondments, regular annual promotions to the next level (which will lead to Tax Manager, and the challenging but 'gold at the end of the rainbow' type pursuit to Tax Partner), and we are left with a low number (say, 50 or less) of budding in-house UK Tax 'newly qual' Accountants.

And this is from a year (2005) in which the graduate intake into Big 4 would have been quite high. Just think how small the number might boil down to 3 years after a low graduate intake year!

Recession, Redundancy and Re-hiring.......and tax recruitment

By Simon Godley

I read an interesting article on a recruiter newsletter this week, which gave some analysis as to how the stock market, the broader economy and the employment market interact, and the time lags between events in these markets. Basically, it suggested that if the stock market crashed, then quite often (not always) this would lead to an economic downturn 6-8 months later. Redundancies may quickly follow this, then as the recession (if it is a recession) runs it course, then it could take a further 2 years before businesses are confidently re-hiring again. This is on the basis that a recession has historically lasted, on average, about a year.

So, this means that from stock market crash to businesses re-hiring would be a minimum time frame of 2.5 to 3 years. The last stock market crash started in March 2000 when the dot com bubble burst - I remember this because I sold some highly inflated priced biotech shares to pay for my now wife's engagement ring in March 2000, which is the only time that I really profited from the stock market. Then there was the downturn (which wasn't called a recession) and then finally re-hiring started to take place at the end of 2003, so almost 4 years. So the last downturn and then recovery took longer than expected.

So what should we expect this time. No-one can really predict with much accuracy. My feeling is that this time we haven't seen a stock market crash, but a burst in the credit bubble. Let's say this started in September 2007. So according to the above theory, the broader economic downturn should be felt May 2008 onwards. This seems to be the case - property prices are falling quickly, inflation is rapidly increasing, and some businesses have stopped hiring. There have been some redundancies in pockets of the labour market, but not (yet) in the tax market. This will undoubtedly happen, and let's see what the Big Four do over the next 6 months. Thus the prediction from now (June 2008), following the above theory, is that a recession will run its course over the next c.1 year, but the re-hiring won't start until March 2010, and this is being optimistic. It could be into 2011 when firms feel they are understaffed again.

2009 could be an interesting year for recruiters! Watch this space.

Are there any tax runners out there?

Further to my posting in February about running the London Marathon this year, just thought I would update on that. I did complete it in 5 hours 10 mins. Being my first Marathon, I found it very hard, particularly the 16-24 mile stretch, which is both physically and mentally tough.

It was an excellent experience, and I hope I get chance to do it again.

Would love to hear from any tax professionals who were running on Sunday.

Tax Jobs - How recession proof?

I subscribe to a few e-mail newsletters from various sources, one of which is The Motley Fool. They send through loads of information, opinions and recommendations about financial services products, and it's all quite good, honest, independent stuff.

Recently they sent through a brief article on which job sectors tend to be most recession proof. According to them, retail, consumer product manufacture, travel and hospitality businesses are usually hardest hit in a recession as people spend less on luxuries and leisure. Meanwhile vital industries such as health care and energy tend to weather the storm far better.

They also reveal that the Top 10 recession proof jobs in the UK are:

IT security professional
Project manager
Software tester
Computer programmer/developer
Network engineer
Business analyst
Pharmaceutical/medical sales
Child care worker
Web designer
Viral marketing professional

So it got me thinking how recession proof are tax jobs? Obviously, tax didn't make it into the top 10 of the above survey.

One argument is that surely we always need tax people, irrespective of how well the economy is doing? How does that saying go - there's nothing more certain in life than death and taxes? Having worked in tax recruitment during the last slump (2001 - 2003), I can safely say that this is not the case during a recession. The tax departments of the Big Four were heavily cut down, through 2 or 3 rounds of redundancies. Redundancies started off as voluntary in 2001, where people could opt to have their roles redundant, then in 2002 it got worse and sizeable numbers (into the 100s) of Big Four tax people were simply had to leave. I seem to remember that the most vulnerable seemed to be Tax Partners that were not big billers, and Senior Managers who were not going to achieve promotion to Partner. People in ACA / CTA training contracts were safe.

In-house tax teams of corporates and banks were not as badly affected, and in comparison, were relatively safe. With the exception of tax specialists working for companies in the high-tech sector or anything remotely like a dot com business. They were not safe, as it was those companies (and speculative high risk companies like Enron) which led us to the disaster in the first place.

So why the safety difference between Big Four/practice, and industry? This is because Big Four firms always (without exception) over-recruit during the good times - there is a 'war for talent' in the market and they look to seize all good tax candidates that are made available to them. If it is a bull market, herd like behaviour follows across the Big Four.

Commerce/Industry can't do this - a company can only recruit tax professionals for very specific roles, and has to go through a number of layers of approval before a recruitment process starts, so the hiring is much more controlled. Then when the downturn comes, if that company is particularly exposed in that downturn, then tax jobs may be at risk, otherwise they will be fairly safe.

I'm not going to make any predictions, but if I still worked in tax today, and given the looming financial problems, I would possibly prefer to be a Head of Tax for an energy or pharma company rather than a Senior Manager in a financial services tax team of a Big Four.

A rare blog day

By Simon Godley

I thought I should blog on this day, because I can. This is the first time, and who knows, it could the last chance I get to blog on February 29th. Although hopefully I will be still posting articles and news onto this tax blog on February 29th 2012, the year of the London Olympics.

Which reminds me - I should announce at this point that I am running the London Marathon this year, on April 13th. My chosen charity is Macmillan Cancer Support, who were very caring and supportive when my father was dying of prostate cancer in 2006. If by any chance you would like to make a contribution, my fundraising page is:

www.justgiving.com/simongodley

Just returning to the leap year issue, Happy Birthday to James Mosha, who is a contact of mine and a senior tax adviser with one of the big investment banks. Today he is 9 leap years old. Have a good party.

Merry Christmas and Happy New Year!

Dear In-House Tax Blog readers,

Since the launch of this blog in August this year, I hope you have found some of the articles from the last few months interesting.

Wishing all in-house tax execs a very merry Christmas and prosperous 2008.

Simon Godley

What makes a top flight Group Tax Director?

By Simon Godley

The latest issue of Tax Careers magazine (December 2007) features a profile of Joel Walters, Group Tax Director of Vodafone. It's an interesting article as it interviews Joel, and outlines how he got to where he is now ie Global Head of Tax for one of the world's largest and highest profile companies.

What is mostly interesting, and the theme that underpins the article, is that he has not micro-managed his career through setting of targets and goals each year etc, rather when he has seen opportunities in front of him, he has seized them. For example, in 1986, he decided to shift across to a tax role in an accountancy firm from a law firm, and then shortly after move to a firm in Washington DC, just when the last major re-write of tax law was being released. He focused and mastered these new rules, and found ways of doing tax planning around them.

Later on in his career, he stepped out of tax a couple of times to work in two start-up companies. Here, he picked up very valuable commercial experience of getting a small business off the ground, and then translated and used this experience when he returned to tax. His quote being 'Great tax people are those who also have business experience. Just being a tax expert alone will not make you a great business partner within a business'.

I think there are two key drivers to be possibly learnt from this article - one is about taking risk, and the other is about how hard you work. Joel Walters has benefited in a very harmonious way from both areas - he has been prepared to take a risk in his career, and for this he has been rewarded. When he has then found himself in an interesting role, he has worked very hard at it, and as a result has got ahead of the game.

Some people take risks, and they don't work out, and so some may say that Joel has been lucky in his career. But I think, and I'm possibly quoting a famous successful person here, that the harder you work, the luckier you become.

Where will we (and tax) be in 50 years?

By Simon Godley

Reading through the paper this lunchtime, I had one of those 'What is happening to the world moments?'. This was mostly driven by the first article reporting a 19 year old boy in Nebraska who had been on a shooting rampage in a shopping mall, killing 8 people, and then shooting himself. Clearly this is the behaviour of a very disturbed person, however the comment that caused me to reflect the most was that his suicide note revealed that he 'just wanted to be famous'. Fame? I couldn't kill a fly without feeling tremendous guilt, but I can kind of see the logic here. The boy becomes obsessed with famous people, maybe he develops some sort of resentment and jealousy that they are famous, and the only way he can quickly have the perceived level of attention that you get when you are famous is to commit this atrocity. The fatal flaw in his plan - he never got chance to enjoy his very short lived 'fame'.

My thoughts then turned to the concept of fame. When did fame begin? My conclusion to this was when media started, when things were reported about people, when newspapers were written, and then fame possibly caught on a lot faster when people could go and see a moving picture - this is when you can really get to 'know' someone in terms of their looks and personality. Therefore, fame has evolved out of technology.

The next article was more revelations from HMRC and their breaches of security. The acting head of HMRC David Hartnett, being quizzed by the Treasury select committee, was putting the breaches down to 'systematic failure'. Sounds a bit like blaming technology to me.

Thirdly, how did the wife of the 'dead' man from the canoeing accident get exposed for potential fraud - someone had found a picture of him and her together in Panama, which had been posted on the internet, dated July 14 2006. His 'death' certificate is dated 21st March 2002. Once again, technology (ie the internet) playing a significant part in the process.

So the opening pages of today's newspaper reveal three articles where technology has played a significant role, two times in a very harmful way, and once in possibly a helpful way.

So what on earth has all this got to do with tax? Well, what about tax technology? Surely a good thing in the UK, for example, where tax and accounting rules become more and more complex. The idea of the tax compliance process being fully automated, with clever software that is coded into ERP systems, pulling out the relevant tax (and VAT) numbers and placing them in the correct fields of a tax computation. So where's the downside, is there one?

To digress slightly, I recently took a trip to France to buy some booze for Christmas, and decided to stay overnight in Boulogne. From the point of deciding to make this trip, the first time I actually spoke to another human being who was incidental to my trip was when I said bonjour to the receptionist of the hotel in Boulogne, after buying my booze. Everything I had to do up to that point, including buying a channel crossing and booking a hotel room was totally automated. So technology also removes chains of people, and hence removes jobs.

So I guess the big fear with tax technology is the impact on tax professionals' jobs. Going back to the troubles within HMRC, we have already seen 12,500 job cuts as a result of the Inland Revenue merging with HMC&E, and the plan is to cut another 12,000. This was highlighted recently in Taxation Magazine, with Mike Truman launching his 'Stop the Staff Cuts' campaign. As tax technology improves and becomes fully integrated into large PLC, are we going to see an evaporation of those working on tax compliance?

We have realised that we can't live without technology and computers, but hopefully we will realise that even though computers do clever things, and save us time, they have no common sense or imagination, something that only humans can possess.

In-House tax execs moving back to Big Four......

By Simon Godley

In my last two blog postings on people moves, I have highlighted senior tax executives (either Head of Tax or senior divisional tax manager) that have been attracted back into the profession into Big Four firms at senior levels.

Clearly the Big Four are tempted to bring into their tax service lines senior industry tax execs, I guess because they have very valuable insight (ie from the 'users' perspective) of a particular industry. Notable moves have been from financial services / insurance groups into a Big Four's FS tax practice in London. Also, the tax service line is bringing in a well known figure in that industry, someone who will have a valuable network and possible in-roads into existing and new clients.

However, I have also picked up that there are risks for the practice in opting for this type of hire. A senior Head of Tax will be looking to join the practice at Tax Partner level to offer them the financial incentive for the move. A Head of Tax of a very large corporate group could be earning a package of £200 - £350k including bonus, and so will need to join as an equity partner. This salary level is above what could be offered at Director level. This could lead to two areas of concern for the practice. Firstly, this new Tax Partner is under pressure to bring in the revenue stream proportional to their salary level, and to demonstrate that they can convert their industry contacts into fees, which I suspect is not easy. Secondly, and more of an immediate issue, is what impact this appointment may have internally to those at Director level in the practice who are trying to carve out a progression to a Partner role. In a very buoyant and growing economic backdrop, these two issues may become less significant, but in more tense and uncertain times?

For the above reasons, I think this is why the vast majority of Tax Partner appointments are home grown, but clearly sometimes the Big Four like to take more of a risk to raise their profile in a particular sector.

Tax skills shortage - what can be done?

Thoughts of the day - Simon Godley

I keep seeing examples of very well known, high profile and blue chip UK companies (or international companies in the UK) really struggling to recruit UK and/or international tax professionals. It can now take 6 months or more from inception of a role to having a candidate accept an offer. Then in most cases they will serve a 3 month notice period, and so it can take 9-12 months (or longer) to have a tax professional start in a specific role which has been vacant. When a Head of Tax is advised that this could be the timescale to recruit, they will seem highly concerned - in a 12 month period, the outlook or landscape of a business could have completely changed.

As I have discussed in previous articles, this is due to a combination of an acute shortage of fully trained tax professionals in the UK, coupled with a lack of appetite from tax professionals in the UK to move jobs. That's the candidate effect, but there is also the client effect ie when it comes to considering candidates from different backgrounds for a role, just how flexible will a company be? In my experience, not very, which can be fair enough, because in-house tax functions want to recruit in experience which is very targeted for a particular role, thereby not needing to spend time training them after they have joined.

But I think the UK market, and particularly companies, are possibly missing something here. When I look through my candidate database, I have a sizable number of qualified and potentially highly skilled tax candidates from overseas - popular places of origin are India, Australia, South Africa, and Eastern Europe. These candidates are not usually included for first interview because they either lack or have no UK tax experience. But if they were included for first interview, and they held a highly skilled migrant visa to work in the UK (which quite a lot do), and there wasn't a major language barrier (and there rarely is), and the company was prepared to allow them some time to retrain into the UK tax system, then companies may have someone up-to-speed and trained in a role quicker than if they hold out for a UK tax candidate.

The employer will also benefit from the salary that they will have to offer ie lower than an equivalent UK tax professional, and at the same time an attractive salary level from the candidate's perspective.

I'm not at all saying that recruiting candidates from overseas is not without some major pitfalls, for example, physically relocating the person and their family. But I feel that there is more scope for UK/international candidate arbitration than is currently practised.

Views on this warmly welcome.