RSS feedsGiven Chris Walklett’s CV, PEM’s clients will be reassured that he seems to have experienced every situation that they could be concerned about.
He has handled international expansion, corporate and employment tax issues plus the stresses and strains of integrating two companies following an acquisition. This experience lets him demonstrate he knows what it is like to juggle the interests of management teams, employees and unions and come out the other side with a sense of perspective and humour intact.
In six years working for low-cost airlines, Walklett has had more than his fair share of complexity. He joined Go in October 2001 and, as tax manager, helped to integrate Go and Easyjet following his employer’s acquisition. As tax manager, and eventually head of tax at Easyjet, he handled employment tax issues around its push into Europe.
Walklett trained at Coopers & Lybrand in Birmingham and worked at funeral business SCI for two years before joining Go, just as it was spun out of BA.
He moved into the aviation sector in hectic times. Previously, Go’s tax requirements had been taken care of by BA’s tax department. Therefore, a new tax infrastructure had to be set up. On joining, his responsibilities also included insurance not a straightforward matter since 2001.
‘I was looking after all aspects of tax compliance and insuring the airline and dealing with the issue that you couldn’t insure airlines at that time. The insurance industry stepped back from insuring airlines and the government had to fill the void. You had to pay an additional per-passenger charge on top of the premiums you had already paid: that would typically get you two to four weeks’ insurance.’
The proposed takeover of Go by Easyjet also brought a number of thorny tax issues into relief. Go staff had just been issued with share options that they would vest immediately because of the takeover. ‘We had to communicate the tax implications to several hundred staff,’ says Walklett. That meant telling staff, including junior cabin crew, that they would receive a lump sum, but that they would have to hold some of it back for tax and submit a return.
Experiencing turbulence
The Go tax team provided as much help and explanation as it could, down to estimates of how much tax each individual would need to pay and road shows to explain procedures and rationale. But he still encountered plenty of turbulence on the employee relations front, the most heated example being a conference call between Walklett, Go CEO Barbara Cassani and the irate father of a member of the cabin crew who had spent her lump sum on a car without holding any cash back for tax.
Walklett was also working on the deal itself from both Go’s perspective, trying to secure a corporate tax deduction against the cost of the share options so that Easyjet wouldn’t hold them up as an obstacle in negotiations, as well as from Easyjet’s point of view as the acquirer.
Once the deal was agreed, bringing two airlines together meant standardising pay arrangements for cabin and flight crew. On top of basic pay, airlines typically make payments per flight referred to as sector pay, or flight duty allowances a proportion of which will be tax free depending on whether or not staff are fed or have similar benefits. These dispensations have to be negotiated with HM Revenue & Customs in advance and vary between carriers.
‘It’s designed to reflect the fact that you get paid the money and then you would be within your rights to claim expenses, submit a tax return and so get a tax rebate or have the money paid to you a different way tax free.’
In the context of the Go and Easyjet deal, union officials wanted to bring together the most favourable aspects of each side crew food at Easyjet combined with a favourable tax dispensation at Go. Walklett, with the help of Derek Carr, PEM’s employment tax partner, had to work to justify a new dispensation. ‘We went from a percentage system to one with an absolute amount of money, which for the lower-paid staff meant they were effectively on the old Easyjet food arrangement, but with a higher tax-free percentage. That took some getting past the Revenue.’
More problems arose when Easyjet tried to expand its services in Europe. Setting up in France and working out whether staff should pay tax there or in the UK meant more negotiations. But while HMRC agreed that Easyjet employees could be taxed in the UK, the French authorities saw it differently something that had far-reaching implications.
‘France is the wrong answer in terms of a low-cost airline because you’re quadrupling the cost of your customer flights. So you do what you can to make those individuals UK-based,’ says Walklett. In retrospect, he says, the sensible thing to do is play as safe as possible however complicated and contradictory the tax legislation, especially as the rules are far from clear-cut. And while Easyjet’s marketing machine was busy painting Paris orange, the French tax authorities decided to take a hard line.
It’s a situation that seems to be changing for the better, he says. ‘We are moving towards a standardisation of tax across the EU,’ says Walklett, ‘but often what happens is that businesses and industries change and expand and adapt out of kilter with the tax legislation. So suddenly you’re trying to work out how to treat people and the legislation doesn’t cater for it.
‘The social security rules that are EU-wide were written years before the advent of low-cost airlines and didn’t cater for a situation where you’d have people on a UK contract, based in another country flying maybe domestically in that country, maybe flying overseas.’
Don’t force it
What it shows is that you have to make an operation viable regardless of tax, he says. ‘If you’ve got to force the tax to make an operation viable, then it’s not a viable operation.’
Walklett joined PEM last spring. He was familiar with the firm not just through working with Derek Carr; his wife had also worked at the firm. Even so, when PEM approached him with an offer, he thought long and hard about returning to practice.
Despite a promise he made himself never to work for an accountancy firm again, he was attracted by PEM’s ambition and quality clients, and welcomed the chance to influence its direction.
‘I want PEM to be a credible alternative to the Big Four,’ he says.
The firm, says Walklett, has a broad service offering, quality people and the ability to work internationally at a fraction of the charge-out rates of the Big Four or national firms. To give it extra weight in terms of international projects, PEM joined international association Kreston in June last year as a means of assisting those clients who have overseas expansion plans.
‘Our desire to join was not driven by a marketing exercise. It was so we could cope with our existing work,’ he says. ‘We have international expertise in house, but there’s only so far you can take that. You need to have a presence on the ground in local jurisdictions to be able to say “I know how to register a company in Hong Kong; I know what the tax implications of doing business in Jersey are.” What we’ve got now is a very credible association that is ranked 15th in the world and is very powerful in the UK as well.’
In addition to the partners, PEM offers continuity in terms of its professional and support staff, he says. Staff turnover is low and clients know they will be dealing with the same people year on year as well as having a high level of partner involvement. ‘It’s not a question of seeing the partner when the firm’s trying to win the business. There’s much more involvement with senior level staff here.’
There is also a buzz about the place, he says. The firm was a finalist in the Lexis Nexis Taxation Awards this year and is securing a growing fee income. Set that against a background of a thriving commercial environment in Cambridge and clients that also want to go places and the sky may well be the limit.
For the client's view, go to page 2
