how do you price investigations?

how do you price investigations?

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If a person comes off the street (actually found us over the internet) and asks you to take over an ongoing investigation where other accountants were involved before and the alleged tax lost with penalties could be over a hundred of thousands, (because according to him his normal accountant doesn't have the expertise), would you take the case? And if yes, how would you price it? E.g. a fixed price or a fixed price with option to revise should the work exceeds quote (seems reasonable to me), any payments in advance and so on? And, most importantly, what are the current market rates for this sort of work? This case could go to the Tax tribunal eventually. Thanks.

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Stepurhan
By stepurhan
21st Apr 2011 12:54

Be very wary

I personally would be very careful about taking on a client mid-investigation at all. It is always going to be tricky for a new accountant to fully acquaint themselves with all the historical facts. Even if the client supplies everything you've asked for, there may be correspondence between HMRC and the previous accountant that could affect the investigation. The way he came to you also sounds odd. They've just found you on the internet but expect you to be better than their previous accountant. Do you claim special expertise in the area under question on your website? If not, what makes them think you will be better equipped to deal with this? Also the vague assertion that the previous accountant "doesn't have the expertise" sounds too much like a dodgy businessman looking for an accountant that will support a suspect arrangement that his previous accountant would not.

Assuming you are still happy to take them on bearing the above in mind, I would not even try to quote for something like this. Dependent on the facts of the case and the inspector involved, investigations can take huge amounts of time to resolve. I would be inclined to state up-front that the work will be charged at hourly rates and interim bill as you go along. If they are insistent on some sort of quote then a cap on total costs might be the way forward, though I couldn't advise on a suitable amount without knowing more about the specifics.

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By frustratedwithhmrc
21st Apr 2011 13:14

Agreed

The only basis that I would agree to do this would be if I had full access to all correspondence and working papers from the old accountant as well as confirmation from them that they are unable to undertake the work and are HAPPY for you to undertake it. Also see if the client was covered by the firms tax investigation insurance and if that will extend to cover the work you are doing.

From a quotation perspective, I would never give a formal written quotation for an investigation, as to a certain extent both you and the client are at the mercy of HMRC. You have no ability to directly control the scope of the investigation (only indirectly through negotiation and the overwealming power of personality and charisma).

Give him a ballpark estimate in terms of number of hours that you would typically expect an investigation of this sort to undertake and give him an hourly rate, nothing more. Under no circumstances make any fixed price commitments as this has the potential to be a money pit.

Agree an initial review of the records at say "8 hours at standard investigation rates" and provide more detailed estimates based upon that. If he won't commit to an initial review before taking over an investigation that has already started then don't touch him with a 10-foot barge pole.

Overall - Caution, most certainly required.

If you do agree to proceed, make sure you get money up front for 1/3 of the ballpark estimate. When you reach an appropriate milestone (before Inspectors visit, before tribunal, etc.) then request a further payment. Make sure the client is always in credit for the work undertaken, because after taking a big tax loss (which is usually where these things go, let's face it), your bill will not be the priority unless YOU MAKE IT THE PRIORITY.

Your client may be a decent guy and all of this caution may be unneccessary, however I am making these points to ensure that YOU are covered. Too many accountants have undertaken investigations where they have given their all for HMRC to cease all the money to pay tax debts. Make sure it doesn't happen to you.

 

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By Vaughan Blake
21st Apr 2011 14:20

A Poisoned Chalice methinks

I think you need to look into this very carefully before you take this on.  For the reasons already posted I see several warning lights!

There is no way that a fixed fee could be quoted for the project.  Some enquiries can be finalised quite quickly with a bit of horse trading and other ones go on for years and if it goes to a tribunal the sky's the limit as you may win and then have HMRC appeal!  I am guessing (please correct me if I am wrong) that you have not dealt with many enquiries or tribunal cases.  If so this is not a good one to start on and my advice is to turn it down. 

If you do decide to look into it further then you need to ascertain if you will have access to the previous accountants working papers and previous correspondence?  If not then how will you know what went into the accounts and what points have already been agreed/conceded.

If this is a large case I would look to bill monthly or when fees reached a certain fixed limit.  I would also look for a regular standing order to be set up to cover these. 

The level of charges is also a tricky area.  Some aspects of enquiries can revolve round complex tax issues, however, most in my experience hinge around much more basic points like missing takings or incorrectly claimed expenses.  You should therefore be checking which category this one falls.  Generally a lot of the work will be fairly basic paper gathering and transaction tracking.  Your normal charge out rate should therefore be the starting point.

Personally I would only take this on if I could work in conjunction and with the full cooperation of the previous accountant.

 

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By cymraeg_draig
21st Apr 2011 14:26

Be cynical -

 (because according to him his normal accountant doesn't have the expertise),

actually translates as "because his normal accountant wants to charge more than he's willing to pay so he's looking for a mug to do it on the cheap",

OR, more likely,

translates as "because his normal accountant knows the facts and he's looking for a patsy to put his false version of the facts to HMRC".

 

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By Steve Holloway
21st Apr 2011 14:40

Barge-pole in hand ...

 and still I wouldn't touch it! I suspect your PI insurers are twitching right now.

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By bernard michael bayly
21st Apr 2011 15:06

Tax investigation

Every time I do an investigation I always ask for reasonable sum in advance (approx 1 months estimated fees)  and work the fees on an imprest system thereafter. This enables you always to be ahead of the game. I have never had this turned down or lost a prospective client as a result. However you have to be strict with both yourself and the client to ensure that all time is promptly charged to the ledger. Also the first time the client does not produce a payment - stop work. It helps if you give a them progress report when you ask for each tranche of fees

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By ireallyshouldknowthisbut
21st Apr 2011 15:32

speak to the other accountant

Or to look at it the other way, who is this other 'accountant'? Are they just a bookkeeper in disguise? Have they made a complete pigs ear of the returns and the investigation? Does this client need somone who actually has a copy of the tax law on their desk as oppose to has skimmed through HMRC's guidance notes on how to fill in a tax return?

I would walk away myself, but they might be something else to this other than my first reaction as per our welsh Dragon.  I would talk to the incumbent myself. It may be they are hugely out of their depth and would welcome some proper help, or it may be they will let you know what a lying, cheating, tax dodging scum bag your potential new client is!

I would however price pretty steep. I normally add 25%-33% to our fees partly for the hassle and partly for the fact its very hard I find to recover all the time spent fiddling about with these things as clients dont seem to understand how much time it takes to do even basic tasks and none of it can be delegated. I normally ask for £1,000 to £1500+VAT upfront even for a small one.

 

 

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By Johhny
21st Apr 2011 16:46

I don't wish to be rude but...

Regardless of the previous accountant, what investigation experience do YOU have? It appears to be not much if you are having to ask so much about pricing and rates.

 

On the face of it this seems to be a difficult case, eg the amount involved, the potential lack of documents and the circumstances generally. Pass it on to an investigation specialist - yes, I am one but I am also a great believer in horses for courses as the main issue is that the client gets the best possible service.

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By Vaughan Blake
21st Apr 2011 16:47

And the answer is ... fee protection insurance

Wouldn't be without it. 

It does however only cover the accounts/returns we prepare and submit which is why I would think twice about taking on a big one that wasn't home grown.

Enquires usually flow through a series of letters and the occasional meeting.  I therefore submit a quote to the insurers for dealing with each letter/meeting in advance and send the bill after it has been completed.  As we do the accounts and know the client, I can judge pretty well what  time it will take to gather the items and reply or prepare for and attend a meeting. 

When they are your own clients you soon learn which ones have everything at their fingertips and which ones you have to write to ten times to get stuff.  When you do the accounts yourself you also know (hopefully!) that there are no dodgy areas that won't stand up to scrutiny.  You don't have these luxuries in this case.

I think the motto "if in doubt.... don't"  applies here.

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David Winch
By David Winch
21st Apr 2011 16:56

On the other hand

One advantage of changing accountant is that there is no 'history' with the new accountant of the client having, in effect, told a pack of lies year after year.

So the client will feel little embarrassment about telling you, "Yes, I signed those accounts and those returns but I hadn't let on about the unrecorded cash sales / second till / drawings described as business expenditures / etc."

Whereas the client might find it difficult saying that sort of thing to the accountant to whom he lied previously.

Similarly if the accountancy work done in the preparation of the previous accounts and returns is not as good as it should have been (with the benefit of hindsight and a larger fee budget!) then you will not be faced with any problem in admitting that to HMRC.

One of the advantages in the (criminal case forensic accountancy) work I do is that (particularly in confiscation work) both myself and the client know that I am not going to trust the client and neither I nor anybody else is going to believe anything simply on his say-so unsupported by evidence. 

So, start by saying to the client, "In your position nobody is going to be persuaded by unsupported assertions, we need to produce supporting evidence for everything and we need to check that evidence BEFORE we make the assertion - because we are going to do you some serious damage if we say things which turn out not to be correct."

On the pricing point, if it helps at all, the standard legal aid rate for partner time in a criminal case is £144 per hour.  Rates for other staff are from £50 upwards.  The normal procedure in legal aid is to quote a fee at the start, supported by a breakdown of the work to be done analysed between different grades of staff in a time & fee budget. The budget is then authorised by the LSC.  If that budget needs to be revised (upwards) then agreement to the revised budget is required before the additional fees are incurred (and an explanation for the upward revision is required).

In practice every job is different so it is something of a 'black art' to prepare the initial budget - but no-one hands out blank cheques!

David

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By Vaughan Blake
21st Apr 2011 17:21

Johhny - Harsh but fair!

I think that the key issue is whether this is a technical dispute over a point of law or a because of iffy bookkeeping/undeclared sales.

If it is the former and you are confident to run a technical argument the case might be a goer.  HMRC will send you copies of previous correspondence and you should be able to pick up the threads.  If however it is the latter (as I suspect) then this is not a suitable case for a first investigation for the reasons Johhny stated. 

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Mark Lee headshot 2023
By Mark Lee
26th Apr 2011 13:08

REALLY good advice above

 Only point ot add is - IF you have the necessary experience and expertise and are inclined to take on the case, charge an upfront fee for what Barristers might term 'reading in time'. This should be to cover you getting uptospeed and being in a better position to estimate what the costs might be going forwards - although I'd have thought it was doubtful you could accurately estimate the final outcome or the timing of such. So you're stuck with time based billing I think - with money upfront and on the imprest system as recommended above.  It's hwy tax investigation specialists often have negative WIP!

Mark 

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By Steve Knowles
03rd May 2011 12:12

Been there - done that

 I took over a case from another accountant and found that he had supplied unneccessary information, which put the client position in great difficulty.  Client is now seperated from his wife and lives abroad.

Subject only to gaining a honest relationship with the taxpayer - I would not hestitate to take it on.

 

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