Doing something for nothing for clients

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Mark Lee explores the tendency for accountants to work for clients without payment – sometimes without realising that is what they are doing.

On the face of it this seems an unlikely scenario. How many accountants would admit to working for no payment?

In practice there are at least four scenarios where this happens...

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  • Charity work
  • Free work
  • New clients
  • Scope-creep with recurring work
  • Scope creep with ‘special work’
  • Credit where it is due
  • Engagement terms

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Charity work

When I first started my practice I was asked to act as a treasurer for a local charity.  I said yes but (thank goodness) said that I would do it for one year only.  I worked out that had I been billing at my normal rate, I would have earned £21,000.  After my year I explained this to the charity and said that I would continue to act but only if I were paid.  They found someone else and we parted as friends.

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Free Work

I have got better recently at specifically excluding anything to do with overdrawn DLAs in the engagement letter, but still not so good at charging for bookkeeping corrections or regularly having to chase up information. I also end up giving dividend advice and preparing the paperwork for free, despite having excluded it in the quote.

What I really find difficult is charging for negotiating Time-to-Pay arrangements, as the client is obviously short of money, even where they have caused caused their own problems by being a spendthrift.

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Clients short of money

We charge fixed monthly fees and review the scope of work every two years for established clients using a standard spreadsheet to evaluate the work we do.  We sometimes get significant scope creep, where we will discuss it sooner than the regular two yearly review, but sometimes we let this ride because the client is short of money.

It is difficult when you have a good relationship with a client who falls on hard times.  We do let them know that we are doing the work at reduced rates and occasionally this provokes a negative response, but usually from those who don't appreciate the complexity of some aspects of the work that we do.

We do not charge for most of the extra work taking on new clients.  We do charge for work bringing their affairs up to date, if there any arrears of bookkeeping, for instance, but this is always done at a rate that ensures the new client is not deterred from joining.  We see this process as part of the initial investment in a long term relationship and we do inform them of this during the initial discussions as part of the sales process.

I initially liked Mark's idea of actually putting a price on the initial work that is payable if the client leaves within three years, but in some cases the client wouldn't be able to pay and, for the difficult cases, it would aggravate the situation.

There is no doubt that we do carry out much 'free' work despite the above steps and Mark makes many valid points in his article.  We normally know where 'free' work is undertaken and it is a constant battle to reduce it.

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charging out rates

The free service can be budgeted to an extent by using a percentage addition when calculating charge out rates although this can have an adverse effect in  those cases where scope creep doesn't occur.

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What about a refundale setup fee?

To be offset against the clients first year end invoice.

Eg, quote client £700 per annum with additional £300 in first year. Client pays £300 at outset and  only £400 at year end. They get a discount for first year but accountant still gets some fees front loaded, rather than just writing off the £300 set-up.

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I see it differently

Zara, what you charge up front appears to me more like a retainer than additional set-up fee.  New clients here always pay 50% of the estimated project value as a retainer, assuring me I get paid something, and the full attention of a client that knows they are invested in me.  This doesn't stop serial procrastinators from failing to follow through with necessary information, but at least the time I spend following up can be charged against the retainer.  In the meantime, when they have short term need for a consultation, I can give them my full attention, knowing there is a retainer to bill against.

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Let them know
I constantly let clients know about the free work I carry out for them. For example I've had six new clients in the past year who have set up their own limited companies through Companies House. Of course the £15 fee was very attractive but they sought no advice on remuneration, dividends, bookkeeping, shareholding, VAT thresholds etc. I spend quite a lot time rectifying these problems and make the client aware of the fee I normally charge for company incorporations.

I have found in every case this has led to increased work from the client as they now value my advice and knowledge, and are happy to pay for it. Of course, I am probably very lucky as we all get those clients who know better than us.

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I don't charge start up fees ...

... these days it takes less than an hour to do AML checks, engagements letters and if applicable letter to predecessor and to set up the client on our system, (especially of a limited client as IRIS imports 90% of the information needed direct from Companies House) - including requesting online authority for relevent heads of taxes.

Compare this to buying a new car, I spent probably 4 or 5 hours with the salesman before everything was signed up. If we hadn't agreed on a price I could have walked away, I would not have expected an invoice. It is swings and roundabouts, I am a professional, but not a mercenary!

A new client is an investment, and as with all investments so go up, some go down. I take a long view, not a greedy one.

As a final example, sticking with the car dealer, one charges £25 to replace a lost screw from your number plate, the other says I noticed the screw was missing so I put a new one in for you for free. Which garage are you going back to?

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IRIS requests on-line authority for the relevant taxes?

Old Greying Accountant wrote:
IRIS imports 90% of the information needed direct from Companies House - including requesting online authority for relevent heads of taxes.

IRIS requests on-line authority from HMRC for the relevant taxes?

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Smart Alec ...

chatman wrote:

Old Greying Accountant wrote:
IRIS imports 90% of the information needed direct from Companies House - including requesting online authority for relevent heads of taxes.

IRIS requests on-line authority from HMRC for the relevant taxes?

... don't be deliberately obtuse - I'll parentheses that!

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My stupidity is entirely involuntary.

Old Greying Accountant wrote:

chatman wrote:

Old Greying Accountant wrote:
IRIS imports 90% of the information needed direct from Companies House - including requesting online authority for relevent heads of taxes.

IRIS requests on-line authority from HMRC for the relevant taxes?

don't be deliberately obtuse

I give you my word that, unfortunately for me, my obtuseness is not deliberate. Given that software can now file returns on-line, I found it perfectly believable that software could complete and submit other HMRC forms. I am always on the lookout for things that can save my time so this attracted my attention. I assume from your response that I misunderstood.

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In this rare instance ..

... you understood correctly.

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@OGA - Ooh you silver-tongued devil.

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Thank you ...

... it's a talent I have ;o)

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Setup fees & scope creep

Whilst I'm with OGA on how much quicker it is these days to setup the standing data on Iris, this is only a small part of the work in fact-find, establishing where the client is coming from, how they operate, needs, wants and setting out plans for the future. 

Consequently, for about the past 10 years, I have charged a setup fee and never had a complaint, clients understand it and it reflects the amount and value of what I'm doing.  Like all our fees they are quoted to suit the client's particular circumstances.

Having said that, I do give away a lot of free info when a client first comes to me in setting out my proposals, thoughts on what I think they need, and a quote for the year ahead, so swings & roundabouts I suppose.

My investment comes in quoting a fee for the year ahead incorporating any contact, ie the client can contact me as often as they want, about anything, with no extra fee.  So, yes, I suppose with some clients I do provide free time but, as my fees for the year are ample for my needs, what else am I going to do with my free time? :-)

In the bad old days of timesheets, scope creep was a constant problem, especially when staff were involved and we used to have many instances where we had embarked on new work without clearing the fee first, leading to WIP w.offs or asking the client, politely, if they would accept an extra nominal fee.  These days, the basic fee covers all the chats including any potential new work and a quote then goes out if it is to go ahead.

I don't think any system is perfect but a combination of clear & simple terms of engagement and in only dealing with good quality clients, should keep the risks low


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@Paul - Set-up Fees

How much do you charge for set-up Paul?

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Amount appropriate to the client

Hi Chatman

Just as we do with all our other fees we base the setup fee on the circumstances of the client in front of us, so in the past year I've charged £50 to someone who I'd dealt with for several years as a director of a client company, who wated me to take over their personal tax to £150 to a self employed client, in dificulties, coming from a poor relationship with their last accountant.  Ltd companies would tend to range from £150 if we do the formation, to say £280 if they had history to establish, previous accountant etc.

Years ago we tried fixed fees for this and other aspects of services but found that, unless we took on robots built at the same factory, with the same model number, each client was different.

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