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Structured to avoid subsidiary being a member firm

for less profitable work

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Hello

Not me but I thought it might be an interesting discussion topic... maybe that's a stretch :p

I like to keep an eye on what's happening locally and I noticed with one large accountants near me, well they are top 100 so to me they are large, they have an intermediate parent company who are "abc" Chartered Accountants but for their lower level/not so profitable work they use a subsidiary which is not affiliated to any accountancy body.

I guess this makes them more competitive at the lower end, by lower end I mean the bulk of work that most sole practitioners do including myself. There doesn't seem to be any real downsides either as most think that the subsidiary is the same as the intermediate parent company. None of their clients seem to realise any difference.

 

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By David Ex
20th Sep 2021 13:10

I suppose it’s “market segmentation” (I think it’s called) where there’s a different ‘offer’ for different customers - like Audi/VW/Seat/Skoda.

Not sure how it works for accountants. Presume there’s a cheaper but not as good service??!

EDIT: Reread and saw about the subsidiary not being affiliated to an accounting body. That sound odd and I’m surprised it’s allowed (by ICAEW or whoever).

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Replying to David Ex:
Slim
By Slim
20th Sep 2021 13:11

I think you are spot on with the car analogy, their big clients, audit work and consulting is done through the affiliated company.

I think they'd have been busted already if they were falling foul of the rules, they get around it by choosing their directors carefully.

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By paul.benny
20th Sep 2021 13:10

Hmmm

I'm a member of one of the professional bodies but I'm providing accounting services through a legal entity that supposedly isn't subject to any regulatory oversight.

Not convinced by that one.

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Replying to paul.benny:
Slim
By Slim
20th Sep 2021 13:16

I don't know but I think with ICAEW if you have more unqualified directors than ICAEW directors then you can't be a member firm. Not sure if the same applies to ICAEW directors and directors with other qualifications.

I do see what you mean but I think it is as simple as that. I'm sure you could probably argue the case. Maybe.

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Replying to Slim:
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By paul.benny
20th Sep 2021 13:46

Agree that you can't be a member firm with institute members being a minority of the board.

But do I have to be a minority director to avoid being regulated? And could institute members be controlling shareholders of a firm and still avoid regulation?

This structure would seem to be evading proper regulation of the firm's activity.

I wonder who AML supervisor is for the non-regulated firm. And whether clients/general public are clear about who they're dealing with. And indeed how clients get promoted/demoted. In fact, that might be the killer - are clients being demoted without realising the consequences?

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By Chris Maslin
20th Sep 2021 13:46

Are you sure they're NOT a member firm (rather than them just choosing not to shout about it)?

As others have suggested, could just be a branding differentiator, nothing more. Enabling what in reality is one firm to cater to both high brow/high fee clients, and also the masses. If it were all on one website/one brand, then the lower end clients might be scared off by mention of big corporates/high fees, and the higher end clients equally might be put off by talk of doing sole trader £20k turnover stuff.

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Replying to Chris Maslin:
Slim
By Slim
20th Sep 2021 16:42

I'm absolutely 100% sure.

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By Duggimon
20th Sep 2021 14:40

We're a regulated firm with a separate limited company to whom bookkeeping and payroll services are subcontracted. The limited company is not regulated by our regulatory body, though our regulatory body are aware of the arrangement and agreed it.

The clients do not engage with the firm directly, we subcontract work to it. The clients are all clients of the regulated firm, the limited company earns fees from us for the subcontracted work and pays the wages of the staff who do that work.

I wouldn't be surprised if that's a fairly common setup.

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Replying to Duggimon:
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By Rgab1947
22nd Sep 2021 10:05

Sorry a dodge if I ever heard of one. That the regularitory body agrees to it is just par for the course

Never mind the world still turns.

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Replying to Duggimon:
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By djn
22nd Sep 2021 19:00

Duggimon wrote:

We're a regulated firm with a separate limited company to whom bookkeeping and payroll services are subcontracted. The limited company is not regulated by our regulatory body, though our regulatory body are aware of the arrangement and agreed it.

The clients do not engage with the firm directly, we subcontract work to it. The clients are all clients of the regulated firm, the limited company earns fees from us for the subcontracted work and pays the wages of the staff who do that work.

I wouldn't be surprised if that's a fairly common setup.


So wouldn't you need separate practising certificates, PI and money laundering registration for this?
If so what benefit is there to you?
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By Rgab1947
22nd Sep 2021 10:02

Off course its a dodge.

Just look at the behaviour of the top 4. Dodgy audits, fined for MLR breaches. You can go on from here. Disreputable I see them.

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By NewACA
22nd Sep 2021 12:33

I think you may be reading too much into this, have you checked the ownership of the other company? Have you confirmed it is owned by the same partners or partners/shareholders of the accountancy firm? Lots of accountancy firms don't do bookkeeping, but give away bookkeeping work to a bookkeeper they know and trust. I am virtually certain any person of significant control at Companies House would not be a chartered accountant (for the bookkeeper firm).

eg: "PWC Bookkeeping", that's one I just made up, but it could be owned by someone completely different, someone not a partner at PWC, with the real PWC just allowing the bookkeeping firm to use the name. They would not require registration with anyone. Of course there would be different invoices from each company, and their own separate engagement letters, and a different person to call on if the "xxit hits the fan".

It is common for completely different owners to benefit from a single brand name: think of "Tax Assist", it is not really one accountancy firm, it is different businesses using a shared brand name. In fact, that is also true of PWC and so on with its different entities, all owned by different groups of people.

It is likely therefore to be just the sharing of a brand name, with substantially different owners. The owner of the bookeeping firm gets clients, by virtue of sharing in the brand name, the accountancy firm gets their clients looked after by a bookkeeper they trust, The bookkeeper firm may well be regulated by a different organisation, such as the Institute of Bookkeepers for example. The bookkeeper keeps his profits, or maybe he has to pay something to the accountancy firm for the use of its brand name, and/or pays rent if it shares the premises. Maybe there is nothing paid between the firms, maybe the bookkeeper firm is expected to pass on accountancy leads in return for use of the brand name...

Nothing wrong in any of that, done by loads all the time. In fact the real muppets are those not commercially aware to think of, or understand such ideas.

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Glenn Martin
By Glenn Martin
22nd Sep 2021 13:07

Who are they doing their AML through surely they would not have registered with HMRC to cover the small job end of the firm. Does there marketing/website show their governing body as it should if they are members.

I know some firms have hived off contractor/freelance type clients into a different brand with fixed fee on line only type offering, yet kept the high street office which appeals to the local market.

I cannot see why they would put the low value jobs into another company to avoid regulation. They are maybe going to sell them off so they don't have to deal with ITSA.

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