This is a blog I wrote for client consumption and is the subject of an any answers query about Practice Assurance

My any answers question is here

(UK-Tax) Accountant fees - quality? Quantity? HMRC Enquiry?

Starting with insurance against HMRC enquiry:

An interesting "take" on the insurance your accountant is offering you is to think it covers penalties. What it is, is insurance to cover the cost of fees in the event of an HMRC enquiry/investigation. These offerings are best measured by whether they actually do what they say on the tin or seek to restrict types of costs, timing of costs, who does the work etc at time of making a claim - which is the very last point in time to discover such difficulties.

So one can't avoid the punishment (unless accountancy fees are seen as punishment, which is another discussion) with insurance. This is a common misconception by the way.

Being innocent isn't really much protection and I think such insurance is a good idea, although proper book-keeping and in depth analysis at accounts prep time can nip enquiries in the bud. Problem is that modern demands for low fees do not allow that level of detailed work on a year by year basis, so I can understand an "insure it" approach.

One's accountant can be like an insurance policy, but is limited by the premium paid.

Clients never ask "what can you do for me if I pay you more?".
And then again accountants are ordinary folk, of which there is every variation of personality and approach to business matters and fee charging versus work done.

Charging by the hour can be very limiting on what one can deliver.
Very low fixed fees have the same effect.

We probably would not want our doctor to be quite so constrained.

My personal view is that clients do not have any idea what it is they are not getting when they buy inexpensive/cheap/whatever. On the other side of the coin it is easy to pay a lot and not get much for it.

Now if you paid an excellent book-keeper who knows the accountancy ropes.. that might work, but book-keeping is time consuming and can cost easily more than the accountancy fee sometimes by many fold.

Book-keeper? I mean a qualified one; who is trained in al aspects of business accountancy and not someone qualified by experience or on one piece of software or another. Qualified by experience is fine for "monkey see, monkey do", but not for what I have in mind.

This week I had another example of a "spreadsheet that does all my accountant's work". The fee is low, but so is the level of work and no questions have been asked (they eat time costs and the fee won't stand it); just "accounts produced as instructed". There's no come back on the accountant for doing exactly what was requested for the fee agreed.

I have heard it said that professionals can only be as good as the client instructions.
Of course if the instructions include the figures to be used as the basis for accounts then our work is not so much done, as avoided - just some test ticking to make sure the underlying docs match and away we go. Bear in mind we usually issue a "certificate" that certifies we have not done anything, as in no auditing, nor have we satisfied ourselves in any way shape or form, because the fee does not include that and nor do the instructions.

See the picture? Hear the cries? What cries? "I paid an accountant to prepare my accounts and tax return, and they screwed up!"? I have news for you. You did not and neither did they. You did not pay for what you are claiming to have paid. You paid for "all your own work" (remember the "I did all my accountants work for him so I pay a very low fee") to be processed into a set form of accounts and logged into your tax return. And that's all you paid for. Now't else lad.

Wider service issues are dealt with via website updates and newsletters, keeping clients informed without it being tailored to the client, so the advice is there, but missed by clients who understandably are not paying attention to such matters - that's my theory anyway, about keeping clients warned about what is afoot.

Making this up as I go along you understand, better stop now.

Maybe we should charge no fee and await the client's verdict on how much they would like to pay for the work done, but that would not work if the client is simply not interested and just wants it done cheap with as little interaction as possible - because that is what he's paying for.

So around we go. HMRC enquiry hits. Client says "why?!" Accountant says "I did the job based as you required upon the work ("information and explanations") you gave to me. This is the result." The "result" is how long it takes to resolve the enquiry assuming there is actually nothing wrong and all that is needed are deeper analyses of what makes up the figures in the accounts.

One might argue it is cheaper overall to pay peanuts for accounting every year and then maybe or maybe not have to suffer an enquiry at some time in the future. After all, it may never happen. 
And it isn't the cheap accounting that will cause the enquiry, all that does is increase the future costs, sometimes massively because old records have to be re-worked for details. That's why we have time limits for keeping records and work done on new records is MUCH cheaper (there's your "cheap", it needs to be recognised as derived from here - that's the profession's marketing and education issue, maybe) than work done on old ones. That's if the old records still function (think Sage backup system from five years ago).

If fiddling has been going on, that's another ball park.

So.. having a dog and doing the barking spring to mind - but then it is a dog eat dog world. Is it not? Even dogs have to eat.

Anthony

with thanks to Jeff who inspired this piece.

My any answers question is here.