Chairman of the Tax Advice Network and BookMarkLee
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Doing something for nothing for clients

29th Jul 2013
Chairman of the Tax Advice Network and BookMarkLee
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AIA

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.

Charity work

This is the most obvious situation. Some accountants will provide accountancy or tax related work for people who cannot afford to pay for it. In such cases the clients are likely to be well aware of the accountant’s generosity.

By the way if you don’t feel able to do this yourself do remember that there are some excellent resources available for people who cannot afford to pay an accountant:

  • Low Income Tax Reform Group – a voice for the unrepresented, providing loads of free resources for disabled people and carers, low income workers, migrants, pensioners and students
  • Tax Help for Older People – an independent free tax advice service
  • TaxAid – a charity that helps people on low incomes with their tax affairs

Free work

By ‘free work’ I am drawing a distinction with work that is consciously done for free for people who cannot afford to pay for it.

Free work is what you do when you do more work than you intended and you make no effort to get paid for it. This is sometimes said to be due to ‘scope creep’ as the scope of what you are doing is creeping away from your original expectation. 

Notice I referenced you doing ‘more work’ than you intended, not simply where the work takes ‘more time’ than you hoped, or more time than the client would pay for.

How often do you do free work? And why does it become necessary?

The advocates of value based billing also talk about getting clients to formally agree to an additional fee for every material change in the original service requirement.  I’m doubtful that many readers of AccountingWEB adopt such a policy. But if you do, please share your thoughts in the comments section below.

New clients

Possibly the most common time when free work arises is in the first year of dealing with a new client.  It’s very easy to quote what you think is a competitive fee that would be fine in year two but which doesn’t really reward you adequately for the extra time it takes to induct a new client.

The extra one-off activities that take time in year one include all of your client take-on processes, including that required for anti-money laundering identity verification, liaison with your predecessors and tailoring and issuing your letter of engagement and terms of business. Then there is the time it takes to get up-to-speed with the client’s bookkeeping and accounting requirements, loading their tax return data onto your system, doing the necessary with HMRC and so on.

It’s very common to ‘give away’ all of the extra time spent with new clients. You tell them that it evidences your commitment to a long-term relationship. But how commercial is this? If the majority of your clients stay around then perhaps it really is a good investment.

Another way of looking at this is that you are giving away time to new clients at the expense of investing that time with existing clients. Why should new clients get that extra commitment from you?

If you are running an established practice perhaps you could quote two fees to new clients? One would be the commercial annual recurring fee (or your estimate thereof). The second would be your take-on fee. It’s up to you whether or not to charge that second fee but by putting a figure on your investment in the relationship you educate the client that there is always a value to what you do.

You may choose to waive the ‘take-on’ fee if all goes smoothly, but you could also reserve the right to charge the fee if the client doesn’t do all that they promise to do on a timely basis or if they cease to be a client within, say, three years.

Another reason for adopting such a stance is that accountants typically spend more time engaged with clients in the first year than in the second and subsequent years. Even if you do not charge the take-on fee your references to it can help educate the client that they should not expect the same degree of time and attention in subsequent years.

If you simply invest the extra time with clients without being clear as to what is going on, they could feel short-changed in year two when you are less often in touch or when you seek to get through things much faster.

Scope-creep with recurring work

This tends to happen with longer-standing clients. As the years go by so they require a little more work each year and you haven’t really taken this on board. You just do what needs doing and keep the fees in line with before – whether consistent or just increasing them for inflation.

In reality, after a few years you feel that you’re not being adequately remunerated for all the work you do. It’s more than it was when the client first came to you.

What can you do? You don’t want to simply put up the fees as surely that will upset them and you may lose them as a client. So you put their feelings ahead of your own and you choose to be the upset one who is doing work for free.

One solution to this scenario is to open lines of communication. To explain the situation and gauge the client’s reaction to a larger increase in the fee. Even if takes three years to get it up to a commercial sum that’s better than not discussing it all.

Scope creep with ‘special work’

You can end up doing free work here if you quote a fee for a one-off piece of special work or advice and you are insufficiently precise as to what you will do for the fee. As a result you end up spending far more time on the project than you had anticipated. In effect the scope of what you are doing creeps away from you.

One way of avoiding this is to quote an initial fee for the first stage of the extra work and to give an estimate of the fee for the second and later stages of the work. You can then quote for these more accurately once you have a fuller understanding of what will be involved.

Credit where it is due

If you know when you are doing free work I am a big advocate of ensuring that you tell the client you have done this. If you don’t tell the client you will get no credit for the extra unpaid work. As a result you are likely to resent the fact that you are giving away your time for free. That’s not healthy.

Engagement terms

Free work for commercial (vs charity case) clients generally arises when accountants have not been sufficiently clear as to what they will do for the quoted fee. Your engagement terms are key to avoiding such situations. The simple question is therefore are you happy doing free work for clients? Are you aware of when you do this and have you thought about how you can reduce the amount of free work that you do?

Mark Lee is consultant practice editor of AccountingWEB and writes the BookMarkLee blog. This and his ebooks are for accountants who want to stand out and be more successful in practice, online and in life. He is also chairman of the Tax Advice Network of independent tax experts.

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Replies (17)

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By Tomazaan
30th Jul 2013 10:50

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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By chatman
30th Jul 2013 10:55

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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By raybackler
30th Jul 2013 11:38

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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By geoffwolf
30th Jul 2013 12:37

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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By zarathustra
30th Jul 2013 15:00

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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Replying to pjd17mini:
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By Gaffer
01st Aug 2013 17:44

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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By pr27
30th Jul 2013 20:44

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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By Old Greying Accountant
06th Aug 2013 11:09

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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Replying to MrsLadyWoman:
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By chatman
06th Aug 2013 11:01

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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Replying to mbee1:
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By Old Greying Accountant
06th Aug 2013 11:13

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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Replying to Jeffers99:
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By chatman
06th Aug 2013 11:14

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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By Old Greying Accountant
06th Aug 2013 11:39

In this rare instance ..

... you understood correctly.

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By chatman
06th Aug 2013 14:13

@OGA - Ooh you silver-tongued devil.

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By Old Greying Accountant
07th Aug 2013 11:12

Thank you ...

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

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Teignmouth
By Paul Scholes
18th Aug 2013 22:54

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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By chatman
19th Aug 2013 08:42

@Paul - Set-up Fees

How much do you charge for set-up Paul?

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Teignmouth
By Paul Scholes
19th Aug 2013 10:27

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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