Chargeable time

In an earlier blog I explained that in firms with more than one or two partners their earnings are likely to be directly affected by two factors. One of these is their level of chargeable time.

This means how much time they spend on billable activities such as reviewing client work done by their staff. It would also include time spent talking on the phone with you or with someone else about your affairs - The taxman for instance. And it also includes meetings to discuss your affairs, whether with you, staff, the taxman or anyone else.

The better accountants will clarify with their clients what level of communication they would like. Some will be happy with a quick telephone call, others need to see advice in writing. The more important the advice the more likely it is that the accountant will need to confirm it in writing even if you are happy with a quick telephone call. The reason accountants need to confirm advice in writing is to make sure that clients have understood any ifs, buts or maybes that affected the advice.

Another reason accountants like to send letters to their clients is so that there is some evidence at the end of the year of the level of work that has been done. But if your accountant was 'upfront' about the likely fees he/she wouldn't need to send letters except when YOU need them.

So today's tip concerns how you deal with your accountant. If you just want to check something give him/her a quick call. That will invariably cost you less than if you wrote a letter or typed an email. And if you don't want written confirmation - end the call by saying something like "thanks for that. There's no need to confirm it in writing."

What do you get for your money? (2)

This is a follow up to my earlier posting on this topic.

Many accountants find it difficult to 'sell' good advice to their clients - especially the entrepreneurs. At the end of the day there may be a big fee but there is rarely a big production. The result of their research and advice is just that there isn't any tax to pay.

In an effort to justify their big fees what do accountants do? Sadly they all too often produce big reports containing their advice. The logic behind the production of a big report is often - A big report evidences lots of time which justifies a big fee.

The same goes for long letters. Personally I made it a rule never to send a client a letter that was more than 2 or 3 pages in length. I also followed bast practice and used plenty of headings and sub-headings. These can be useful road signs on the way through a lengthy document.

Now here's today's tip.
Tell your accountant that you don't want a big report or a long letter when you ask for detailed advice. If he/she is to write to you you don't want anything more than two pages.

This will inevitably reduce the fees you would otherwise be charged. Why? Well there's less evidence of the work that's been done. And, generally it takes less time to produce a two page letter than a lengthy report. All written documents sent out by accountants need to be dictated/written/typed, checked, amended, reviewed and finalised. The shorter the document the less time it takes and that invariably leads to reductions in the fees charged for the work.

Another benefit of this approach is that you don't have to pretend to read a long report/letter or feel guilty that you haven't looked at it. This should mean you can have a better idea of what's really going on.

Getting straight to the answer may not be best

Imagine you're someone who collects all their receipts and asks their accountant to produce accounts (if required), a tax return and then to tell you how much tax to pay. Alternatively you may collate the information onto a spreadsheet or into a simple accounts package.

The key question then is what approach does your accountant take to getting to the answer.

Automatic
Most accountants' go through everything and to come up with the answers. In most cases the accountant will have had to make a choice as to whether various expenses can be offset against your income for tax purposes. Again, in most cases the answers will be obvious. Where there is room for doubt the accountant may make an informed guess or may just ask you to clarify the nature of the expense and the reason you spent the money.

To some people that approach sounds fine. The accountant has used his experience, knowledge and skills to best effect and has avoided taking up much of your time.
There are two problems with this approach though:

1. the accountant's informed guesses will occasionally be wrong;
2. you have no way of knowing how much the tax bill has been reduced by virtue of the decisions made by the accountant. And worse, you may assume that the accountant hasn't tried to reduce your tax bill.
   

Two step
An alternative approach would be for the accountant to reach an initial conclusion re the profits and tax and to communicate this to you AND to make it clear that "we may be able to reduce the tax bill depending on how we treat a number of items."

Accountants who follow this second approach can be sure their clients will see them as helping to save tax. Now the odd thing is that the final tax bill may not be any different to the tax calculated by an accountant following the first approach.

Many accountants go the automatic route because it's faster and because their experience is such that they feel confident that they can make the right informed guesses. As this route is faster they can charge their clients less than if they 'budget' for a two-step approach.

I think most clients would think more highly of their accountant if he/she follows the two-step approach even if they are not invited to the dance every year!

No reference to fees and plenty of free advice time?

A new contact called me last week as she wanted to ask me some questions that she was too embarassed to ask her accountant. I was happy to help but I was confused; her questions were exactly those that I would expect to be directed at one's accountant. And I'm sure her accountant would not have thought her odd, silly or difficult had she asked him. Indeed I suggested that did so.

The exchange got me wondering however whether this is a common occurrence?

Let's call my caller Sindy. I learned that she had only engaged her accountant earlier this year and he had given her plenty of his time for free so far. However she did not recall him making any reference to fees or the basis on which he will be charging her. Having had various very positive and helpful chats with the accountants, Sindy is convinced that he is not suddenly going to sting her with a big bill for fees.

Sindy told me that she had found the accountant on the web and had checked out his website - she had decided that she wouldn't even both approaching anyone without a website. The accountant had spent 90 mins with her as part of his initial 30(!) mins free consultation - and had agreed he wouldn't be charging for the additional time - he liked her and was interested in her business.

I assumed the accountant was a one-man band in which case what Sindy was telling me was quite feasible.

I have since looked him up on the web and see that his firm claims to be one of the leading accountancy practices in the South East, with a team of sixty staff. This puts a whole different complexion on things and makes me more cynical. I'm sorry but now I doubt that Sindy's confidence is justified.

The guy Sindy saw might well be reasonable but I wonder whether the rest of the firm operates in the same way. I've yet to find a larger firm that can manage to do so. Certainly this one claims to operate on the basis of fixed fees - so hopefully Sindy is ok. I'd be delighted if my fears on her behalf are unfounded. Time will tell.

What motivates the partner looking after your affairs?

Firms of accountants with more than one or two partners typically judge Partners by reference to two factors:
a) How much chargeable time they do; and
b) the aggregate level of billings for which they are responsible.

The partners' profit shares - how much money they make each year - are commonly related directly to one or both of these factors. Some more forward thinking firms give added weight to other factors but this is rare.

Knowing what motivates your accountant can be key to knowing how to keep your fees down and how to get better value.

In later blogs I'll reveal how these two factors are likely to affect your accountant's motivation.

Peace of mind, trust and confidence

I used to be an accountant, but I'm alright now!

When I was in practice I believed that what I was selling was not just tax advice. I also needed to provide my clients with peace of mind, confidence and trust.

• Do you trust your accountant to do his/her best for you with the taxman?

• Do you have confidence in your accountant's ability to give you the advice and service you need, when you need it?

• Do you have peace of mind that your accountant does what you need them to do when you need them to do it?

If the answer to any of these questions is 'no' then we must ask 'why not?' and does your accountant know how you feel?

Regular readers of this blog will know that I have little patience with accountants and tax advisers who have not moved with the times. There is no excuse these days for taking clients for granted. I'm not sure it was ever a wise approach but it does seem to be quote common on the basis that most clients think that all accountants are the same. And that's a key reason why I'm sharing accountants' secrets. Some accountants give the rest a bad name. There is plenty of variety out there - as there is with any service provider. You don't have to stick with one who treats you badly, doesn't fill you with confidence or doesn't inspire your trust.

What do you get for your money?

When you buy a product you can feel it, see it and use it. Your customers can do the same with whatever you sell to them. But if you supply services (like accountants do) it's not so easy.

Some accountants make a point of printing out your tax return in colour and/or binding it nicely so that the copy you keep 'looks good'. They may do the same with your accounts.

Together with the letters you get from your accountant the tax return (and accounts if you need them) may be the only physical evidence there is of the work your accountant has done.

But of course you're not really paying your accountant to present you with a full colour copy of your tax return or a nicely bound set of your accounts are you? Some accountants don't bother to do this. They think the extra cost of colour printing and the extra time it takes to bind the tax return and accounts isn't worthwhile. Some clients will appreciate it, some not. Does it make a difference? Probably not of itself but if it's all part of a package of service aimed at showing the client that their needs are paramount, I think it can help.

If your accountant doesn't provide you with a copy of your tax return to keep - you should ask for one and you should keep it so that you have a copy of what's been sent in to the taxman on your behalf.

What it isn't worth anyone doing is sending a colour copy of the return to the taxman. Firstly they are more interested in returns filed over the internet - which will become the norm within the next 2 or 3 years. Secondly it's a waste of colour ink to send a colour copy of a return to the taxman. All they do is copy type the entries onto their computer and then throw away the physical return that has been sent in.

Your accountant probably sends you two copies of your tax return, one to keep and one to sign for them to send on to the the Revenue. Do make sure you keep the better presented of the two returns. It's for you. Many years ago I had a client who kept the unbound copy. She signed and sent back the one intended for her to keep. She thought it might be better for her if the taxman received a nicely bound copy. It didn't make a difference then and it doesn't make a difference now.

Tax advice and support for those on low/no incomes

If you fall on hard times and are unable to continue paying your accountant, obviously you shouldn't wait until after they have done their work for you. Be honest upfront.

If you are in a position where you cannot afford to pay an accountant I can recommend two separate organisations here:

The Low Incomes Tax Reform Group (LITRG). Their website contains information specifically relevant to pensioners, students and low income workers

TaxAid is a separate UK charity providing free tax advice to people who cannot afford to pay a professional adviser.

Both LITRG and TaxAid are worthy causes that do wonderful work. Their websites also contain much information that might be of interest to taxpayers in general and to tax advisers and accountants.

Bigger doesn't always mean better

I wouldn't want anyone to be under any illusions. I am not suggesting that you should move to a larger firm of accountants. Size doesn't matter!

I have heard stories of clients of larger firms where the client rarely gets to see the partner (nominally) responsible for their affairs; in some cases the client doesn't even get to see the manager, just a succession of more junior staff. This may be because the manager and partner feel that the client doesn't want to pay 'extra' for them to be involved on a day to day basis. They may be right especially if they have no added value benefit from the client's perspective.

If you see some benefit in being with a large firm and are willing to pay the fees despite the way you are treated, that's fine. Personally I doubt that anyone needs to put up with the sort of 'service' I've described above. If you don't need the input and advice of a partner in the larger firm, then you probably don't need to be with that size of firm.

Rarely will the partner in charge take the initiative and advise you to find a smaller firm of accountants more suited to your needs and your pocket. There's a sort of macho rule that prevents many partners from admitting that some clients are too small for the firm.

Most accountants are like GPs

When we go to the doctor we tend to expect them to know a fair amount about most things medical. We are rarely surprised however when they refer us to a specialist. Indeed we would feel at risk if our local GP wanted to operate on us to remove a kidney stone for instance.

Did you know that most accountants are just like GPs? Indeed the expression 'General Practitioner' is one that accountants will often use to describe themselves.

What this means is that you should expect your GP accountant to recognise when he/she is out of their depth. They should admit when your situation or advice needs are outside their level of expertise. One accountant I know tells me that "If asked for advice and I am on uncertain ground I will ALWAYS seek specialist advice from elsewhere. I let my clients know that; they do not expect me to be an expert in everything."

Many GP accountants have arrangements with third party 'tax support' services that supply the specialist technical expertise that the GP does not have. In some cases there is no formal arrangement - the GP obtains the specialist expertise from whichever he/she judges to be the most appropriate technical specialist on a case by case basis.

If you ever feel that your accountant is out of their depth you can always ask for a second opinion - just as you would if your medical GP seemed unsure of the cause or remedy for your troubles.

In a subsequent blog I will explain how such arrangements with tax support services operate.

Good, bad or indifferent?

When I ask people to describe their relationship with their accountant I generally receive variations on only 3 basic answers. That is that the relationship is judged to be Good, bad or indifferent.

What would your answer be?

Good?
This implies that things couldn't be better. Your accountant does what you want, when you want and for a fee that you consider to be excellent value for money. You get pro-active advice and are very happy to recommend him/her to friends and family.

Bad?
You feel that you're putting up with bad service, high fees and/or get little of value. You certainly wouldn't recommend anyone you know to use the same accountant.

Indifferent?
This is how I would describe you if you think your accountant is 'okay'. This might be because he/she doesn't wow you with great service nor does he/she charge high fees or upset you.

In my experience a very high proportion of people think their accountant is just 'okay'. I think that's sad and I intend to help you find ways to get better service, lower fees and more value from your accountant. Maybe from the same accountant as you have now. Maybe from a new one. Whatever is right for you.

We're Only a Phone Call Away!

I saw this wording on an accountant's website recently:

We're Only a Phone Call Away!
You can call on us at any time knowing that you will never be charged for our time. So we hope that you will feel free to speak to us whenever you need to, without having to worry about the cost. If any extra work arises from this free initial consultation, we will give you a fixed price quotation for the extra work before it is started.

In my view this is exactly the sort of approach that most people want from their accountants. I'm pleased to be able to evidence the fact that there are accountants who are client focused and who operate in this way.

A search on Google revealed that a number of other firms offer the same approach. If it appeals to you then ask your accountant if he/she is prepared to operate on this basis.

What is critical however is how honestly committed to it they are. It all comes down to attitude. You want them to welcome ad-hoc calls from you and to be used to giving fixed price quotes for follow up work. If they can't 'walk the talk' however then maybe it's time to find someone who will.

How easy do you make it for your accountant?

Do you share your plans, dreams and ambitions with your accountant? Or do you only tell him about things after you've done them?

I am a member of The Magic Circle so I could excuse anyone who might think I was a mind-reader too. Your accountant however is unlikely to know what you're thinking. This means you have to tell him/her what you're planning to do before you finalise your plans. If you don't do this he/she cannot give you advice to keep the tax consequences to a minimum.

One unfair criticism of some accountants comes when they are unable to give constructive advice AFTER a transaction has taken place - or even after things have moved too far towards a conclusion.

It's very hard for anyone to plan AFTER the event. It's like looking at a map to find the shortest route after you arrive at your destination. You might have found it by luck or you might have gone a really long way round. Either way you can't put the petrol back in the car.

So - if you want to get good advice from your accountant, make sure you share your plans, dreams and ambitions. If he/she isn't interested you may want to find someone who is.

A good accountant will encourage you to do share relevant ideas and plans anyway so as to avoid being in the embarrassing position of having to say 'yes' when you ask: "Oh, by the way, I did [this]; does it matter?"

Keeping it legal

In yesterday's blog I pointed out that you will always be disappointed if you have unrealistic expectations of your accountant. A good accountant will help keep his/her clients' tax bills down but will discourage you from doing anything illegal.

If you're wondering however, here is my simple analysis:

It is legal to:
- Legitimately minimise your tax liabilities;
- Claim all available allowances and reliefs;
- Claim tax relief for expenditure incurred “wholly and exclusively” for business purposes;
- Plan your affairs to keep your tax liabilities as low as possible within the law.

It is illegal to:
- Deliberately and/or dishonestly evade paying tax;
- Claim tax relief for non-business expenses;
- Fail to include all taxable income in accounts/tax returns.

Potential consequences of illegal activity:
- Revenue investigations;
- Back taxes;
- Interest on late paid tax;
- Penalties (up to 100% of tax);
- Wasted time, hassle, professional fees, and
- If you’re very unlucky, ill-advised or stupid - prosecution and prison.

Sometimes there may be a fine line between the two. More often than not, there's a big gap. One is honest. The other is dishonest.

Does your accountant work for you or for HMRC?

I have heard it suggested that a large number of accountants regard themselves as working on behalf of the Revenue. (NB: HMRC is the name of the merged departments of Inland Revenue and Customs & Excise. The merger took place in April 2005).

I suspect that this is more an issue of those accountants giving the wrong impression to their clients. But, as I have long maintained, 'perception is reality'.

Yet again this comes down to a question of how well your accountant communicates with you. Sadly not all accountants are good communicators.

Let's consider the facts:

The local office structure within HMRC has all but disappeared.
Whereas years ago local accountants might be on first name terms with local Inspectors of Taxes, this is rarely possible today. It also means that accountants need not be concerned that if they fight hard for one client that the local Inspector will get his/her own back. It is rarely going to be possible for one Revenue officer or Inspector to make life difficult for the accountant's other clients. Whether this used to happen or not, it's no longer feasible.

If your accountant needs to speak to an Inspector about your tax affairs he/she will generally only be able to speak to a call centre where an operator will call up your information on a computer screen.

Accountants have to focus on their clients
A recurring theme within this blog is the need for accountants to focus on their clients needs otherwise you will vote with your feet. Anyone who really thinks their accountant is more interested in what HMRC thinks than in fighting unfair attacks etc will look to find a 'better' accountant. That is one who they perceive is more focused on giving good client service. The switch often takes longer to arrange than would be ideal, but it does happen.

The customer is always right
Except when he/she wants to break the law. Qualified accountants know the difference between what's acceptable and legal and what's unacceptable or illegal. A good accountant will ensure that you appreciate the distinction and the consequences of choosing to do anything illegal. (I'll make that the subject of a separate posting).

If you want tips from your accountant on how to cheat the taxman illegally, you will be disappointed. If having resisted any involvement in illegal activity your accountant leaves you thinking that he or she is working for the taxman, their communication skills are letting them down.

Service guarantees

I know of accountants who offer one or more of the following service guarantees to their clients:

• If client supplies all their records within agreed timescale we will complete their accounts by the agreed date;

• Ability to contact me and to get a reply within 24 hours;

• Thirty day turnaround of information supplied or client gets their money back [this accountant seeks upfront payment];

• Accounts prepared by a specified date or fee is refunded [this accountant also seeks upfront payment];

• "Your tax return with you within 14 days of us receiving all relevant information";

• If your primary contact partner is unavailable an alternative partner will be available.
  

Have you asked which elements of their service your accountants is willing to guarantee?

Typical frustrations

Here are ten random real-life examples of frustrations that have been expressed to me by business people as regards their accountants. Do any of these strike a chord?

1 Receiving a bill monthly even if there has no business transacted

2 They are tax advisers more than accountants and I have just lost my bookkeeper, so I have to work out how to answer all their queries and do most of the detailed stuff myself.

3 Difficult to get hold of him. Doesn't listen very well

4 I never get any advice.

5 The lack of email acceptance; all is face to face or by post.

6 A bit of a cowboy; I have to double check his advice as sometimes it might be a bit riskier than I like.

7 His apparent lack of interest in my business activities.

8 They never call me!

9 They start with thinking "how much money can I make from this?" rather than "how can I best help?"

10 They prepare my tax return and tell me what tax to pay but I never get any advice.