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.
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:
- the accountant's informed guesses will occasionally be wrong;
- 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.
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!