Mark Lee - sharing accountants' secrets

While you're waiting

2007-02-18T18:43:00.002Z

Over the last few months I have posted an enormous amount of valuable information to this blog. However my focus has now moved on - so there will be no more posts here.

I am however regularly blogging elsewhere:

Advcie and tips for ambitious professionals

Accountant jokes and fun

TaxBuzz - tax insights and commentary

Do you get on well with your accountant?

2007-02-11T23:25:00.000Z

We all gel with different people. There are no rights or wrongs, we are just all different.

One reason why far too many people think that their accountant is just merely 'okay' is because there is no real relationship.

Few people interview prospective accountants in the same way as they would staff. But, almost regardless of the service you want, you will want to make sure that you like your accountant.

You need to be clear what is important to you and what you want them to do i.e. do you want them to visit or will you go to them? do you want them to do your bookkeeping or just your accounts? do you just want them to complete your tax return? Have you a preference for gender or age?

I will shortly be producing a guide to interviewing your new accountant.

In the meantime, maybe it's worth thinking about how you could improve the relationship with your accountant. Maybe just going for a drink together, or having a meal together would help - as long as they don't want to charge you for this. On the other hand, do remember that accountants, like solicitors, really value their time. Look at it from his/her perspective. Are you a growing business? Will the investment of time in building a relationship with you be worth it to the accountant? If they can see longer term potential in you maybe they will be happy to invest the time.

(I wonder if the origin of 'gel' is an abbreviation of "get on well"?)

Qualified or unqualified?

2006-12-27T12:44:00.000Z

Most people are unaware that the word ‘accountant’ can be used to describe a range of different people. It’s not like ‘dentist’ which always means someone who is qualified to check your teeth.

Anyone can call themselves an accountant or bookkeeper even if they have no professional qualifications. But if any laws are broken, it will be you, not your accountant, who pays the penalty.

If you are serious about making money in your business the chances are that you will want to engage a professionally qualified accountant. That means someone who has passed tough exams and belongs to one of the professional accounting or tax institutes. This will also ensure that your accountant has to abide by a strict code of professional ethics which should mean they are more reliable and that they carry professional indemnity insurance to compensate you if things go wrong. Finally, if it all goes wrong you will be able to complain to the professional institute if you don’t get the service that was promised.

The most common qualifications and designatory letters that are likely to be relevant are:

Chartered Accountant - ACA or FCA – Member or Fellow of the ICAEW (Institute of Chartered Accountants in England & Wales).

Chartered Accountant - CA – Member of ICAS (Institute of Chartered Accountants in Scotland)

Chartered Certified Accountant - ACCA or FCCA – Member or Fellow of the ACCA (Association of Chartered Certified Accountants)

Chartered Management Accountant – ACMA or FCMA – Member of CIMA (Chartered Institute of Management Accountants)

Chartered Tax Advisor - CTA or ATII – Member of the Chartered Institute of Taxation

Less relevant qualifications because they imply a more junior level of experience include:

AAT – Member of the Association of Accounting Technicians

ATT – Member of the Association of Tax Technicians

It’s invariably safer to rely on professional advice than the ‘advice’ of a friend who’s always bragging as to how he’s got one over on the taxman. Using a professional adviser gives you a degree of credibility. The taxman knows the adviser is not going to be “cooking the books” and so you should be at less risk of tax enquiries and investigations. Having said that the taxman (HMRC) is changing the way it works and asking questions by reference to a range of factors so having a professional adviser will not be enough to ensure the taxman leaves you alone.

Does your business need a company?

2006-12-21T23:19:00.000Z

Lots of people describe their ‘business’ as a ‘company’ even though the two words do not mean the same thing.

This is not the place to explain all of the differences or the obligations that you take on if you form a limited company. Too many people make a quick choice because they have heard that one approach or another will mean they will pay less tax on their profits. That doesn’t mean it’s the right choice for them. Are there any non-tax reasons why you may need to operate your business through a company? It depends on a number of factors and your accountant should be able to help you decide. Certainly a company will generally find it easier to raise finance and your bank may also prefer it because of the greater regulation that applies to companies.

For the moment let me just stress that many people find it difficult to grasp the idea that their company is a distinct legal entity. If you set up a company you need to remember that the company bank account and other assets are not yours so you cannot just take money out of the company’s bank account when you feel like it.

You will need to decide whether you want an accountant who just skirts around these issues and undertakes to sort out everything for you. Or would you prefer an accountant who tries to help you understand the issues and lets you decide whether you will be able to cope with the administration – even with your accountant’s expert help? And what will it all cost? How do the extra charges for running a limited company compare with the tax savings you hope to achieve? Do YOU think it’s worth it? Many people do. Equally many people don’t get to find out that they have a choice and that the hoped for tax savings get swallowed up by additional accountancy fees.

Ultimately you need to determine whether or not you should launch your business as a limited company, as a sole trader or as a partnership. Ask your accountant to help you understand the options but do not accept their advice until you understand whether or not it is right for you.

A useful tip

2006-10-26T22:14:00.000+01:00

Ask your accountant to tell you what information and papers you need to supply to keep your fees down. The less organised your paperwork the more you will pay for your accountant to sift through it to produce your accountants and calculate your tax bills. If you need help creating a simple system to manage your paperwork, so that neither you or your accountant need waste time sorting through things, ask your accountant or bookkeeper to give you some guidance.

Beauty parading prospective accountants

2006-10-24T17:47:00.000+01:00

I was chatting with a lady last night who told me that she was looking for new accountants for her £4.5m turnover company.

She asked my advice. Here's some of what I told her.

All of the firms you have asked to quote will, I am sure, obtain a copy of your accounts, possibly from Companies House, so will know what your current audit fees are. If you have supplied your detailed/full accounts the tendering firms will also have an idea of who much you’re paying over and above the audit fees for ‘professional’ or ‘accountancy’ services.

I suggest you consider exactly what services you will require from your new accountants and what level of support/input you would like.

In my talks to business owners and to local and National business groups I address a number of the key issues that are all too commonly overlooked by successful companies when appointing a new firm of accountants. Often the business owners themselves don’t know the right questions to ask – and of course these will differ depending upon the circumstances and the personalities involved.

I assume that your FD or some other accountancy trained person will also be on your side of the table during the beauty parades. Many founders/MDs find this an invaluable aid in helping them to see through hollow promises and to help clarify the final choice. Equally there is much that the tendering firms can do before the beauty parade to show how serious and professional they are (or not) as the case may be. Too often a good salesman (and yes, some accountants are good salesman) can swing the appointment despite, what a trained professional can identify as, an absence of sufficient backup and support.

Another thing you should be ready for is to consider what other benefits you could get from your new accountants and that you have not had to date. Additionally to keep an eye to the future; what else might you need from your accountants if the business continues growing as it has in the last year or two – or if times are not so good?

I have sat on both sides of the table in such situations and am well versed in what can go wrong. Specifically, some years ago I was asked to sit on the panel facing a number of firms who were pitching to be appointed as accountants. We were effectively forced to pick the least worst as we couldn’t afford to devote any more time to the process.

I sat on the same panel again earlier this year and we didn’t want to make the same mistake again. I helped ensure that the pre-tender briefing was more focused, the panel agreed the key issues and we discussed our views on a timely basis. We were unanimous in our choice this time and subsequent experience has only been positive. Sadly though we probably lost out on four years worth of potentially valuable advice and input.

I hope this is helpful. If you’d like some more formal, expert, independent input on the tendering/appointment process please let me know.

On a related subject

2006-09-19T14:53:00.000+01:00

I was approached today by someone who has concerns about the way their accountant has behaved recently. I won't go into details here but it certainly sounded as though my friend had grounds for complaint.

Now let me be clear - There are always two sides to a situation like the one that was described to me. There my be extenuating circumstances. What was said/done may have been misunderstood. I know all that - although the surrounding details and the specific allegations in this case are pretty damning even if only partly true.

My advice was to try to resolve matters directly with the accountant. If this is unsuccessful and my friend wants to take things further I indicated that a complaint could be made to the relevant professional body. We checked and the individual concerned is a member of the Institute of Chartered Accountants in England & Wales. In such cases complaints can be made to the Professional Conduct Directorate if the professional and ethical standards of an Institute member does not meet the reasonable expectations of the public. The Institute website contains good advice as to how complaints can be made including copies of relevant forms and advice as to how diffciulties can best be resolved.

Are you paying enough?

2006-09-09T17:35:00.000+01:00

We all know the old adage: If you pay peanuts you'll get monkeys.

Now that may be extreme when it comes to acountants but there are plenty who 'dumb down' their services so as to get clients who don't want to pay very much. The accountant may, for example, be trying to build up his/her practice so that it can be sold to someone else. The sale price will be a multiple of fees - the more fees the better. Even if each new client isn't paying very much, if there are lots of such clients it all helps.

Other accountants will agree to do the work you want for a very low price and then get one of their staff to do the work for you. You might have thought the accountant seemed impressive but in the event you never see them again, only the staff member.

The philosopher John Ruskin had the following thoughts on prices and values at the start of the 20th century. They remain as true today as they were then when it comes to deciding how much to pay for something:

"It is unwise to pay too much, but it is unwise to pay too little.

When you pay too much, you loose a little money; that is all.

When you pay too little you sometimes lose everything. Because the thing you bought was incapable of doing the thing you bought it to do.

The common law of business balance prohibits paying a little and getting a lot. It cannot be done. If you deal with the lowest bidder, it is well to add something for the risk you run and if you do that, you will have enough to pay for something better."

Have you found your level?

2006-09-07T23:23:00.000+01:00

If your accountant works alone this 'secret' will not be relevant. But if your accountant has partners and/or staff, read on.

Many accountants have staff who work for them. In bigger firms there may be 2 or more partners and a number of staff. Who does the work for you? The owner/partner or one of his/her staff? Who do you speak to when you call? Who do you meet?

If you rarely have much to do with the owner/partner do you feel comfortable that you're getting any value from them just being there and available if you need them? I assume you're confident that they would be there if you needed them?

The question though is what are you paying for? If you have nothing to do with the owner/partner you may be paying more in fees than you need to be. Why do I say that?

Well, if your affairs are simple and straightforward for example and you're dealt with by a manager all the time you might want to ask yourself a few questions:

why are you paying fees that cover not only the work the manager does but also a profit margin for the firm that pays him his salary;
would you be able to enagage someone directly for a fraction of the fee?
would you feel comfortable using an accountant who has no back-up or support?
are you comfortable that the manager is giving you the quality of service that the owner/partner promised originally?

I should also stress that many people are quite happy to pay higher fees by virtue of the additional security and comfort they get from knowing that there will always be someone there to help them even if, for example, 'their' accountant is off sick, on holiday or has an accident.

What matters most

2006-09-03T19:15:00.000+01:00

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

In fact I'm still a member of the Institute of Chartered Accountants in England & Wales - the ICAEW. That makes me a chartered accountant - and it was a pretty tough qualification to achieve in 1981 when I sat my final exams. 25 years later and I can still remember the pressure!

Your accountant might be a member of the same professional body - it's the biggest accountancy institute in Europe. Equally your accountant might be a member of the ACCA, CIMA, ICAS, ICAI or any one of a number of smaller professional bodies. He or she might even be a member of a recently formed grouping of advisers who do not have any 'real' professional qualifications.

I have explained in an earlier blog that anyone can call themselves an accountant and that there are good reasons for choosing to use a professionally qualified accountant.

There are material differences between the exam syllabuses for each of the different bodies. A CIMA qualified accountant has different skills and expereinces to a Chartered Accouuntant and an ACCA is different again.

What really matters though is not what your accountant studied, or the prestige of his/her professional body, or the robustness of their process for insisting on continuing profesional development, 'quality' procedures or even their complaints procedure.

What matters most is how good a fit there is between what you want and your accountant's experience and experitse. Sadly some accountants claim expertise beyond that which they really have. Others do not have the experience to do what you need - and they can get away with this because you may not really know what you need either.

In a future blog I will provide further guidance on this issue.

But the other guy said...

2006-08-31T23:00:00.000+01:00

It's no secret that accountants don't like it when clients tell them about advice they've heard at the pub or club or heard about from the paper or TV. Such conversations include words to the effect of:

"Why didn't you tell me that I could...?" or
"Is it true, do you think I could do that?"

Your accountant can only respond in one of 4 ways. He/she can either:

Agree that it's good advice (this is rare);
Offer to think about whether it's possible in your precise circumstances;
Disagree with the advice as it does not take account of your precise circumsatances; or
Does not understand the advice - for any one of a number of reasons (including the possibility that you haven't reemmbered it perfectly)

The second of these responses is the best one of course - as long as you and the accountant agree who is bearing the cost of the research. There's generally a limit as to how many new ideas an accountant will research for free.

Here's my tip:
Your accountant doesn't want to lose you as a client. He/she will generally research the odd thing without asking a client to pay for the time - especially if the idea is worthy of more widespread application. On the other hand - you won't ingratiate yourself if you expect your accountant to research another idea each week without charging you something for the time and effort.

Whose money is it anyway?

2006-08-30T22:13:00.000+01:00

Do you ever send your notice of coding to your accountant to check? This Notice is the form issued by the taxman to tell employers how much PAYE tax to take off when they pay wages and salaries. The italicised note below gives a little more background for those readers who want it.

Depending on your circumstances the coding might be right or wrong OR it might not be possible to say one way or another. This is because if your tax affairs are even just a little complicated it's not possible to be certain exactly what tax code would be the right one.

If you ask your accountant to check the notice you need to know if he/she is going to charge extra for this. What you want to avoid is paying extra fees for your accountant to get the coding changed unless the change has a positive cashflow impact.

Whether or not the coding notice is changed what is your reaction at the end of the year if your accountant tells you that you're going to get a tax refund? Jubilation? Relief? Ecstasy?

Before you credit your accountant with being an aboslute whizz, find out WHY you've got a refund. If it's because your coding notice was wrong the refund may not be such great news.
The refund is just paying back to you the extra tax you paid each month through PAYE. Did anyone give you the option of getting a new coding notice and paying less tax each month?
The tax refund is YOUR money being paid back to you.

All employees (including company directors) get Notices of Coding and the taxman admits that a fair percentage are wrong each year. This means that either too much or too little tax is deducted from salaries and then refunded or collected when the tax return is filed. In some cases an underpayment can be collected by making an adjustment to the next year's Notice of coding.

Who is the client?

2006-08-29T20:59:00.000+01:00

Today's blog is only relevant to you if you operate your business through a limited company.

If this is the case then you are probably aware that you and the company have to be treated as separate 'legal entities'. Thus you cannot dip into the company's bank account to spend money on personal expenses. Equally your accountant has to keep in mind when he/she is advising you personally and when he/she is advising your company.

Now many accountants will try to avoid the complexities that this obligation imposes on them. Your accountant knows that you probably have a hard time understanding that your company is a separate 'legal entity'. Why should he/she make life any harder by reminding you of this complication all the time?

There are actually a number of reasons why your accountant should do exactly this. Ideally they will aim to keep things as simple as possible but they should not protect you from the distinction absolutely. If they try to do this they are not doing you any favours. They are also not operating in a very professional way at all.

So - if you do operate through a limited company - have a think for a moment. Do you know when your accountant is advising you and when it is the company that is being advised? Are some letters addressed to you personally and some to the company? Do your accountants' bills show how much of the fee relates to dealing with your personal tax issues and how much relates to the company?

If the answer to any of these questions is 'no' then your accountant may well be operating in an unprofessional manner. Does that inspire you with confidence? If not, then perhaps you need to have a word to clarify things. You can then decide whether or not to remain with that accountant or to try to find a new one.

Does the answer warrant the question?

2006-08-28T09:15:00.000+01:00

I have commented in a previous blog that accountants don't know all the answers. Although many questions you might have will be commonplace, it is equally possible that your accountant has not encountered your precise situation before.

During my many years in practice I often encountered situations where the cost to a client of resolving a problem could have been greater than the tax at stake.

Accountants need to adopt a commercial approach so that they don't charge more in fees than the amount of tax they are trying to save their client.

A great question to ask your accountant is "have you ever come across that before?"

If your accountant says 'yes' you will probably find that it will not cost much to give you the answer to your question. If the answer is 'no' - you can ask how much it's going to cost to find the answer and to give you advice.

If your accountant says 'no' too often, perhaps you should find one who knows more about the sorts of things that are relevent to your situation.

Here's a related tip:
Whenever you ask your accountant a question, make sure you find out how much tax is at stake and how much it will cost to get an answer. If you get the impression that your accountant doesn't relate one to the other, maybe you should find a new accountant.

Your accountant may be shy

2006-08-22T23:41:00.000+01:00

Your accountant (assuming he or she is any good) can be a fabulous asset to your business. A great resource of valuable business advice.

If you chose an accountant with relevant experience of other similar businesses, he/she should be able and willing to help you avoid the mistakes they saw other clients make. They should also be able to point you in the right direction and help guide your business - just like your bank manager may have offered to do. You would always do well to ensure that any business advice you follow is independent and objective. Accountants rarely have ulterior motives beyond wanting to help their clients grow.

If your accountant is one of the shy ones you may need to coax out some of the good business advice that he/she has accumulated over the years. The more effort you put into the relationship the more value you will get out of it.

Getting definitive advice from your accountant

2006-08-21T07:00:00.000+01:00

I have explained previously why there are many occasions when accountants cannot confidently give clients definitive advice.

Accountants who attempt to give definitive advice on matters where there are legitimate differing views generally fall into one of two categories. Either they are:

Minimalistic: They encourage you to keep your claims to a minimum - so as to avoid any serious prospect of HMRC successfully challenging your claims; or
Maternalistic: They misunderstand how the tax system works and base their definitive advice on what they 'have got away with' when advising other clients.

In my view the Maternalistic accountants are dangerous and best avoided.

Equally the Minimalistic accountants are not giving you the chance to decide whether you want to make the maximum claims for tax relief that you could. Thus you are paying more tax than would need to if you were prepared to risk a challenge by HMRC at some future time.

What should really happen is your accountant should find out what sort of advice you would prefer. And if, like most people, your answer is that you just want to pay the minimum amount of tax possible in accordance with the law, your accountant should explain that you still need to make a choice. It's a choice available to everyone in our tax club (the UK's self assessment tax system). Either:

You keep your claims for tax relief to a minimum so as to avoid any prospect of HMRC successfully challenging anything; or
You 'try it on' and claim the maximum you can in accordance with your accountant's views and advice - whilst risking the prospect of a successful HMRC challenge at some future date.

Does your accountant know which option you would prefer?

Few absolutes in our tax system

2006-08-18T07:00:00.000+01:00

In a recent blog I mentioned that all too often accountants cannot give definitive answers to certain questions eg: exactly what can be claimed as a deduction for use of home as office.

This often comes as a surprise to clients especially as most clients don't want advice that is hedged around with ifs and buts and maybes.

Sadly though there are dozens of examples across the tax system whereby there are no absolute hard and fast rules that accountants can rely on. In some cases HMRC have explained how they intend to apply the rules in a way that most accountants do not accept is justified by the tax laws. In other cases the laws are capable of more than one legitimate interpretation. As a result accountants are often forced to make a choice. To be honest (and explain that there are no hard and fast rules) or to attempt to give definitive advice.

I will comment further along these lines in my next blog.

Accountants have ears

2006-08-17T07:11:00.000+01:00

Professionally qualified accountants are invariably honest. They have to comply with:

their professional bodies' code of ethics;
a guide to professional conduct; and
the anti-money laundering (AML) rules.

Amongst many other onerous obligations these AML rules oblige accountants to report various things to the National Criminal Intelligence Service.

So, for example, your accountant is obliged by law to make 'Money laundering' reports if he/she has reason to believe that you have deliberately falsified claims for tax relief or refused to disclose all of your taxable income.

If you think you may have done something wrong in the past, your accountant will try to convince you to put things straight. If you don't agree then he/she will be obliged to make a report. Accountants who are found to have omitted to do this can face stiff fines or a prison sentence.

The Government is currently considering whether to ask HMRC (Revenue & Customs - the taxman) to check up on unqualified accountants to ensure that they too are complying with the AML rules.

Pity the accountant or the client?

2006-08-16T07:55:00.000+01:00

In response to my request to tell me what they thought of their accountant someone told me the following story recently.

He is self employed and only has one simple business. By his own admission he cannot be bothered to sort out his papers etc until just before the deadline; he still expects his accountant to complete the tax return and advise him how much tax to pay on time.

The client passed the necessary information to his accountant, who he has been using for years, on 30 January this year. On 31st January the accountant had done all he could but before filing the tax return he spent 2 hours with the client resolving queries and finalising his calculation of the tax payable that day.

Afterwards the client was furious as so far as he was concerned the accountant had not saved him any tax at all.

Initially I felt sorry for the accountant. He had put himself out to accommodate this client at the last minute just before the filing deadline for filing personal tax returns. He had spent 2 hours with the client and had filed the tax return on time. This was a long standing client who could not be persuaded to supply the necessary information earlier in the year. The client was clearly being ungrateful.

Then I looked at the situation through the eyes of the client who had told me the story.

What sort of expectations had the accountant established in his mind? I suspect he was operating on auto-pilot at the end of January. He may well have helped the client to reduce his tax bills but had forgotten to highlight this to the client who just saw the final figure of tax payable.

Maybe the accountant hadn't issued any reminders that made clear clients would get a lower level of service if they left things to the last minute.

What had gone on during the 2 hour meeting on 31 January? Few accountants can afford to make this level of time available to last minute clients. This client felt hard done by because he didn't feel he received any advice during the meeting. More fool the accountant for not making his advice more obvious - if he gave any. Perception is reality. If the client didn't perceive he had received a good service and valuable advice - the accountant is probably at fault.

If this blog contained advice for accountants I would stress that they should always highlight for clients the tax that would have been payable were it not for their input and advice and then to compare this with the final amount payable. That would make the clients feel better and make the accountants' fees seem like good value. Sadly this comparison is not one that most accountants can easily compute.

As a client however you can ask for the figures and for a reconciliation showing the tax saving of each piece of advice - if you want it. In my experience most clients don't want this - they would prefer to just pay lower fees as long as they have more general impression that their accountant is saving them money. A decent accountant will make this clear to you.

Remember - you are the client; you can ask for whatever you want (as long as you're prepared to pay for it). If you want something different the next year, tell your accountant but don't leave it until the last minute. If he/she has already done the work they may insist you pay for it.

Five typical secrets

2006-08-15T10:13:00.000+01:00

Despite the title of this blog and all of the postings I have made to date, this is the first time I have just listed five typical secrets:

Accountants don't know all the answers - even when they pretend that they do;
They will promise to give you good business advice but much as they might mean this when they say it, they never have the time;
When they promise 'no fee surprises' it's more of a hope than because they have a reliable system to prevent it happening;
You know how helpful it would be to your business for your accountant to introduce you to prospective clients? Your accountant would love you to recommend him/her too but doesn't know how to ask you without sounding desperate;
Unless the annual fees you pay put you in the top 20% of your accountant's clients, you will not get priority treatment.

Of course not all accountants share these five secrets. But quite a lot of them do. If you've found one who doesn't, you've done well.

How to make sure you get good advice

2006-08-14T07:00:00.000+01:00

Tell your accountant everything. Everything. Everything.

This isn't poker, show your whole hand. Treat them like your therapist. They can then help you plan for your future better. If you're ever tempted to lie about your income, don't. Instead, hire an advisor (ideally different to your regular accountant) and ask them lots of "hypothetical" questions. If you don't walk away happy, hire another.

You'll quickly find out that you don't need to lie to get your taxes down, you just need to ask the right "what if?" questions

Feedback is the breakfast of champions

2006-08-12T23:10:00.000+01:00

If a client doesn't give me any feedback - I don't know what they think. That's my attitude but it's not a very common perception.

I've long valued receiving feedback, be it positive or negative. I work on the principle that until and unless a client says positive things about me or my service, that they may not be happy. So receiving positive testimonials is a real boost.

My research tells me that most people are not delighted with the service they get from their accountant.

If that sounds like you I'll let you into another secret:
If you haven't said anything I'll bet your accountant assumes they are doing a good job. Not an okay job but a good job. Possibly even a great job, especially if you've passed on his/her details to a friend. You may have said something like: "my accountant's alright, nothing special but not too pricey." Getting a referral will have convinced your accountant that he/she is doing a great job and that everything is going well. That's right. Your accountant thinks that everything is fine if clients are not complaining.

My own approach has always been to take the contrary view. If a client tells me that he/she is very pleased then I know I've done a good job. If clients aren't saying anything there could be a problem. Most accountants however will assume that all is fine unless you tell them that it isn't.

If your attitude is the same as the majority of people who think their accountant is just 'ok', tell your accountant. Help them to raise their game and to give you a better service. You're paying them; you're entitled to it.

GP or consultancy services?

2006-08-10T08:40:00.000+01:00

In an earlier blog I explained how most accountants are like GPs. When a client needs advice that is outside the accountant's comfort zone they will often seek input and advice elsewhere.

The options tend to include:

The biggest firms of accountants - some of which have dedicated support services for smaller firms of accountants and tax advisers;
Large specialist providers of tax support for other accountants and tax advisers;
One man bands - individuals (often local to your accountant) who provide a specialist support service;
Telephone help lines - often provided by the same organisations that offer fee protection insurance;
Professional institutes and training bodies that provide support to smaller firms of accountants and tax advisers;
Specialist websites and magazines where experts will answer questions posed by accountants and tax advisers;

NB: In my experience some accountants do not admit that they have sought third-party input. They seem to think there is some shame in not knowing everything.

I think this is dangerous. Indeed there is clear advice in the standard Guide to professional Conduct that applies to all professionals giving tax advice. It recommends that no one should take on work or advice on any matter unless they have adequate experience. If in doubt, they should seek input from elsewhere. This is especially true when a client is the subject of a tax investigation or requires advice on a less common subject such as inheritance tax, stamp duty land tax or VAT.

Does your accountant know everything? Are they a GP? When you need a specialist opinion can you get one? (Bear in mind you'll have to pay for it and it will cost more than your GP accountant would have charged - in the same way as medical consultants are more expensive than your local GP)

Use of home as office

2006-08-07T16:08:00.000+01:00

I'm often surprised when I hear from people that their accountant hasn't talked to them about the tax relief they can claim for 'use of home as office'.

Let's clear up a few misconceptions:

If you run your business from home you CAN claim a deduction from your taxable income;
The size of the deduction should depend on how much you use your home for business purposes;
There will rarely, if ever, be any capital gains tax consequences of claiming this deduction;
Different rules apply if you run your business through a Limited company;

The calculation of the claim
There are essentially two methods of calculation – the simple method (which I prefer) and a “detailed calculation” method which is more appropriate for people who spend a great deal of time working from home - especially if the room(s) used for business purposes are more than 20% of the rooms in the house..

The simple method, being a rough and ready calculation, merely uses a weekly flat rate amount of, for example, £10 per week and multiplies this by the number of weeks in the year.

A detailed calculation would take each main room in the house into account – excluding bathrooms and kitchen but including the hall, stairs and landing as one room. You would then calculate all the home running costs and the relevant fraction or percentage applied to the total. Relevant costs would include council tax, gas, electricity, water rates, insurance (building and contents) and cleaning. Mortgage interest would not be included however.

What does your accountant say?
If your accountant knows that your business is based at home, they should have raised this issue with you. Hopefully they have given you good advice so as to keep your taxes to a minimum.

You might well hope that your accountant would give you definitive advice as to:

which expenses you can claim and which you can't claim for tax relief;
how much of each type of expense you can claim;
what the taxman will allow.

If only accountants could do that with some certainty. This often isn't possible for reasons that I'll explain in a future blog.

Partner billing rates

2006-08-01T07:57:00.000+01:00

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 and I explained more about this in yesterday's blog. The other key factor is the aggregate level of the partner's billings.

This is the reason why partners in larger firms regularly try to pass work down the chain to managers and to more junior staff. The more work that is done by other people the greater will be the overall fees billed by the partner.

This is the power of leverage. If your accountant (let's call him Bill) does everything himself there is no leverage. If some work is done by a member of staff then Bill will charge his clients more than he pays the staff for their work. He makes a profit on the difference. If he has 2 staff he makes even more profit and so on.

Now it's also true that the staff may not be sufficiently experienced or competent to do the work without supervision. Where the work is not very complex such that junior staff can do it themselves your accountancy fees may be lower than they would be if Bill did everything himself.

So where am I heading with this?
If your affairs are very simple and you have chosen a specific accountant or firm of accountants, who is doing the work? Is it the person you chose or is it someone more junior? If the partner does very little for you other than sign letters, you are probably paying higher rates than you need to pay. Equally if the person you chose is 'only' a manager, this might suggest that you don't need a partner's input unless he/she can convince you of the added value that you will get from their input. If no one has addressed this yet, ask them to do so.

Chargeable time

2006-07-31T11:55:00.000+01:00

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)

2006-07-28T19:00:00.000+01:00

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

2006-07-27T17:46:00.000+01:00

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:

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.

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?

2006-07-21T12:07:00.000+01:00

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?

2006-07-21T07:46:00.000+01:00

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

2006-07-20T08:52:00.000+01:00

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?

2006-07-20T08:38:00.000+01:00

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

2006-07-19T16:35:00.000+01:00

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

2006-07-17T21:43:00.000+01:00

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

2006-07-17T08:51:00.000+01:00

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?

2006-07-16T09:00:00.000+01:00

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!

2006-07-14T07:00:00.000+01:00

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?

2006-07-13T07:00:00.000+01:00

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

2006-07-12T08:50:00.000+01:00

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?

2006-07-11T07:53:00.000+01:00

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

2006-07-09T22:03:00.000+01:00

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

2006-07-02T10:00:00.000+01:00

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.

Four common problems for accountants

2006-06-30T17:20:00.000+01:00

I recently came across the following list of problems experienced by many Accountancy firms in the USA.

My research suggests that many firms in the UK experience the same problems:

1 Too many of their clients are only contacted once or twice a year.
2 They are not proactive in providing business and financial advice to all of their clients.
3 They have no real point of differentiation with prospects [ie: they aren't really any different to the firms they compete with]
4 They rely on a key rainmaker who is coming up for retirement - and they have no succession plan in place.

DIY

2006-06-29T19:00:00.000+01:00

When you first start a business various forms need to be completed and registrations put in place.

If you have the time and are prepared to give it a go, there is no need to pay an accountant to complete the forms or the registrations on your behalf. Most accountants will be willing to do it for you, but at a price. How much? This will depend upon the type of accountant you approach and where in the country you are. Fees in London and the south east tend to be higher than elsewhere in the country.

Forms/registrations include:
Self employed - The newly self employed must register as such with HMRC (the 'new' name for the Inland Revenue) within 3 months. YOU can do this quite simply over the phone by calling: 08459 15 45 15. If your annual earnings will be above £4,465 (and I hope they will be!) you will be responsible for paying weekly National Insurance Contributions of £2.10. When you register HMRC will send you a standing order form so that you can authorise your bank to make monthly payments instead of paying weekly.

VAT - It will usually be worth taking advice from a suitably qualified accountant before deciding when to register for VAT and what type of VAT scheme is most appropriate to your business. Should you register before your turnover reaches the registration threshold? Would the 'flat rate' scheme be beneficial? What about annual accounting?

New company - If you have taken advice and are certain that you want to form a limited company, you can do this on the forms available from Companies House website.

Fixed fees

2006-06-29T06:00:00.000+01:00

I was recently discussing fixed fees with a forward thinking accountancy firm.

I asked them how 'fixed' were the fixed fees that they advertise? They confirmed that once they give a fixed fee quote that they will never seek to bill more than that.

All of which is what I was hoping they would say. But I then asked the crunch question. What happens if the fee is insufficient to cover all of the time charges that are recorded on your time sheets? They admitted that some partners are better at accepting a 'write-off' than others. They recognise there is an internal training issue ere, and they are trying hard to deal with it.

The point is this: most (if not all) larger firms of accountants require all of their staff, managers and partners to record on time sheets how much time they spend on each client.

The time spent on each client's affairs is then converted into a figure of 'work in progress' (WIP), using different hourly rates for each member of staff, managers and partners.

If the aggregate WIP is greater than the fee that can be billed, someone normally wants to know why, and often tries to ensure that a bigger bill is sent to the client. This is particularly true when fees have not been agreed in advance

Where the excess WIP is written off and not billed to the client, the consequences for client service are not positive. The firm may effectively discourage anybody working for that client to spend less time looking after them in the future than they have done in the past. The objective being to have a lower 'write-off' of WIP next time round.

Thus the level of client service falls and the level of the client's satisfaction with the accountant's service also falls. Within a short period of time the client is bad mouthing the accountant and looking to move elsewhere. Shame!

Estimated fee ranges

2006-06-27T11:00:00.000+01:00

The traditional way for an accountant to set his/her charges is by reference to the amount of time he/she spends on your affairs.

Many clients however would prefer to be told at the outset what the fee will be and for their accountant to limit the fee to this amount regardless of what comes up during the year. And there are a large number of accountants that will do this for their more straightforward clients.

I still remember a conversation I had with an accountant called Peter nearly 20 years ago. He told me that he typically had the following conversation with new clients where he couldn't be sure what the fees would be at the outset. This is what I remember him telling me:

Once I have checked what work is likely to be involved I then offer a free quote within a range. All too often, however, the range is pretty wide. For example, £2,000 to £10,000. I acknowledge with a client that the range is very broad and explain why I cannot be more precise at this stage.

I ask for payments on account, equal to the lowest figure in the range, and I explain that one of three things will happen when I issue my fee note at the end of the year. Let's assume it's for £5,000.

The first possibility is that the client will say to me, Peter, I can't believe it. Only £5,000 for all the work you've done over the year. It's not enough. I think I should pay the full £10,000 that you quoted at the beginning of the year.

Peter told me that that doesn't happen very often, but that it had happened to him, on occasion.

The second possibility, which is the most common apparently, is that the client will say, Peter, that's a fair fee for all the work you've done. I'm very grateful.

The third possibility, which is very rare, said Peter, is that the client will complain that the fee, of say £5,000 is too high. When that happens, Peter told me, he allows the client to explain why he thinks it's too high and they then agree on a fee that the client is happy to pay. And Peter guarantees to the client that he will accept that payment in full settlement. However, it also means that he will not be doing any further work for the client!

I don't know how many accountants operate on this basis, which was first explained to me about 20 years ago. It was very rare then and I doubt it's very common even now. But it is fair.

I suspect that these days few clients would accept an estimated fee range as wide as £2,000 to £10,000. But if that's the sort of arrangement you would like to have then you have nothing to lose and could ask your accountant if he/she will indulge you.

How can you tell whether or not your accountant is any good?

2006-06-26T19:00:00.000+01:00

Here is a potentially controversial, but highly effective method.

It's almost obvious but only once someone who really understands these things has explained it.

Quite simply, if you do not feel confident, that your accountant is good, then he or she has failed that test. A good accountant will ensure that you know that you're getting good advice, good value for money and good service.

If you are one of the many people who just think their accountant is ‘okay’, then you are missing out as you could benefit from dealing with a better accountant.

Previous blogs have contained a variety of tips that you can use to help change things. There will be more such tips in future blogs too.

Another five tips

2006-06-24T22:00:00.000+01:00

Tell your accountant as soon as possible of changes or problems in your business and circumstances etc. This will avoid the accountant wasting time on things that may no longer be relevant; they will want paying for the work regardless.
Ensure your accountant tells you what information they will require before they start work and then make sure it’s available.
Get a commitment from your accountant to produce your tax return within a specified period of you supplying all relevant information.
Ask for rough projections of your tax bill and for these to be kept uptodate.
Is your accountant able to advise on tax efficient investments or will you need to pay an IFA too? Some promoters of tax incentivised investments are biased so you want to ensure you get independent advice from someone who really understands the related tax issues and risks. What you don’t want to do is pay twice for such advice.

Booklets in the pipeline

2006-06-23T19:00:00.000+01:00

Accountants aren't all awful - What type of accountant do you have and what is he/she qualified to do? Also covers where and how you can complain if your accountant is awful!

Do you NEED to pay for your own Limited company? - You might be better off as a sole trader, a freelancer, a partnership or an LLP. A simple guide to help you choose what's right for you and your business.

Key tax advice topics for the self-employed - A checklist to help you identify the relevant questions to ask your accountant and save tax.

Key tax advice topics for small business owners - A checklist to help you identify the relevant questions to ask your accountant and save tax.

What could a good accountant do for you that yours isn't doing at the moment? - A short objective guide to the full range of services and areas of advice you could be getting.

How to ensure your next accountant is the right one for you - A unique guide to 'interviewing' potential accountants so that you can choose the right one for you.

Is your accountant one of the good, the bad, or the ugly?

2006-06-23T07:05:00.000+01:00

Are you paying too much and getting too little?

This unique, objective and entertaining talk by top accountant and speaker, Mark Lee FCA, will open to your eyes to what you can really expect from your accountant.

This talk is ideal for anyone who runs their own business and isn't absolutely sure that they are getting full value for money from the fees they pay their accountant.

Whether you have yet to appoint your first accountant or you have been in business for some time you will pick up dozens of commercial tips and loads of practical advice to ensure that your accountant works for you and doesn't charge more than he or she is worth.

Mark will astonish you as he reveals the services and support you can expect from a good accountant without paying the earth. He will disclose the secrets you need to know about how accountants work and how you can avoid wasting your money. Mark no longer provides accountancy or tax advice so his views are totally objective as he is not representing any specific firm.

Mark is a lively and enthusiastic presenter. Over the course of his career he has collated dozens and dozens of examples of what the better accountants do for their clients; he shares many of these during his exciting and unusual talk. You will also find many of them at: http://bookmarklee.blogspot.com/
Whether you think your present accountant is 'okay' or you are unsure what you are entitled to expect from your accountant this session is for you. At the end of the talk Mark will highlight 3 key questions you will want to ask your accountant in order to get more benefit from their services than you ever thought possible.

Mark Lee FCA is a past Chairman of the Chartered Accountants' Tax Faculty, a professional speaker and a member of The Magic Circle. He is a respected and authoritative voice within the accountancy profession and has worked in a variety of large and small firms over the course of his 30 year career in the profession.

Mark has a passion for enhancing accountants' skills and the services that they provide to their small business clients. Over the last ten years he has advised thousands of accountants on client service and related matters. He now operates as a professional speaker and an independent consultant to professional firms.

Five more simple tips

2006-06-22T08:17:00.000+01:00

Know your alternatives - you shouldn't need to pay for your accountant to learn new things when you need help doing something that your accountant hasn't done before. It will often be cheaper and more cost-effective to engage a specialist who already has the necessary knowledge and experience.
If you need a bookkeeper (temp or perm) get one instead of paying accountancy firm rates for simple bookkeeping.
Ensure your accountant tells you what information they will require before they start work and then make sure it's available for them.
Get a commitment from your accountant to produce your tax return within a specified period of you supplying all relevant information.
Ask your accountant to tell you what issues they specialise in - some are better at arranging third party investments than in giving tax advice.

Five simple tips

2006-06-21T07:43:00.000+01:00

1. Refuse to pay by the hour or for minimum units of time. If your accountant hasn't yet moved into the 21st century and only charges by reference to the time they spend rather than the value they provide, find one who has!

2. Don't let them to do things you can do yourself - if you have the time and inclination.

3. Ask them what you can do to reduce the time they spend producing your accounts, auditing your accounts, producing your tax returns and how much they will reduce your fees if you do those things properly.

4. Get a written assurance that they will sit down with you at least once a year at no additional charge to see what else they could do for you.

5. Do not pay standard hourly charging rates regardless of the work done. Most accountants set the rate for the person not for the work, so if an accountant does some photocopying they could well charge at the same rate as when giving you valuable advice.

Who sacks who?

2006-06-20T14:00:00.000+01:00

The best accountants don't have clients who regularly moan about their fees. No accountant wants their clients to moan about fees, so where this happens time after time, there are only two real possibilities:

• either the accountant is overcharging for the work they are doing, in which case the clients should sack them and find a new accountant; or

• the client is unwilling to pay a fair fee for good work in which case the accountant should sack the client.

Many accountants are too scared to sack clients generally but the better accountants will sack their worst clients over a period of time. Successful accountants tend not to worry about losing a client who is not really contributing to the firm’s success due to the time and cashflow issues that arise whenever there are constant complaints about fees.

Mind the gap

2006-06-19T14:04:00.000+01:00

If you have yet to find an accountant, or you want to find a new accountant, there are plenty of resources on the net, to enable you to do so.

What is less easy, however, is to find out what you can really expect from your accountant. Indeed all too many people would describe their accountant as being "okay" but without any real enthusiasm. And certainly not such that they would be like to recommend their accountant to anyone else.

My intention is to fill this gap. To provide tips, tools and information so that business people, sole traders and the self employed are better placed to get better service from their accountants.

Different people will want different things from their accountant, of course. Some people genuinely only want their accountant to fill in the forms and do the paperwork that they cannot do themselves. And they want to pay the minimum fee possible for this "service". Other people could complete the forms themselves, but don't have the time to do so. And again, fees may well be the main issue when comparing different accountants for them as well.

There are also many people who have no real understanding as to what additional advice and services they can expect from their accountant. As nobody has ever told them. Not even their accountant!

Analogies

2006-06-18T21:05:00.000+01:00

An accountant is like a dentist - you don't know how good he/she is until it's too late.

An accountant can be like a wine waiter - you don't want to admit how little you understand when he talks to you. But of course he/she should be more senstive to what you know, what you like and what you dislike.

Appointing an accountant is like gettting a Doctor. You must feel at ease with your accountant because they will guide your financial health.

The second talk

2006-06-17T21:53:00.000+01:00

Just for the record - a future talk and possible booklet will focus on a related area:

What to look for when choosing an accountant for:

your new one man business
your new growing business

Titles - further ideas for talks and books

2006-06-16T18:49:00.000+01:00

Get more from your accountant or get one who can do what you want.

Improve your business without your accountant

Improve your business without paying your accountant more

The 7 key questions you must ask an accountant before you hire

How to get more from your accountant

How to find the perfect accountant? The checklist.

Is your accountant doing this for you? If not, why

Accountancy services- the good, bad and ugly and how to tell the difference

Make your accountant work harder for you at no extra cost. Find out how.

Count me in...... making your accountant part of your business success

Absolutely awful accountants... and how to acquire/get rid of one

Make your accountant earn their keep

Get better advice from your accountant

Making your accountant more useful

The best questions to ask your accountant

Getting on with your Accountant

"Choosing the Right Accountant for you and your Business"

The talk title

2006-06-15T09:46:00.000+01:00

My first idea was "How to get more value from your accountant" but when I asked around some people thought this meant I was going to give away tax secrets.

Here are a selection of alternatives that I have considered. Feel free to add to the list:

What you wish you'd known when you started in business
How to squeeze every drop of value out of your accountant
Getting the most out of your accountant
How to make your accountant work for you
What you need to know to get the most out of your accountant for less
Reduce your accountant's fees - what you need to know
No Accounting for Taste - an objective and fun guide to the serious subject of selecting and using an accountant
Get more help from your accountant but pay lower fees
How to choose the right accountant
How to choose and use an accountant
What you need to know about how accountants work if you want to avoid wasting your money
How to move from an ‘old style’ to a ‘new style’ relationship with your accountant
How to manage the move to new accountants
How your accountant can be more than just a golf partner
The ten worst things you can do if you want to reduce your accountancy fees
Helping your accountant to help you
" How to put the "o" back in your accountant "
or
"10 closely guarded secrets your accountant will take to his grave before telling you"
or
"The top 10 secrets your accountant doesnt want you to know"
or
"How to get blood from a stone: Accountants and value"
or
"A client's Guide to Full Fair Value Accounting of Accountant's services"
or
"The business owner's guide to fair value assessment of their accountant's advice"
or
"10 Ways to extract fair value from your accountant"
or
"How to get your accountant to under promise and over achieve, 100% of the time."
or
"How to get £1000 of value from your accountant for every £100 you spend"
or
"The Business Owner's workshop for maximising value from your accountant"
or
"How to get 100% customer satisfaction from your accountant, 100% of the time."

Black and White or shades of grey

2006-06-14T14:28:00.000+01:00

"Our accountant is always black and white. He has no shade of grey"
Is this a good thing or a bad thing?
My accountancy background forces me to say "it depends"!

If you want your accountant to give you clear, unambiguous and definitive advice, it's probably a good thing if they just give you black/white answers - sometimes. In my experience, most people don't want wishy-washy advice. They don't want their accountant to sit on the fence. I was taught to always give my clients advice even if the arguments were finely balanced. It's what clients pay for.

The alternative view comes from those who want to have their options left open so that they can decide what choice to make themselves.

Let's assume, for instance, that you want to know if you can claim tax relief for the money that you might spend on a particular item. A 'black and white' accountant will give you a definitive answer - yes or no.

A 'shades of grey' accountant will probably ask more questions before giving you an answer. And his answer may be 'it depends'. Indeed it might well depend on whether your motivation for buying the item is genuinely business related or whether you are also likely to enjoy significant non-business use of it too.

Does your accountant know whether you want straight 'yes'/'no' answers or whether you would prefer him/her to check the context of your questions and then offer you good advice - which may involve leaving the final decision upto you?

And of course you might prefer a different approach in response to different questions.