Why are my accountancy fees so high?

Complaints about accountancy charges from SMEs and small business owners trading through companies are common, but often the answer lies with the businesses themselves. I would be the last to deny that some accountants are lazy in looking after their clients and in ensuring that they are getting good value from the services they provide. In our profession as in any industry we get those who are not serving their clients or customers well and are surprised when their clientele vote with their feet.

There is another reason why accountants may charge quite a lot, and that is because they really do reflect the ultimately unnecessary work burden thrust upon them by the client business.

A company is a vehicle through which to trade and through which to earn a living for its owners. However, unlike when using their motor vehicle, most company owners have had no lessons to learn how to drive their company. They may well have good idea as to how they may use it in terms of their type of business. What they do not understand are the rules of the company road; if you like, a Highway Code for companies, or in other words, their responsibilities in having the privilege of running a company.

Following the passage through Parliament of the Companies Act 2006, the then Minister of State for Industry and the Regions, Margaret Hodge, laid out the following guidance for company directors, which we can take as the basic Highway Code for companies:

  1. Act in the company’s best interests, taking everything you think relevant into account
  2. Obey the company’s constitution and decisions taken under it
  3. Be honest, and remember that the company’s property belongs to it and not to you or to its shareholders
  4. Be diligent, careful and well informed about the company’s affairs. If you have any special skills or experience, use them
  5. Make sure the company keeps records of your decisions
  6. Remember that you remain responsible for the work you give to others.
  7. Avoid situations where your interests conflict with those of the company. When in doubt disclose potential conflicts quickly
  8. Seek external advice where necessary, particularly if the company is in financial difficulty

This all sounds like common sense, but it is failure to obey some of these points which leads to high accountancy charges.

Point 3 is one of the areas where things go wrong. Too often, business owners treat their company’s money as their own, using the company’s bank account to pay for their holidays, football tickets, PAY TV subscriptions and even the weekly family shop at the supermarket. The accountant then has to sort out personal expenses from those legitimate and tax-deductible expenses of the business. These personal expenses have to be allocated as drawings, and there is then a problem over tax treatment. Can they be treated as dividends? Well, a dividend should be minuted contemporaneously by the directors as under Point 5 of the guidance. The alternative may be that the drawings become remuneration taxable under PAYE or taxable as benefits in the annual P11D. It can take an age for an accountant to sort these matters out because of the queries which need to be raised. If the business owner has a poor track record in this area then for example, every restaurant bill has to be examined to see whether it is a benefit or company entertaining. The latter is not tax deductible for the company but would not be a benefit for the director.

My advice in helping keep the discipline would be to have an experienced and preferably qualified bookkeeper and to pay attention to their advice. Many companies could not afford to have a bookkeeper full time, but there are plenty of freelancers who could offer support and update the books as often as needed, which of course may be as little as a few hours a month, including doing the VAT Returns. However, directors still need to keep their own discipline and to make sure they do not penny-pinch with whom they choose in this role. Currently a bookkeeper may well charge about £20 per hour. If they only charge half of that the fact they command so little indicates they are probably not much good. You need quality and you have to pay for it, but it will be worth it in saving money in the long run, so get a recommendation.

Of course if directors stick to a careless DIY policy on managing the books, they may fail on Point 8 of the guidance in not recognising they are in financial difficulties until it is too late.

Life isn’t perfect for accountants in scenarios where there is poor record keeping and profligate use of company money for personal expenses. While they may have a lot more work for which they will want to charge, they really do not want the headaches in sorting out a mess, coupled with difficulty and embarrassment over fee recovery from the clients, many of whom remain in denial. Often accountants will offer their own bookkeeping services or recommend someone to help. If you do get such a suggestion, it may be because you have a problem.

In the end, if a business owner remembers that the company is a separate entity from him or her, ring-fences the company finances, records at the time dividends paid and remuneration voted in addition to salary, life will be simple and stress free for the director and the accountant. That would be a perfect world, and  something worth striving for.

© Jon Stow 2010

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4 Responses to “Why are my accountancy fees so high?”

  1. Emily Coltman said:

    Jun 08, 10 at 4:28 pm

    Hi John,

    Great analogy to compare a company with a car. I like it.


  2. jon said:

    Jun 08, 10 at 6:19 pm

    Thanks, Emily. I do wish all company owners would at least read the manual before turning the ignition key.

  3. Jeremy Edwards said:

    Sep 01, 10 at 3:59 pm

    Most people driving a car don’t read the manual either!

    Being an accountant turned IFA, I see lots of examples where people make decisions that, given a small amount of insight, they would have avoided. Running their accounts to minimise tax means they cannot have a suitable sized mortgage is a classic gotcha. The other regular one is failing to devise a suitable exit strategy for ultimate retirement. Once you take on board the idea that the company is separate from the person, all kinds of priorites come out, like making sure it runs happily while you go on an extended (even permanent!) holiday.

  4. James Hadley said:

    Sep 04, 10 at 12:29 pm

    John, I entirely agree with your viewpoint.

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