Appointing an accountant to help you with your accounts and tax returns is something that you may decide to do not least if you operate a limited company or don’t have the time to spend on the accounting yourself.
However before you do this it’s important to understand a bit about accountants, what they have to do, what not to say to them and how to manage them.
The term accountant is not regulated
Unlike solicitors, who are regulated by the Solicitors Regulation Authority (SRA) in England and Wales and the Law Society of Scotland, in the UK accountants can operate without being a member of any professional accounting body whatsoever. In fact the whole area of regulation of accountants is very complex and often not well understood by those who would be appointing an accountant to help them with their business financial affairs.
Basically anyone can call themselves an accountant regardless of experience, expertise or qualifications. There are no laws in place to stop anyone setting up shop and offering accountancy services to the public. Whilst many accountants may choose to be a member of a professional accountancy body there are no rules that specify that they must do this. Nor are there any rules to insist that they carry appropriate professional indemnity insurance.
Put bluntly, any Tom, Dick or Harriet can set up an accountancy business regardless of if they know a debit from a credit, a profit and loss account from a balance sheet or even if they know who HMRC are! There is nothing to stop anyone offering accountancy services, take your money and file a load of rubbish or file nothing at all on your behalf. Worse still is that you are the ones that the authorities will hold liable for anything that is wrong. They will come after you imposing penalties and fines.
Should something go wrong you can of course try to sue the accountant if they are still around. It will cost you a lot of money to take court action, unless you have appropriate legal insurance protection in place. Ultimately you may find that the accountant in question doesn’t have insurance or any funds that you’ll likely get a pay out from, so making any attempts to sue an expensive and pointless task.
Regulation by a professional accountancy body
If the accountant is a member of a professional accountancy body then they should be regulated by that body.
Generally this will mean that to offer services to the public (known as being in Practice) they will need to have a certain level of expertise to gain their Practicing Certificate (professional body regulated qualified accountants need this to be able to be in Practice) and have professional indemnity insurance.
All professional accountancy bodies have their own rules, regulations and methods of supervision of their members. Some professional accountancy bodies also conduct reviews of the practice operations of their member accountants although these are more focused on the following of appropriate processes and procedures as opposed to the technical tax and accounting ability of the accountant.
Largely the level and extent of regulation of accountants is inconsistent and rather hit and miss throughout these UK accountancy bodies.
Regulation alone does not guarantee the standard of the accountant nor that, if there is issue with the quality of the work, the accountant will be brought to task by the accounting body. The accountancy body will not make any award for damages for poor work. Only the Courts can do that if the case can be proven and it will take a significant amount of time and deep pockets to bring such an action.
So whilst using an accountant who is a member of a professional accountancy body does bring with it a certain level of security (Practising Certificate and Professional Indemnity Insurance) as for much in life there are still no cast iron guarantees that the appointed accountant is proficient.
Professional Accountancy Bodies
There are a number of Professional Accountancy Bodies that exist in the UK:
- Institute of Chartered Accountants in England & Wales
- Institute of Chartered Accountants of Scotland
- Institute of Chartered Accountants in Ireland, also known as Chartered Accountants Ireland
- Association of Chartered Certified Accountants
- Association of Authorised Public Accountants
- Chartered Institute of Management Accountants
- Certified Public Accountants Association
- Association of Accounting Technicians
- Association of International Accountants
- Chartered Institute of Taxation
- Institute of Financial Accountants
- Chartered Institute of Public Finance & Accountancy
How to get the right accountant
There are good, regulated accountants (generally known as qualified accountants) and bad ones. The same applies to non regulated or qualified by experience accountants – there are good and bad ones.
The old saying of caveat emptor (buyer beware) really does apply to the world of accountancy!
It’s a minefield but there are some brilliant accountants out there. So don’t be put off but before you appoint an accountant for your business it’s essential to do some research as you would do when you appoint any significant supplier.
Here’s some tips for this process:
- Get a recommendation from someone already using an accountant
- Ask the accountant for client testimonials or for the names of clients to contact for a reference
- Check their professional accounting qualifications
- Check the years of experience that they have in providing similar services to those that you need
- Ask how many clients they have in a similar industry to yours
- What are their charges – check that this fee is fixed or ask about ‘extras’
- How long do they typically take to do the work
- What do they need from you and when
- Who will be doing the work and what are the qualifications of the person performing the work
- Where will your data be held and will it be moved outside of the UK (some firms use off shore resources to undertake accounting work as a cost cutting exercise)
- Who has access to your data
- How do they ensure that all of your deadlines are met and that fines will not be imposed
- Are they regulated by a professional accountancy body
- Do they have professional indemnity insurance
- What is their complaints procedure; useful to know in case something goes wrong
Types of Accountancy firms
There are at least 70,000 accountancy firms in the UK. Accountancy firms come in all shapes and sizes and it’s worth exploring the types of accountancy businesses that you may come across.
The Big Ones
There are four very big firms of accountants being Deloitte, Ernst & Young also known as EY, PricewaterhouseCoopers also known as PwC, and Klynveld Peat Marwick Goerdeler also known as KPMG. In addition there are many large to medium sized firms including Grant Thornton, BDO, RSM, Smith & Williamson, Moore Stephens, Mazars, PKF UKI, Saffery Champness, Haines Watts and Crowe Clark Whitehill to name a few. As well as these there are a number of regional accountancy firms that will have several Partners (the term used in the accountancy world for the boss).
A list of the biggest firms of accountants is published each year by Accountancy Age. The 2022 list can be found at https://www.accountancyage.com/rankings/top-5050-accountancy-firms-2022.
The sole practitioner
Sitting alongside the large and medium sized firms are accountants who work on their own or with a small team of support staff. These are known as sole practitioners. Often times, as a client, you would deal with the main accountant in a sole practitioner firm meaning that you get advice straight from the expert. Sole Practitioners are best known for the personal service that they offer – as a client you will be a big fish in a small pond.
The Specialist firms
For certain industries, such as contractors, trade subcontractors, couriers, dentists and so on, accountancy firms that specialise in a certain area or industry exist. Such firms tend to offer tailored services taking on clients only within their specialist industry. This can feel rather like a “sausage machine” approach as clients are often allocated to a Team made up of different skills and levels of experience, rather than a qualified accountant. These accountancy firms tend to have client numbers in the thousands.
Online versus High Street
Traditionally accountants were found in offices, often on the local High Street; a bricks and mortar type approach. However in recent years, with the uptake of technological solutions, many accountants now offer services online which can be at a more competitive price than the traditional High Street accountant. The move to online services has increased enormously as a result of remote working through the pandemic. The result is that online accountancy services have become mainstream, accepted and well received as an alternative to finding the time to visit an accountant’s office. With such an online service clients can usually ask questions, exchange documents and deal with all the aspects of accounting for their business through virtual communication channels making the accountancy service much easier to accommodate within a busy business operation.
The offshorers and outsourcers
Several of the online firms have gone one stage further with their services by outsourcing some or all of the accounting work. Tasks and work may be outsourced to firms or businesses which are not based in the UK. Whilst this may result in a cheaper accountancy fee for the client it has to be balanced with the loss of control over where your accounting records are and who has access to them. In addition the work may not be carried out by those qualified in accounting or UK tax laws. It is always worth checking where your accounting work will be done, by who and what qualifications they do have.
Which is best?
The obvious answer to that is “it depends on your needs”. If your business is relatively small with uncomplicated needs then a sole practitioner would probably be the best option. More likely it would give you direct access to a qualified accountant rather than a team or an account manager who would merely direct your query through various channels before it got to the right person.
However if you have more complicated needs, complex VAT or tax issues then you may need the services from a larger firm who would be more likely to have the expertise that you need although of course their fees are likely to be much higher.
If you operate in a specific industry you may decide that the services from a specialist firm of accountants would suit you better. However it is worth bearing in mind that such firms are often staffed by team members not all of whom are qualified accountants. Therefore getting to the right person to deal with what you need can take time. It is also worth noting that the services offered by such specialist firms is often no better than those of the services from a sole practitioner or smaller firm of accountants.
What accountants have to do
As part of the process of appointing your accountant it is important to understand what they have to do to take you on as a client and why. When an accountant takes on a new client they must undertake basic Anti Money Laundering checks. In a nutshell Money Laundering is taking funds derived from crime (e.g. drug trafficking, tax evasion, theft or a plethora or other illegal activities), laundering the money through legitimate activities and turning it into clean funds. Money Laundering is now “big business” and one surrounded by laws to prevent it happening. Part of these rules require accountants to be registered with a Supervisor for Anti Money Laundering. Generally this supervision comes from their professional accountancy body or by them being registered with HMRC. This is merely a registration process and not approval by the professional accountancy bodies or HMRC.
In addition accountants must undertake certain Money Laundering checks on clients. The one check which will be obvious to you if you onboard with an accountant is that they will ask you for proof of identification. Usually this takes the form of you presenting a copy of photographic identification, such as a passport, along with a recent utility bill to confirm your address. You will probably be used to having to do this identification check as it is widely used for opening bank accounts, obtaining finance or generally anything to do with financial transactions. So don’t be alarmed if this is what your accountant asks for.
Warning bells should ring if an accountant does not undertake these checks as it means that they are not following the rules of client engagement. It could even suggest that they are not regulated or lack the necessary skills, expertise, qualifications or experience to be running an accountancy practice.
Reporting suspicious activity
An area that is not publicised by the accountant or often known by the client is the requirement to report suspicious activity. In addition to checking the identification of any new clients, accountants also have to report any suspicious activity to the authorities by raising what is called a “Suspicious Activity Report (SAR). Their role is to merely report and not investigate their suspicion; the investigations must be left to the relevant authorities.
The area of reporting suspicious activity is an ongoing responsibility for the accountant and reporting can occur at any point during a client engagement.
There is no clear definition of what constitutes suspicious activity but generally it means that the accountant suspects some sort of financial wrongdoing. Financial wrongdoing also includes tax evasion of whatever kind including rule breaking.
Should such circumstances arise, the accountant cannot tell the client that they have a suspicion as it is a crime to tip someone off that a report has been made. Where suspicion of financial wrongdoing exists the accountant should disengage from the client bringing their appointment to an end. Once again they cannot tell the client why the disengagement from services is necessary although most savvy clients should be able to work out that a professional accountant will not be able to represent them if they are operating outside of the law. Of course the client may actually think that what they are doing is perfectly acceptable which can often occur in the case of “bending the rules” to fit their purpose and reduce the amount of tax which is due. Ultimately the judge of if the rules have been broken will be the authorities.
What not to say to your accountant
What this means in practice for a client is that any wrong doing that they attempt to include in their business finances has a high likelihood of being picked up and reported by their accountant whether or not directly disclosed to them. Obviously any wrong doing which is directly disclosed will be reported by the accountant. In both cases the accountant will not let you know that they have reported you.
You would think with this in mind that clients would tend to keep their cards close to their chest if they were attempting some sort of irregularity through their accounts but you’d be wrong. Many a story of ill conceived schemes, wrong doing or rule breaking to supposedly get one over on HMRC are all too often shared. All have to be reported with due process followed by professional accountants who simply will not be prepared to put their career on the line for a less than scrupulous client. So kid yourself not, you’d be unlikely to get away with some sort of financial crime without being detected in the long run. Luckily the majority of clients and business owners in general are not out to commit some financial wrongdoing. It’s just a tiny minority that attempt such things or try to live outside of the law.
There’s nothing to fear if you operate the right side of the law. Your accountant won’t report you if you make a genuine mistake or when you need to ask a question. The regulations are there to stop the criminals or those with criminal intent and not to punish those who are finding their way through the minefield that is accounting.
How to manage your accountant
If you do decide to appoint an accountant do remember that they work for you. Whilst you may be relying on them to keep you up to date on the rules and regulations that apply to you and your business, this should be done in a way that suits you. All too often the accountant wants the client to work their way using software that they want you to use and charging you for it within their fees.
New technology with machine based learning has substantially eliminated much of the routine work that accountants have to do. Not only this but systems and bank accounts with built in bookkeeping easily allow the business owner to keep on top of much of the day to day financial administration of the business.
Such advances in technology are very much reflected in the downward push on accountancy fees. Long gone are the days when accountancy fees are in the high hundreds or thousands of pounds. In fact much of the work that the accountant would routinely charge for can be done by the system. An excellent example of this is the VAT return for VAT registered companies. The VAT return is merely a by-product from the transactions which are dragged into the system from the bank and routinely explained by the business owner. As part of that explanation the VAT treatment is assigned with this being recorded on a VAT report within the system. All that needs to be done at the VAT quarter end is for the VAT report to be electronically filed at HMRC which is simply achieved by pressing the submit button. There’s nothing else to do but yet accountants still charge for submission of a quarterly VAT return. If you are paying for this then do ask your accountant what they do each quarter, what you could do yourself and what can be done by the system to reduce the fees.
Overall, and in not too dissimilar way to reviewing your annual car or home insurance each year, it’s worthwhile carrying out a regular review of what you are paying your accountant and what is included in the scope of work that they are undertaking on your behalf. Complacency of just accepting the fees because you’ve always used that firm or because they’re a friend of the family costs you money and, in a sole owner business, that’s money out of your own pocket.
Take control of the relationship that you have with your accountant making sure that they work the way that suits you doing what you want them to do. Remember that it is you that pays their fees.
As regards fees there are generally a couple of ways of working with accountants. You can either pay a fixed amount each month spreading the annual cost evenly throughout the year or pay a one off fee at the year end. Which is best is down to you and how you manage your cash flow.