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Wednesday, 2 September 2015

SME's are helping to plug 'The Deficit'..

..and what our accountants are doing (or maybe not) to help


The undead are amongst us

I was idly wondering if a small hotel in Taunton might run to the luxury of a defibrillator should the occasion arise, because it looked as though a 'serious medical event' might be on the horizon. Or rather right in front of me.

We (a fellow business advisor and I) were discussing the ills of SME world and how we could don red underpants and fix 'em all. Usual stuff.

I mistakenly believed lawyers were the profession that everyone loved to hate, but apparently I'm completely out of touch - the feckless zombies in our midst are our accountants. In fact this poll  in the Telegraph puts accountants below lawyers in terms of trustworthiness. Perhaps this is because they do 'financial stuff with the government' and so are loosely linked in our minds with bankers and civil servants who fared even less well in the same poll?

Back to the hotel reception - my pal was now whipping his hobbyhorse into a foaming frenzy "I mean, what are accountants for? Tell me that? Accounts - and what use are they to man nor beast?" ranted my companion. "Business zombies..out of the ark...still pay gnomes a pittance to reconcile every transaction....abacus...stubby though all this cr** were actually useful!" - froth was now appearing at the corners of his mouth that was definitely not down to cappuccino - because he was gulping down a calming camomile tea.

He wiped his mouth with the back of his hand and rested his head back on the back of his chair. "Well - come cloud accounting - they will get their come-uppance". 

As is so often the case with these things, having had this conversation, I found myself picking up on similar conversations frequently in the next few weeks.

Dissatisfaction with accountancy services is by no means universal. As accountants themselves will tell you, it can be very difficult to prise apart a business owner and their accountant in order to acquire migrating 'discontenteds'. In fact most accountants consider solicitation of clients to be 'not cricket' - there appears to be a strong sense of loyalty to fellow professionals. When I pointed this out to my coach friend, he snapped back 'Honour amongst thieves'. 

The general run of opinion (where opinion is 'anti-accountant') appears to be that whilst 'zombie' accountants don't deliberately rip us off, neither do they show much inclination to get off their collective botties (I'm suffering a visual image) to help us out when tax compliance  is undoubtedly getting tougher (or at least more costly) for SME's.

How to recognise a zombie accountant


Apparently these are the warning signs: 
  1. An accountant with whom contact is limited to a 'courtesy meeting' once a year where they exchange superficial pleasantries and a set of bound accounts for a significant business cost
  2. Accountants who demonstrate:
  • No interest in medium or long term plans for the business
  • No interest in, nor understanding of business challenges and difficulties
  • Failure to discover whether the business qualifies for the many tax reliefs and benefits available to offset compliance costs - because 'we don't do that'. And no direction towards someone  who does.
  • No inclination to introduce clients to other clients - as most of them appear to promise when they sign people up. In fact this appears to be a commonly abused hook to gain new clients. Business owners are often prepared to pay over the odds to big cheese accountants for introductions to other big cheeses that don't materialise.
  • No knowledge of what the business actually 'does'. I came across one business which  missed out on significant (£X00,000s) in tax relief because their accountant hadn't a scooby what their core business function was or how their revenue was being spent.
  • Lack of transparency. Many owners have no idea what they're actually paying for - no breakdown of fees e.g. for accounts, tax-planning, tax relief. Just one big unintelligible blob of fees.
  • No sign of an attempt to volunteer a reduction in cost of creating (wrong word, I know!) compliance accounts through automation
  • No sense of irony about occupying large offices, wearing sharp suits and driving big, shiny cars connected to fee size and demonstrating no empathy with their screaming, sweating, swearing clients.

This is how SME's are helping plug The Deficit  


The cost of tax compliance for small businesses is steep relative to large businesses) and climbing, as HMRC discovers what rich pickings can be gleaned from us. An extra £10 billion per annum, no less. So much for The Red Tape Challenge speech (written in January 2014) in which Dave C. claimed that his was 'the first government in history to reduce overall domestic regulation while in office'. No wonder politicians came top of that same Telegraph poll as the least trustworthy profession because we certainly ain't feeling the love.

Apparently we (SME's) spend around £4,300 per annum on our tax compliance compared with £8,900 per annum shelled out by large businesses (oh, well that's alright then). We spend 4 hours a week on tax affairs compared with 8 hours in a large business, but the latter is across the whole large business.

The vital missing statistic (and what knackers SME's) is that the average number of employees in a small business is 4, compared with 250 plus in a large organisation. So the financial impact on SME's is proportionately far higher. 

We could be forgiven for thinking that HMRC is chasing Starbucks and Amazon for their big bucks to plug The Deficit, but since they acquired their 'Connect' software they are able to find SME's with ragged, gaping or plain dubious accounts quite quickly and profitably to produce that £10 billion extra a year. 

If you're one of 138,000  fast-growing businesses who are responsible for 68% of new jobs in the UK you might be looking forward to a 'risk assessment' from HMRC.

The Forum of Private Business conducted a survey of SME's and the results show that compliance costs (all regulatory compliance, not just tax) have increased by 8% since 2013. Furthermore, the usual surveys don't include the opportunity cost (i.e. the lost opportunities to create new business, because owners are so tied up in red tape). Ian Cass, Managing Director of the FPB estimates that the cost of compliance to micro, small and medium businesses is nearer £40 billion  once opportunity costs are included - which is twice as much as the usual estimates which only account for fines and fees for external advice.

So whilst accountants may be keeping their fees steady, these fees are clearly not helping SME's to avoid penalties, nor benefit from available tax relief.

So how can we go shopping for a human accountant?


Signs of life. Someone:

  • Who is prepared to embrace automation through the many cloud-based accounting apps. Although if your idea of heaven is to hand over a carrier bag full of jam-covered, beer-stained receipts, you may find automation something of a disappointment
  •  Who can hold a conversation about your business,  not just limited to the numbers
  • Who understands the trials and tribulations of being you based on the conversation above
  • Who doesn't just offer solutions that they have ready-to-hand, but actively looks for solutions to reduce your cost of compliance, the fear of penalty, or penalties
  • Who is prepared to dig to see if you can benefit from specialist tax advice - and can introduce you to a cost-effective solution. An enterprising tax specialist has set up a standalone service with the purpose of supporting accountants who 'don't do that'
  • Someone who doesn't scare you. Could you confess idiocies to this person in the event that you do something completely idiotic?
  • And the luxury item - someone who makes you laugh. If there is one reason I wouldn't swap my own accountant for anyone else (in addition to the all the above) it's this one.

Maybe if we were better at shopping around for an accountant we would get the accountants we deserve? Maybe because we don't ask them difficult questions about their services, we do get the accountancy services we deserve? Should we perhaps point out that we could use some of their wider skills and knowledge? 

Or maybe accountants should just call themselves something else because we need to think of them differently and get them to concentrate on services which will help the rest of us avoid being fleeced in the name of The Deficit?