What factors affect the price of accounting services?
Posted on 13th May 2022
Have you ever wondered how much accountancy services cost and why prices can vary?
In this video Kim will answer that question for you…
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Have you ever asked yourself the question, why are there so many different prices quoted by accountants for accountancy services? Are you a little worried you may be charged too much or too little? Well, in this video we are going to look at why that’s the case and go through some of the points to consider when making the right choice for you when hiring an accountant and pricing!
I’m Kim Marlor from Krystal-Clear Accounting and in this video, I’m going to explain what makes Accountancy services more expensive, what makes them cheaper, and why some companies that sell Accountancy services are more expensive and why some are less expensive.
So, let’s look at what makes accounting services more expensive?
Well, the first thing to note is there is a myriad of choices both in terms of Accountancy Providers, some large and small. More about that later, and a whole array of different services that you might choose. There’s no right or wrong choice……it just comes down to what’s important to you!
It’s a little bit like buying a car, there are some basics you need to have and then lots of extras and it’s down to a number of factors – personal choice, budget available and what you want, what’s important to you and how you perceive the value: –
So, what are the factors that affect the price and size of the Accountancy provider you choose…
- The trading structure of your business – are you a sole trader or Ltd company – as there are certain minimum legal requirements for each and they are different
- How much time you have available to do say the bookkeeping to keep the price down – you have to accept though that the more you do the less time you have to focus on your business and that will slow you down in terms of growth and profit!
- Your ambition – is your business a lifestyle one or do you have big ambitions and want it to grow and afford you higher levels of salary/dividends and profits
- Your attitude to risk – a small one-man-band or unqualified accountant may be cheaper but may not be as thorough as a larger practice
- Your wants and values – do you want an annual compliance, once a year service which might be ok if you want to tick along but if you want to grow and quickly you may need a higher service level with help and support and a monthly or at the very least quarterly relationship
- That time is money – yours or the accountancy provider!
- Are they a modern thinking provider of Accountancy services or very old school – if old school they will charge you by the minute every time you call them up?
- How does the accountant bill – do they bill on an annual basis after they have done the work and you get charged dependent on the amount of time taken, which may come as a shock… or did they provide a fixed fee paid over 12 instalments so you knew in advance
A word of warning be careful about buying on price – remember the car scenario, do your research, think about what you are looking to achieve and decide who you think will be able to most help you get there.
So, let’s look at the factors that make Accountancy services more expensive
The biggie is the business structure you are operating under… a Sole trader structure is usually cheaper than a Limited company one and that is down to the work involved:
Sole trader structure
A sole trader may only have a tax return produced each tax year so the cost of this service may be anywhere from a couple of hundred pounds up to a thousand pounds plus if you have full sole trader accounts.
Why would you choose a sole trader structure, well it’s very much down to a number of factors?-
- How complex a structure do you need and want?
- Do you need the protection of a limited company around you (protects your personal assets – should there be an issue), shouldn’t be an issue though if you have the right level of insurance anyway.
- Do you want and need to be VAT registered?
- The amount of Profit you will make – as at modest or low levels of profit any tax savings you might get from a Limited company structure could be swallowed from the additional costs of operating a limited company
If you are just wanting a lifestyle business and perhaps it’s a business on the side and you already have an employed job as well, a sole trader structure may be all you want and need,
However, if you intend to grow your business and really go for it, the chances are you will need a limited company structure so you may well decide to go for it from day one.
Limited company Structure
A limited company is a separate legal entity to you, so when you set one up you might be the only director and shareholder, but in essence, you still are an employee of that Ltd company and there are different ways that you pay yourself. Salary, Dividend, and expenses. In order to pay a salary, you would need to operate a payroll generally which has extra reporting requirements and deadlines and would increase costs.
There is a more involved reporting process for a limited company. As a sole trader, you only have to submit a self-Assessment Tax return, however, you might want to do a proper set of accounts – a Profit & Loss and Balance sheet but you don’t legally have to. Whilst it’s always best practice you don’t even need a separate business bank account.
With a limited company, it’s a whole different ball game… you have to have a business bank account, you can only take money out in the form of salary, dividends and expenses and you shouldn’t put personal expenses through the business… HMRC doesn’t like it!!
You also have to produce a full set of accounts for the business owner and for completion of certain information on the tax forms for the company you have to do a personal and a company tax return! The set of accounts that is produced is then cut down for what needs to be filed at Companies House, as you only need to file a Balance sheet, you may have heard of abridged, fileted, or abbreviated accounts. Credit agencies can use this information lodged with Companies House as do funders should you require to raise finance.
As a limited company, you also need to complete an annual confirmation statement and a person of significant control register with Companies House. There is a fee to file this, but usually, Accountancy Practices roll that up into the Fixed fee, so you don’t get charged extra.
It is worth saying that as a Limited company the expenses you can claim for tax purposes can be very different or the way in which you claim, and amounts can be different. I often hear on social media posts like “My friend does his own tax return, and he claims for X, why can’t I”. It’s because there is no definitive list that HMRC issue, it is often open to interpretation and case law and as there are over 17,000 pages of tax law, and the individual who does their own tax return often is blissfully ignorant of this case law and that’s often when they can come unstuck when HMRC comes knocking!!
A qualified Accountant working for a practice that is regulated by one of the Accountancy institutes has a level of expected professionalism and has to complete Continuing Professional Development which takes time and money. They will have spent years qualifying in the first instance and perfecting their craft it is not a 5 minute task!
So the structure and the way your business is set up can mean the service costs more
As does the expertise of the accountant delivering the service!
Another factor to bear in mind is software
If you are submitting Sole trader accounts it is possible to submit a tax return on HMRC software, however, it’s not so easy for a limited company as they have to be electronically tagged so the accounts arrive at Companies House and the Corporation Tax return arrives in the right format in the right codes.
I have yet to come across a Ltd company director who has submitted their own accounts and tax returns for the company! Whilst I have seen individuals submit there own self Assessment Tax Returns!
Whilst you could submit your own self Assessment tax returns – I wouldn’t recommend it….if you get it wrong it can cost you a lot of money in tax , heartache & stress trying to unravel a mistake that has been made. So hence why another factor in what increases the cost of the service is the expertise and training that qualified and regulated accountancy practices have to incur.
Also a hidden cost of doing business with an accountant is regulation – again a regulated practice of qualified accountants will have professional fees for each accountant and the business as a whole. They have to provide training on an annual basis, have costs of complying with industry norms like Money laundering and complying with official code of conduct. They will be “audited” by the various institutes. There will also be specialist insurance they have to carry like solicitors, architects, Independent Financial Advisors and insurance brokers! These costs are ever increasing year on year in monetary amounts and time!
Another factor influencing the price is how you keep your underlying bookkeeping records –
- Do you keep them in paper form and hand them to your accountant – very rare these days with the advent of Making Tax digital.
- Do you use an excel spreadsheet or cloud accounting software? Also, just because you have software doesn’t mean there is no work for the accountant to do…
- if an Accountant has to correct your mistakes, it can often take longer than doing it from scratch.
- If you don’t enjoy doing the bookkeeping and make mistakes these could be costly especially if you have VAT – maybe, it’s time to outsource to the accountant or bring in a suitably qualified bookkeeper.
- Remember when you hand over your records to an accountant, they are taking those records and producing the accounts from them… they are not doing a full audit. You wouldn’t want to pay for them to re-do or check all the individual transactions which is what they would have to do to correct your mistakes.
- Audits cost many thousands of pounds and that is why bigger companies have to have them to give some certainty of the accuracy of the records they submit!!!
Accountants may pick up on the odd mistake you make when compiling your records, but it may be by chance rather than design in a lot of cases. They will use their expertise and knowledge, possibly do an analytical review, and compare year on year etc to spot anomalies.
However, they are not guaranteed to pick up any or all of your mistakes. It depends on how thorough the accountant is.
Remember the less you pay means there will be no money left to even do a cursory review as the fee will be used on producing the Annual Statutory Statements and getting them filed!
I’m afraid it’s down to you, it’s your records, your business, so you need to make sure you can ask if you are unsure on anything.
Worth noting and remembering is…you cannot abdicate responsibly for your tax affairs!
The next factor in determining the price is how much help and support you get –
- can you call, email, or get hold of your accountant via what’s app or text?
- will you get an answer quickly
- Do they take an age to come back to you if they do ever!!! – I’ve heard business owners say they could never get an answer from their accountant so it does happen and worth considering if it’s that important to you
How Proactive are they
Every Accountant will tell you they are proactive but are they in truth?
- Do they take the time to get to know you and your business, and understand your goals and what’s important to you?
- Do they come up with the best ways to extract your money and make sure you understand?
- Do they communicate by email/webinars/seminars/what’s app/newsletters/video and send you info that is relevant to you?
- Are they proactive and help you to save as much tax as legitimately possible?
- Do they have a tax investigation fee service – if HMRC investigates you then the service effectively covers the cost of defending you to HMRC. I use the word defend as HMRC may pick you at random even if you have done nothing wrong, but this action can take a while to resolve and a whole lot of stress and hassle and the additional cost wouldn’t be included in a fixed fee service
- Can they help you make important decisions like investing in a company?
- Do they offer Business growth services like financial models/Budgets/Plans/Strategic plans/Management Accounts/ Key Performance Indicators and Scorecards/ Coaching and quarterly/monthly meetings aimed at helping you to move/improve your business?
- Do they understand what it’s like to work in a successful business and can help you with your systems and operations and even staff
If you have a lifestyle business or you don’t want to grow, then you probably don’t need these services so that Accountancy firm may not be a great fit for you.
So, we’ve covered off what can make the accounting service more expensive – well the opposite is true in terms of what makes it cheaper.
So, in essence, it would be: –
- A sole trader structure rather than a limited company
- The number of services you took
- The amount of leg work you did yourself
- The complexity and numbers of records
- Whether the advisor was qualified or not
- Whether it was a very small accountancy practice that we call a sole practitioner
Let’s look at why some Accountancy Practices are more expensive
There are a number of reasons for this, they include: –
Size of Accounting firm – for example, if you were to choose one of the biggest 4 in the UK, PWC, Deloitte, EY and KPMG, they would be the most expensive.
- They have a huge cost structure to pay for, huge offices, overheads of running such a large business due to hundreds of UK partners, large staff salary costs, lots of regulatory costs, huge Insurance costs and huge training costs for their staff
- This type of Accountancy Firm is more suited to large UK PLC’s who need audits (as the owner of a small company you don’t need an audit in most instances). Or those who have a complex structure with subsidiaries and overseas divisions. They will probably have a need for extremely complex taxations services. The likes of which a small business owner would never need
- Their fees would be commensurate with this and would probably be in the region of a 5 to 6 figure sum. Their target market is PLC audit clients, and they can charge millions for this!
Even if you then came down to a regional firm like RSM, BDO, Grant Thornton they would similarly have very high-cost structures and for a small, limited company just to do the accounts and tax returns could cost in the region of 10s of thousands of pounds. So, unless you really needed the complex tax advice and weight of a top 10 Accountancy firm you probably wouldn’t go with them.
You would then have large regional practices and again they have some large overheads to cover, lots of nice premises in the centre of major cities and lots of team members to keep trained and again their costs are beyond the reach of most small businesses.
There are over 43,000 Accountancy practices in the UK so you could spend a considerable amount of time trying to find one. I’d recommend you decide what is important to you and what services do you really need and then go from there.
A word of warning though, whilst you don’t want to go for a firm who is too big, it’s not a good idea if you want to grow your business and profits to go with an Accountancy firm who is too small as you will soon outgrow them. You don’t want to go with a one-man band as they will struggle to provide all the services you are likely to need as your business grows and scales.
I’d check out Accountancy firms online, see what referrals they have on Google, does it look good don’t go for one who has only a few but all 5-star reviews, find a firm who has lots of reviews over 50 but those reviews talk about the services and the values that matter to you.
You’ll probably want to ask them how many clients they have as if they have more than 200, they probably can’t service them and they probably pile it high and sell it cheap. You won’t get a personal service. That may be what you want, but most Accountancy firms in this arena won’t be able to give you good quality time and advice to help you grow, but if you are a sole trader it may work for you by keeping costs down.
So, if you are looking for a firm who charges less than £1000 + vat for Limited company accounts you will need to find a company who is very small and either only has a couple of part-time staff or perhaps works from home so their overheads are very low and they can keep their prices low. They will be based outside of major towns and cities.
So where do we sit, well here at Krystal -clear Accounting we are based in Hale, Altrincham not far from Manchester airport. As we are outside of the big cities, and we don’t have the overheads that the big national and regional practices do.
Where we actually sit though is mid-table in terms of costs. We are not the most expensive locally nor are we the cheapest!
Our offering is all based around value for money. We are not the cheapest but with us, you will get a very personal bespoke service to meet your needs, with guarantees around deliverables…for example, you’ll never get a fine with us (it’s amazing how many prospective clients come to us having had some!)
Our clients are all ambitious business owners who are looking to grow and either make more money through increased profits, have better health – be less stressed as the business is under control operating efficiently and effectively and better relationships as the business is better process and system-driven, they can then afford to take off knowing the business will run without them. They recognise they need more specialist help and advice with the financial side of the business and meeting with their accountant on an annual basis just doesn’t cut it!
We have fewer clients, but we have deeper relationships with them. Often prospective clients come to us who have never had a service from an accountant like us before.
We take the time to understand them and their goals, where they are now and where they want to be, and we use our specialist skills to help them
Firstly, we MAP IT – we analyse exactly where they are now, understand where they want to be and map out a plan to get them there!
Next, we SORT IT – This involves making sure that all the financial data is flowing properly so you have all the info you need, in the right place at the right time.
Then we SCORE IT – you’ll get your own bespoke scorecard or Dashboard to ensure you stay on track
And throughout everything we SUPPORT IT, working closely with you proactively, to optimise all the key parts of your business.
Our clients are on a journey where they want and need more than just an annual service from their accountant.
During this process, they often need in-depth help and support and a higher level of support like Management Accounts, Key Performance Indicators and a scorecard and often help supporting them on their journey with monthly or quarterly meetings.
Not all clients take all these services, but lots do, however at the very least they start with the annual accounts and a strategic plan, so they know where they are going and what the milestones are to achieving this. Then over time, they add in the other services as they grow and need the extra direction and support
For the MAP IT Service of Annual Accounts Service and a plan our fees start from £300+ vat per month and the usual upper end of the range for larger businesses taking the full package of (MAP IT, SORT IT, SCORE IT & SUPPORT IT) is £2500+ vat per month.
The price is bespoke to your business and does depend on the package of services and the size of the business and its complexity. We tend to find that most businesses who work best with us are small, limited companies who are ambitious and want to grow and are currently turning over upwards of £200,000 to £5million a year and have been in business at least a couple of years and have a few team members.
If you’d like to have a chat over a coffee (Virtually or face to face) and to see what is possible, all you need to do is call me or one of my team on 0161 410 0020 or email firstname.lastname@example.org
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