The Fizz! Blog

Do you always get what you pay for with accounts and tax?

There’s a natural and reasonable assumption in accounts and tax that the quality of the work and service you get is likely to be in some way proportionate to the fee you pay.  This is somewhat true, and somewhat untrue.  It’s somewhat true as there are providers who will focus on a price-based, “conveyor belt” kind of service, and there are providers who will focus on a more supportive and holistic service.  We’re the latter, but there’s a place for both, just as long as you know what you’re signing up for.

But you do come across plenty of occasions where people pay quite a lot of money for something not commensurate with the cost - and also some where people get great work or service for a lower fee than the provider could really charge.

Why might someone be “overcharged”?

• You might not be the kind of client your accountant would generally work with (classically, you might be a small fish in a big pond) but they don’t mind doing the work if the money is right.
• They might not want to work with you at all, and hiked the fees in the hope that you’ll leave.  This is a terrible plan (they’ll find you just as irritating, and now also feel slightly dirty about the amount they’re charging you!) but it’s very common advice on accountancy forums nevertheless.
• They might be overstretched, with good intentions not matched by the capacity to execute.
• They might habitually hike fees up every year until they meet some resistance.  From a cold, commercial perspective that’s not a crazy thing to do.
• They might actually be doing really good work but not telling you about it.  This is surprisingly common.  When we take on a new client who has been unhappy with the work or service levels of their previous accountant, at least 75% of the time the work is actually completely fine, just ill-communicated.
• But they might actually just not be good enough.  You do get cases where an accountant has agreed a premium fee that would be fine if they were doing a great job, but they just don’t have the level of competence to know what a great job is. 

Why might someone be “undercharged”?

• An accountant might not be very good at valuing their services.
• They might have a good idea of the proper commercial value, but lack self-confidence!
• They might be trying to win work on price initially with the intention of hiking fees up later on (we don’t think this is a good plan ourselves, unless you’re completely explicit about what the eventual fee might look like and what the discount is, but it certainly happens).
• They might have a simple life and low overheads and simply be happy with reliable work that gives them an amount of money that they’re satisfied with.  There’s more to life than maximising profits.

Clearly a once-a-year form filling service should be cheaper than a service with more regular support and check-ins.  But it’s possible to get sucked into the former at the price of the latter.  Be careful!

One more thing - it’s tempting to try and negotiate hard and get services at the lowest price possible.  This is quite logical and definitely a reasonable idea with a one-off transaction.  If you’re buying a car, play hardball!  The problem with applying that to an ongoing annual service, though, is that you’re going to quickly find yourself with a provider who resents you, over and over and over again.  Try and find a fee that you *and* your accountant are both content with!

www.fizzhq.com

I've been told my contract is inside IR35 - but what does that mean in practical terms?

Previously on IR35:

• The legislation informally known as IR35 was introduced 23 years ago.  It aimed to prevent those billing via a limited company whilst performing an employee-style role for a customer from benefiting from any of a limited company’s tax advantages; instead they were to pay full employment taxes.
• It didn’t work, because it was self-assessed, and turkeys rarely vote for Christmas.
• In 2017, as a result, the responsibility for making the call changed - if you worked for a public body, the public body would decide if IR35 applied.  If it did, full employment taxes would apply and you’d just be paid the net.
• In 2021 (having been postponed for one year due to COVID), this was extended to large customers - similarly, it became their call on IR35 and their risk if they decided not to account for employment taxes.

If you’re a contractor or freelancer working longish projects with big or public sector customers, it’s therefore quite likely you’ll encounter IR35 these days.  But, if a customer or agency tells you that a contract is inside IR35, what does this mean to you in practice?   This isn’t necessarily a simple question, as there are a number of routes that the customer may take, with the literal implementation of the IR35 rules being the least common by far:

1. They might just put you on PAYE.
2. They might pay you via an umbrella company (from your point of view, this is to all intents and purposes exactly the same as PAYE).
3. They just might actually implement the IR35 process - we don’t see it often, but we do see it occasionally.  If they do, then you’ll send them invoices from your limited company as normal, but they’ll pay the invoices net of tax and National Insurance relating to you personally.  This is obviously a very weird concept, and since all three routes are designed to get to the same split of the money between you and HMRC, the well-worn road of PAYE/umbrella generally looks much more appealing to all concerned.

If you get the choice, your accountant will thank you for picking #1 or #2!  We don’t need the hassle of #3 either.

Here are three practical points to be aware of:

1. Make sure you know whether a contract is inside or outside IR35 before you sign it!
2. Be aware that an inside IR35 contract will leave you with less money in your pocket than an outside IR35 one.  How much less?  That will vary depending on the bigger picture of your whole situation, but as a rule of thumb you might consider that you’d need a 25% day rate hike to stand still.
3. You should talk to your accountant at the outset of the new gig, not later on down the line - as well as the decision on whether to accept the contract, there will very likely be other actions to take too.  It might well be appropriate to pause salary or dividends from your own company whilst working on an inside IR35 contract, and that can’t legitimately be done retrospectively.

It’d be nice if everyone had a common understanding of what inside IR35 means, and the steps we’ll all take when that’s the case.  Until then, you’ll always need to press until you find out what’s actually going to happen in practical terms.

www.fizzhq.com