Contractors' Questions: Is changing accountants a red flag to HMRC?

Contractor's Question: Is changing my accountant in any way a red flag to HM Revenue & Customs? I’ve been with the same accountancy firm for a while, but their service is no longer proportionate to their fees.

I want to change but am worried about whether signing up with a local accountant - ‘Joe Bloggs Tax Services,’ would be noticed by HMRC. Would this be deemed suspicious, or would HMRC see this local tax expert as a less professional accountant, and therefore a softer target? Also, for practical considerations, would I be better off to change to a new accountant at the year-end, or would that be even more eyebrow-raising to HMRC?

Expert's Answer: Customers of HMRC change accountants on a regular basis and I don't think simply changing your accountant would spark off an investigation. However, if the accountant is “known” to HMRC, then that may be a factor that is taken into account by the tax authority.

HMRC does not publish their risk analysis strategy, but they are generally more interested in the figures in the accounts rather than the firm involved in the production.

It follows that the time that you make the change to a new accountancy provider is entirely up to you. From my experience of the organisation, I don't believe that the timing would be a factor taken into account by HMRC.

Remember though that whether local or offline, a professionally qualified accountant has been trained and must adhere to certain standards. If you look for an accountant outside that sphere then, of course, you do need to be careful. HMRC are aware that there are certain tax advisers that should really be doing something else!

Lastly, I assume that you are operating your own limited company and company legislation requires a high standard of record keeping and, moreover, accounts must be prepared in the manner acceptable to Companies House, so you cannot necessarily go to a ‘back-street tax advice shop.’

The bottom line is that changing accountant should not cause a problem provided you go to someone who is reputable and, preferably, qualified. “Joe Bloggs Tax Services” could raise an eyebrow in the corridors of power.

The expert was Bob, the retired tax inspector.