Contractors' Questions: Am I paying too much for my accountant?

Contractor’s Question: I’d like to know if  I’m paying too much for my accountant. It’s an accountancy firm my family and I have used for 10+ years and I’ve got two accounts.

First is my limited company account – which I use for my buy-to-let which does very little other than produce £400 in rent a month. Following two recent price hikes by the accountant on their ‘Ltd’ package, I now pay just over £1,300 a year.

My second account is for me as a sole trader – which is for day-to-day freelance work and is more active, given I have numerous clients and numerous expenses. This second account with the firm is billed at £800 a year.

It has been suggested by an industry figure that I should pay just one fee – for both accounts. It has also been suggested to me that the firm is overcharging, given that my limited company requires very little accounting ‘work.’ On the plus side, the accountant gives me advice when I ask, and does my personal tax return too. But am I paying too much?

Should I switch to a cheaper rival, or ask the current firm to consider a price reduction? I’m happy with the sole trader fee, but not with the Ltd account fee. Thank you.

Expert’s Answer:  Although your loyalty holds merit as a customer of over ten years, price hikes are necessary to bring accountancy fees in line with inflation.

The drip feed

The cost of doing business in 2022/23, compared to one decade ago, is distinctively more expensive. It’s also common practice for accountants to ‘drip feed’ a fee increase to transition old clients that are still paying historic prices to the current fee arrangement.

Ask your accountant for a service breakdown and compare this against cheaper rivals to check whether introductory offers are just a ‘golden wrapper’ around a reduced service. The size of the firm, skillset and resources at their disposal typically determine how much they can afford to charge. If it turns out that you can reduce the level of services available to you with no disruption, this may help skim costs and avoid an unnecessary switchover to a new accountant.

Limited company account – to stay or to switch?

While your limited company ticks away, mostly fuelled by rental income, the behind-the-scenes work is comprehensive, in addition to the delivery of standard accounting services, such as providing tax advice, fulfilling filing requirements and bookkeeping.   

As required by financial reporting standards, FRS 102 Section 1A accounts are complex accounts that may be required for rental property businesses. These accounts dive into the intricacies of accounting treatments and are notably comprehensive compared to the standard FRS 105 accounts.

The self-assessment tax return for one director is often included in the fee, as is your accountant’s advice, although an additional cost may apply if it’s complex, such as involving cryptocurrency dealings.

Sole trader account – sense-checking fees

As you run your core business through the sole trader account, the price of £800 a year seems reasonable. Movement on this fee will typically hinge on revenue, turnover, number of transactions, VAT registration status, payroll and whether you request a formal set of accounts, or you’re satisfied with a snapshot of this in your self-assessment.

Combining both fees is an option – whether for practicality, or to push the cost through the limited company as an expense, although this can muddy the waters. As the accountancy fee covers both the limited company and sole trader business, the latter will be regarded as a disallowed expense.

Does cheaper always mean wiser?

There will always be cheaper rivals in the accountancy space, so check that the service on offer is equal to your existing provider. Accountants usually determine fees based on revenue and total assets, whereas some may charge a standard fixed fee for a limited company package, but load on the costs by charging additional fees to deal with a property portfolio.

There’s no golden key formula that tells you how much you should pay your accountant, but as a rule of thumb, the recommended fee that’s classed as a worthwhile investment is 1% to 3% of your turnover. Comparing providers is also a valuable exercise if the price is a dealbreaker for your business. Good luck!

The expert was Karl Hodson, a commercial finance specialist at UK Business Finance, a low-cost finance solution for growing businesses.