How do accountants charge?
The traditional way of charging for accountants is by hourly rate. Accountant A quotes one hourly rate and accountant B quotes a slightly lower one. Simple, you go with accountant B because that’s going to be cheaper isn’t it? Not necessarily. You don’t know how quickly each of them can work so, if accountant A is a faster worker, possibly because of better technology, you could find that, even on this crude measure, accountant A is the lower cost option.
Hourly rates have other traps for the unwary. If the accountant is working on an hourly rate, is there any incentive to do the work quickly? If a mistake is made and has to be put right, the client is being charged an hourly rate so the cost of correcting the mistake can be passed on to the client – and this does happen. Most people wouldn’t accept an hourly rate quote from a builder or plumber without knowing how many hours to expect. Why should accountants be different?
Many, but not all, accountants do have a policy of only charging for the time which a job should have taken. They review each piece of work and, if it has taken longer than it should, possibly because of having to correct a mistake, only charge for the time the job should have taken. This does not apply to all accountants. I have come across situations where a client has pointed out mistakes to an accountant and then received a bill for “amending the accounts”.
In my opinion it is generally better to try to arrive at a price before starting the work. This is difficult with new clients because there is no previous knowledge of working with their records and, for a brand new business, no real information to go on, other than previous experience. We can be pretty definite about some types of work, such as payroll, and for other work we will give as accurate an estimate as possible, usually within a range. The principle we use is that, we will stay within the range unless there is something very different to what we expected and then we will discuss this with clients before proceeding. In about 95% of cases we are well within the indicated range. Once we have the first year’s work under our belts, we can be much more accurate in our pricing.
This method of estimating jobs allows clients to budget properly and, because we also offer a direct debit facility, spreads the cost, so no big bills.
Potential clients sometimes ask for a price based on the turnover of a business. This isn’t really relevant. A company can have a £million+ turnover derived from just a few transactions and keep immaculate records. They will be charged less than a company turning over £20,000 with a lot of transactions and poor records. The better the records you keep, the lower the cost is likely to be.
National Minimum Wage – October 2009 increase
We’d like to remind employers that the National Minimum Wage will increase from 1st October 2009. The new rates will be:
- For workers aged 22 and over the new minimum rate will be £5.80 per hour
- For workers aged 18 to 21 the new minimum rate will be £4.83 per hour
- For workers aged 16 and 17 the new minimum rate will be £3.57 per hour
The minimum wage has to be calculated on all hours worked by the employee so you must pay for time spent setting up before starting or clearing up when finished. There are severe penalties for employers found to be in breach of the National Minimum Wage regulations – so don’t take the risk.
Paying workers a fair rate for a job results in better employees with more commitment who stay longer. Saving a few pence per hour can often cost much more in the long run.
For more information or to discuss your payroll requirements, contact us.
CIS – The importance of keeping evidence
Unless you can prove that you have had CIS deductions made from payments you receive, you could struggle to convince HMRC that you are actually owed the money. We have seen several instances where HMRC had been given incorrect or incomplete information by contractors and consequently claims by subcontractors for refunds have been denied. The attitude which HMRC take is that, in those situations, the subcontractor has to prove that the tax has been deducted. The proof should be in the form of the statements/remittances which contractors are supposed to supply backed up by bank statements showing the amounts actually received.
In one case, the contractor hadn’t provided proper monthly statements and payment had been in cash. No chance whatsoever of proving that the deduction had actually been made. Result tax to pay again.
This is a growing problem. The construction industry is notorious for not being completely honest and we suspect that many “subbies” are being ripped off by unscrupulous contractors who have worked out how to manipulate the system to their own ends. We urge every CIS subcontractor to make sure they receive, and keep, the proper documentation.
For anyone not familiar with CIS (Construction Industry Scheme) this is a process where contractors are required to deduct tax (usually at 20%) from any payments made to subcontractors. The contractor is supposed to send the money to HMRC where it is held to the credit of the subcontractor and used to offset any tax due. The scheme often results in a refund to the subcontractor. Unfortunately, a number of contractors fail to send the money to HMRC in which case the subcontractor has to prove that it has been deducted.
Most contractors are honest but there are sufficient cases of contractors disappearing with the subcontractors’ tax to merit a great deal of caution.
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Godkin & Co – sad to see them go
We’ve been advised that Godkin & Co, a firm of accountants with offices in Loughborough – close to us, are going into liquidation. Godkins have been well respected in the Loughborough area for many years and have a solid reputation. In all of our dealings with them we have found them to be professional and helpful. It is a shame that the recession seems to have had such an effect on them. It’s particularly sad that fourteen members of staff have also lost their jobs. Hopefully they will all find new employment soon.
The Liquidators are taking steps to sell the client base and clients should soon find that they have a new accountant but, with all members of staff being made redundant, there will be a break in continuity and long established relationships will be broken.
Most other accountants in the area, including ourselves, will certainly try to help if asked to do so by clients. We don’t like to see clients struggling through no fault of their own.
Payroll for business
Payroll is one of those aspects of running a business which frightens many self employed and company directors. It is a pain in the proverbial – but only because of unfamiliarity. Payroll is like many things – if you know what you are doing it’s easy, but, if you don’t, it is difficult.
I have said before that I don’t know why small businesses don’t subcontract their payroll. For an organisation, such as ours, geared up to calculate payroll quickly, it is very quick and easy. We have a few clients where we actually do their payroll while they are on the phone and give them their net pay figures immediately. Compare that with the average small business where the person doing the payroll does it as an “add on” job, doesn’t understand it and because they don’t understand it, doesn’t like it.
The cost of subcontracting the work is also relatively low, probably less than the cost of paying someone who doesn’t understand or like doing it.
National Minimum Wage Increase – October 2009
From October 2009 the National Minimum Wage will increase from £5.73 per hour to £5.80 per hour for employees aged 22 and over. This is an increase of 1.2%.
The rate for 18-22 year olds will increase from £4.77 per hour to £4.83 per hour – a slightly larger increase in percentage terms – 1.25%.
16 and 17 year olds will have an increase from £3.53 per hour to £3.57 per hour – only 1.13%.
The other part of the announcement was that, from October 2010, the plan is to extend the top rate to include 21 year olds.
If you have problems keeping track of payroll legislation or just find payroll a nuisance, we can help you manage it.
CIS – First return for the year.
The first CIS (Construction Industry Scheme) monthly returns for the 2009/10 tax year are due to be submitted by 19th May. It is clear that many contractors have trouble in getting their returns in on time because, according to Construction News penalties of £180 million have been paid by contractors.
That isn’t small change by any standards which makes me wonder why contractors don’t organise themselves properly to ensure their returns are submitted in time. There is relatively inexpensive software available to help produce the returns and file them, or accountants and payroll bureaux will do it at a reasonable price.
If you are a contractor in the construction industry and have been subject to penalties in the past, do something about it. Either invest in software to help or leave it to a professional to sort it out for you – but do it now. Don’t pay unnecessary penalties.
More holiday – Increase in Statutory Minimum Holiday
From 1st April 2009 the minimum statutory holiday in the UK increased from 4.8 weeks to 5.6 weeks. These are inclusive of bank and public holidays. This is a minimum so the holiday entitlement can be greater.
In practice this means that someone working a standard five day week will be entitled to a total of 28 days paid annual leave. This is pro rated for shorter working weeks so an employee working 4 days per week will be entitled to 22.5 days leave, 3 days per week will equate to 17 days holiday leave etc.
The situation is more complicated for staff working flexible or variable hours and you are advised to check these carefully.
Where a holiday year doesn’t start on 1st April and therefore spans the date of change the holiday entitlement should be apportioned to take account of the increase.
The rules concerning carrying holiday over from one leave year to the next have been changed slightly. Subject to the employer’s agreement, holiday entitlement in excess of four weeks can be carried over to the next year, but at least four weeks must be taken.
When looking at holidays, you should remember a recent ruling which determined that anyone on long term sick continues to accrue holiday.
We offer a payroll service and, as part of the service, can help you determine a holiday policy and comply with the rules.
National Minimum Wage (NMW) Penalties & Compliance
HMRC seem to be intent on cracking down on contraventions of National Minimum Wage (NMW) legislation. From 6th April 2009 new regulations come into force which will make it easier for HMRC inspectors to collect information about breaches of NMW rules. Investigating officers will have the power to remove complete PAYE records for a reasonable period.
The way that arrears of NMW are calculated to ensure that, should arrears have to be paid to employees, the arrears are paid at the current rate, not the rate applicable at the time the arrears arose.
Automatic penalties of up to £5,000 will levied where arrears of NMW are discovered by compliance officers and serious NMW offences can, in future, be subject to prosecution in the Crown Court and are liable to a potentially unlimited fine, not to mention a criminal record.
If you want to discuss any payroll issues, including NMW, give us a call on 01509 816150 or contact us via our website.
