How to boost the tax capabilities of a general practice

Apr 5, 2022 | Sole practitioners, Tax related

Every now and then I hear about general practice firms of accountants that want to boost their abilities to help clients with more complex tax maters. And a couple of my newer mentoring clients have also asked for my thoughts here.

This has been a challenge for as long as I can remember. And being aware of the issue can be the first step towards taking some action. Nothing will change here unless you take action.

It is often easier for sole practitioners to take action to resolve the challenge (and this is one of the reasons why I only work 1-2-1 with sole practitioners). When there are 2 or more partners, they either have to act like sole practitioners or have honest and open discussions with each other. This isn’t always easy to do.

The idea is for the partners to recognise that they are all limited in their collective abilities and that they need someone else to check out their files for tax planning opportunities, to put tax advice in writing and to attend meetings with clients to provide a more tax focused service.

Let me start by explaining why the most common ‘solutions’ are typically problematic

Recruit a tax manager

Some firms recruit a tax ‘manager’ in the hope that he or she will fill the gap. And if the firm is lucky this may well happen. I always wonder in such cases – How do the partners know that their new tax manager’s advice is correct?

If there is no one else in the firm with the requisite expertise, this is a big risk, especially with a relatively inexperienced tax ‘manager’. Often they may feel under pressure to impress their new partners – especially if the carrot of ‘partnership’ depends on the partners’ perception of their performance. I addressed this in separate post some years ago: Confidence is good – but not if it’s naive or deceitful.

If the new recruit causes a problem – which will often only become apparent down the line – either the partners will have to bear the loss or their PI policy will suffer a claim.

New recruits are also an expensive option. Over and above the recruitment costs and induction time it can be a while before they start to pay their way.

Merge with a more tax focused accountancy practice

This would be a huge step and somewhat of an extreme solution to the issue. But there will be occasions when it makes good commercial sense.

Merge with or takeover a tax only practice
Every now and then someone asks me about this possibility. My standard response is that I suspect it’s a dream that will rarely be realised. Tax only practices are generally set up specifically to avoid the distractions of providing accounting and auditing type services. Why would a successful tax practice want to merge with a general practice firm of accountants?

If such a merger or takeover occurs the tax specialists are likely to want to reduce the risks to the practice of general practice partners providing tax advice without it first being ‘checked’. This will often give rise to conflicts as the general practice partners are not used to having their advice double checked or to being constrained as to what they can advise on.

Merge with or takeover a one-man band tax specialist
This idea suffers from much the same downsides as have already been mentioned. It can be worse however as there is the added risk of the individual retiring, dying, going sick or leaving shortly afterwards. Although such risks may be considered small, the prospect of one of these may have been the prime motivation for the tax specialist agreeing to the deal.

The partnership will want to limit the upfront costs of recruiting a tax partner by requiring that the new person has a following. However very few decent tax specialists with a following would feel comfortable taking their clients into an environment that has not previously provided clients with specialist tax advice.

If the tax specialist or partner with a following does join the firm, their focus will inevitably be on their existing clients. What will motivate the specialist to make time to explore opportunities to provide tax advice to the firm’s existing clients?

So what are the realistic, practical and commercial options here?

In my view the best solution, at least as a first step towards building in-house tax expertise, is to engage independent tax consultants. You can either do this on a case by case basis, agree a retainer for tax-clinic style support or perhaps agree they will visit with you a day or two a week. This latter arrangement tends only to follow on after an initial getting to know you phase.

It will often be easy to identify someone who has the requisite expertise and is available to provide support and advice as and when required.

Typically they remain self employed and provide their services to the firm on a contract basis. So this option is also more cost effective as the accountant bears no employment related costs. In the event that any problems arise the relationship can be terminated quite quickly and any claims made will be against the contractors’ PI policy.

It may be that more then one such specialist can be identified – perhaps one to focus on IHT issues, one on VAT and one on corporate tax matters. (There are many other such topics too of course).

Whichever route a firm follows you should appreciate that, these days, hardly any tax adviser can cover off and advise on all tax matters. If you have just one or two in-house senior tax specialists, you should expect them to want to seek confirmation or support from a third-party every now and then.

Tax Advice Network, through the website, provides thousands of accountants with access to dozens of vetted independent specialist tax advisers across the UK. (Full disclosure: I am the founder and chair of the Tax Advice Network)

The Network website makes it easy for you to choose tax advisers by reference to their expertise, experience and location. There is no charge for using the website as a resource and there are no registration requirement either.

You can contact any of the tax advisers for specific, general or tax contractor support as described above. And yes, as implied above, much of the time these specialist tax advisers are providing second opinions and support to the tax specialist managers and partners in firms, as well as to general practice partners.

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