Accountants can turn macro risks into rewards

Accountancy firms face a gathering storm of challenges over the next five years that threaten their bottom lines. At the same moment, HMRC is mounting a major crackdown. The good news? There is an opportunity to turn these headwinds into profit while protecting clients, writes Giordano Goggioli, Head of New Business Sales at Markel Tax

UK tax code is longer than the Bible, and getting longer

If we use page count as a proxy for complexity, then the UK tax code is the most complex in the world. It’s eight times longer than the Bible, and only 35% of it seems to contain substantive tax legislation.

Tax code page count has been climbing sharply. In 1997, it was around 5,000 pages. By 2024, it had reached 20,000, according to the Office of Tax Simplification.¹

Accountants are busy delivering some of the most complex tax work in the world, and the degree of complexity is actually accelerating.

There’s a skills shortage

While the work is increasingly complex, there are fewer people to share the load due to a skills shortage.

Fifty-two percent of Association of Chartered Certified Accountants (ACCA) members are 45 years old and over². Meanwhile, the compound annual growth rate (CAGR) of students enrolled with accountancy bodies is contracting, at -4%³. That means there’s a skills shortage, because more are retiring than are joining the ranks.

More work spread among fewer accountants has the potential to impact quality of work, leading to mistakes and HMRC enquiries.

Labour costs are increasing

Since COVID, the cost of labour has gone up incredibly. So, either you take a hit on profits, or you have to find ways to justify the higher price.

In technical sectors, including accountancy, labour costs have risen by 6% since 2019, according to the Office for National Statistics⁴. Higher accountancy costs will also mean higher HMRC enquiry costs should anything go wrong.

HMRC is swelling its ranks

With the tax gap at £40bn – the biggest it’s been since 2005/06 – the government wants to collect an additional £5bn each year⁵.

In order to recover more tax revenues, the government plans to hire 5,000 new compliance officers over the next five years. Ministers calculate that each new officer will bring in an extra £1.1m⁶.

What does that mean for accountants? They can expect more frequent, longer and more expensive enquiries.

So, accountants are interpreting the world’s most complex tax code with fewer people, increasing the risk of mistakes. Meanwhile, they can expect more enquiries on the horizon as HMRC tries to close the tax gap.

From headwinds to fair wind – the solution for Accountants

But there is a silver lining to this gathering storm. Accountants can sell fee protection insurance to clients, mitigating the risk of enquiry-related costs while generating a revenue stream for themselves. If you put an insurance product in place, you transfer the risk of enquiry fees to the insurer. Accountants are able to resell an insurance backed service to their clients at a mark-up, so it’s not only a risk management tool for them, it’s also a profitable project.

An additional benefit of a fee protection product is access to a tax and VAT advice line, which insurers like Markel offer for free. Accountants can pick up the phone and get answers to specific tax questions, helping them cope with the increasing complexity and skills shortage.

Fee protection must evolve

However, accountants already offering a fee protection service to clients are not immune to the effects of these headwinds and they, too, need to adapt.

Increasing labour costs will continue to impact fee protection moving forward. Insurers calculate insurance premiums based on accountants’ hourly rates, and they are on an upward trajectory.

That poses a problem. If your fee protection offering doesn’t evolve, in five years’ time, you’ll be selling the same product as you are today, but at a much higher price point.

Without innovation, that could lead to accountants either lowering the price to sell more or obtaining fewer subscribers to their service. There are three core areas where innovation can help tackle the impact of rising prices – ancillary services, proactive risk management and marketing.

Value-added ancillary services for clients

Insurers today offer more than just the core premium. They add value through related services that drive down risk or add value for the end-client.

Markel offers customers access to:

• The tax and VAT helpline, for a second opinion.
• A 24/7 business and legal helpline, which provides access to 40 qualified solicitors who can advise on a variety of employment, health and safety and commercial law issues.
• An online Business Hub, which provides another layer of support in the form of written guides, case law and legislation updates and more than 900 document templates, such as DIY contracts, policies, forms and letters.

Accountants can use these services and subscribing clients have access to the business and legal helpline as well as the Business Hub to help run their businesses.

The Business Hub and helpline are particularly helpful for SMEs, who perhaps don’t have a full or part-time resource, either legal or HR related. The Business Hub provides you with access to resources to help you find a way out of your jam.

Adding an ancillary service like this to your fee protection insurance offer infuses it with additional value, making increasing prices more palatable.

Proactive risk management to minimise enquiries

Preventing claims from ever taking place is another way insurers can add value to their offering, to the benefit all parties.

Markel has invested in proprietary technology that can flag potential tax-related risks. Accountants can run their client base through it, and it could flag, for example, that a certain client is claiming R&D tax credits. We can then look at that client and say, ‘this is a local builder claiming R&D tax credits, which doesn’t add up’. The average cost to the accountant for an R&D tax relief enquiry is about £10,000.

If the client passed on the cost of that claim to the insurer, it would affect their premium the following year. Instead, by working with clients to remove risk from the portfolio, insurers reduce the chance of claims-related premium increases.

Boost sales with marketing tools

To help accountancy firms increase the number of subscribers to their fee protection service, Markel offers a suite of support options:

1. Managed service offering – where Markel’s experienced team runs the entire marketing campaign for you. Our managed services solution can provide up to a 15% increase in the number of participants.
2. EngineRoom+ - an online platform that helps accountancy firms to quickly create and schedule white-labelled email marketing campaigns, reducing administration and enabling you to monitor engagement, optimise your marketing and increase conversion. EngineRoom+ has demonstrated up to a 9% increase in sales.
3. Customer service phone calls – Markel’s experienced team can make follow up calls to complement your marketing activity. This approach has been shown to enhance engagement and increase participation in the scheme.

With accountants facing ever more complex work at the same moment as a skills shortage and increasing scrutiny from HMRC, fee protection insurance can offer peace of mind and a welcome revenue stream. Markel Tax brings more to the table than insurance with a suite of evolving solutions to help accountancy firms to achieve long-term sustainable growth and operational excellence.

References
¹UK tax code is longest in the world | AccountingWEB
²Talent scarcity in accounting and finance
³FRC Key Facts and Trends in the Accountancy Profession_August 2022
⁴Labour costs and labour income, UK - Office for National Statistics
⁵Tax gaps: Summary - GOV.UK
⁶HMRC to recruit 5,000 more tax officials