It is time for SMEs to jump on the tax advisory bandwagon by Matthew Leopold
It is time for SMEs to jump on the tax advisory bandwagon
by Matthew Leopold
Change? In tax? Surely not. However, change is afoot. The once reliable stream of tax compliance work is increasingly facing the threat of digitisation. Tax advisory, however, is emerging as a growth area in an increasingly complex tax world.
Adrian Young, a tax partner at Manchester and Stockport-based accountancy firm HURST, says offering advisory services will become increasingly crucial as compliance work becomes more commoditised and there is a race to the bottom on price, crimping revenues.

Accountants are often the most trusted advisor to business leaders. The bigger accountancy firms were quick to take advantage of the need for premium advisory services and they are making big money.

The good news is that small to medium-sized firms can do the same. They are equally trusted by business leaders. They are probably providing advisory services already, but not charging for this advice.

Some specialist firms, such as Finerva, are already positioning themselves as being advisors first. According to Adam Brodie, the firm’s co-founder and CEO, venture capital investors and other accountancy firms with portfolio companies or clients seeking more specialist advice will often refer work to them.

So, instead of fretting about the future of traditional compliance work, accounting firms are pivoting towards advisory services.

Non-audit work is the biggest earner for top UK firms
UK Firm Name
Fee income: audit (£m)
Fee income: non-audit work to audit clients (£m)
Fee income: non-audit clients *£m)
Grant Thornton
MHA MacIntyre Hudsun
What are the big firms doing?
The big firms have certainly embraced the change and pivoted towards advisory services.

For accounting firm Grant Thornton UK, advisory matters now account for around two-thirds of their work, where previously compliance made up the bulk of work, says Karen Campbell-Williams, head of tax at Grant Thornton.

According to Key Facts and Trends in the Accountancy profession, for many of the top UK firms, non-audit services are now the biggest earners.

There is no reason why smaller and medium-sized firms can’t also pivot to advisory services and share the opportunity.

Bar graph showing percentage of how many firms offer advisory services
“The real opportunities are on the advisory side.”
In a recent survey, 72.5% of accounting firms said they already offer advisory services.

London-based Finerva is proof that smaller advisory firms can thrive by offering specialist or niche services that clients can’t find elsewhere. “It doesn’t come down to how big you are—we are referred work from one of the big four [accountancy firms], and we regularly win clients from top 10 firms,” says Brodie. “Professional services are about personal relationships; that is still king.”

“The tax world has become more and more complex, and the scale of the legislation is constantly growing and changing all the time,” says Campbell-Williams. “In order to be able to file a corporate tax return, there’s quite a lot of add-on advisory that clients need if they’re going to get that right.”

“When it comes to advisory work, it’s only ever going to be tailored and bespoke and specific, so it’s never going to be a commodity,” says Young. “So, while compliance is still ever so important and at the core of what we do, the real opportunities are more on the advisory side.”

Growth opportunities for advisory services
There are plenty of growth opportunities around advisory services, regardless of the size of firm.

Some advice is simply an extension of compliance services. The demand for broader advisory services is only likely to increase as the business and tax environment becomes more complex.

The growth in remote working during the pandemic has also created greater demand for global mobility advice.

“There have always been expatriate tax and international tax issues, but it’s just that the way people have fallen into it has changed,” says Moniza Syeda, global mobility tax content manager at Tolley. “Rather than it being a planned secondment, or a specialised project where you need to go and work as an ex-pat with your special skills, now anybody can just get up and catch a plane and go and sit anywhere and do anything.”

In addition, demand for indirect tax advice is growing, particularly for companies that operate across borders, something that has become even more relevant in the wake of Brexit.

Demand for advisory services also increasingly extends beyond tax advice, including areas such as insurance and corporate finance.

“What we’re finding is that as we help our clients get bigger and bigger and more sophisticated, they inevitably need more advisory services as well as the standard compliance work,” says Young.

Percentages of clients who expect widened scope of services
Tips from someone who has already jumped on the bandwagon
Tolley recently spoke to Young to find out how HURST dealt with the challenges of growing its advisory services.

HURST is a medium-sized firm based in northwest England, principally in Manchester and Stockport; they have about 100 people across all lines of services. They started as a fairly traditional accountancy audit firm, but their specialist advisory teams have grown in the last six or seven years to be a significant part of the business.

Young said the impetus came from two sides. As clients gradually become larger and more sophisticated, they tend to have greater advisory requirements.

Internally, as people develop, they want more interesting work. So, bringing in interesting work makes the firm an attractive place to work.

“I’ve always felt that if we wanted to develop as a practice, you need to bring in this interesting work because the young, bright things coming into the industry, want this kind of work,” says Young.

There’s a financial imperative to that as well – compliance is becoming more commoditised, and therefore, it’s more about price. Whereas the advisory work is much more about value, what value does this piece of advice bring, rather than what does it cost?

The transition starts with one or two clients who need more complex advice. Then, you realise you can offer this service to others, and it becomes a virtuous circle where new skills grow from doing it.

Young says they still feel trepidation sometimes, but it’s “just a question of holding your nerve and being brave and having a bit of patience as well. The bigger firms have been doing this for 20 years, so you’ve just got to give it a bit of time to mature.”

He also warns that it is never going to be easy. With advisory work, from a financial point of view, you must go and find the work every day. There’s very little annuity or repetitive work. If you are an audit-only firm, you probably start with 75% of the business already booked. Whereas with advisory, you start at zero. So, it’s a challenge, but it’s a positive one.

On a practical compliance note, moving into advisory services can create potential liability issues. “Tax professionals need to be very careful that they’ve got their admin right in terms of their insurance and their liability,” says Moniza Syeda, global mobility tax content manager at Tolley.

Office employees in conference room
They are probably doing it already
Many firms may not realise it, but they are probably providing advisory services already as part of their compliance work. The only challenge is that they need to start charging for it.

Many do it as they feel it is the right thing to do. When advising clients on compliance, it is natural to advise them on tax reliefs and feed those into the tax return. Is that compliance or advisory?

“Many accountants undertake advisory work, but they don’t recognise it,” says Glenn Collins, head of policy, technical and strategic engagement at the Association of Chartered Certified Accountants. “What people have generally struggled with is the definition around advisory.”

Tax and accounting professionals often roll advisory into existing compliance work without having mechanisms to charge separately for that work.

Time to stop giving free advice!?

“Compliance is really important but make that breakpoint where you can when you’re looking at advisory work,” says Collins.

“Don’t be frightened of dipping your toe in the water and having a look at a lot of those [advisory] areas or asking yourself the question, how much advisory work have I given away in the past just because I’d regarded it as, or called it, something different.”

“It’s knowing when to stop that conversation before moving on to the next area,” says Collins. “A lot of the very sophisticated firms have that down to a fine-tuned art. But, for many of us who have been involved in compliance and advisory work over the years, we’ve all fallen into these traps of going that little bit further. That’s why it’s important to put in place a bit of discipline around moving from compliance to advisory.”

So, to start sharing in the advisory money, firms should be clearer about where compliance stops, and advisory starts and start charging for it.

Employee at whiteboard speaking to a coworker
Start charging for value
The real money and value is in non-audit advisory work. To shift to advisory work, firms must be comfortable billing for value rather than time.

Although many have moved to fixed fees for compliance work, charging for advisory services can be more challenging to price up since each job is unique. But clients like to know costs upfront instead of leaving the clock running.

“For advisory work, it has to be quoted on a bespoke basis because no two cases are the same,” says Brodie.

“We normally try and do fixed fees rather than hourly billing; we would only charge an hourly rate if we couldn’t get a handle on the scope or the amount of work, and perhaps they needed us to start work pretty quickly. But for the majority of work, we’re able to scope out a project and provide a fixed fee.”

Whatever way firms decide to bill clients, making it clear at the outset when something will be charged as advisory work rather than compliance will avoid potential disputes.

The tax compliance world is getting less profitable with increased digitisation and AI gobbling up much of it. At the same time, however, the growing complexity around tax and corporate finance means there are opportunities for making money beyond compliance.

Of course, moving into advisory services is not for everyone. You might not want to rock the boat or risk losing existing clients. You may be making a good return and servicing your clients well by doing routine advisory work as part of your compliance service. That’s great!

But if you are ready to share in the advisory income stream, you can. Many smaller and medium-sized firms have done so very successfully. It is not a market reserved for bigger firms. You are only bound by the limits of your experience and ambition.

You can read the full Tolley report on Advicepower! How tax accountants can transition to advisory and other higher-value services, here.

Matthew Leopold headshot
Matthew Leopold
Head of Brand, Content and PR Marketing at LexisNexis