How often have you asked your Accountant a question about a particular deduction or scenario and they look blankly back at you? If this has never happened to you, chances are you are using an Accountant who consults as much as they practice Accounting. For the rest of us, using an economical Accountant means that we can only avail ourselves of the most basic of tax deductions/concessions available to SMEs.For example, if you're in Australia and assuming your company is structured appropriately (another benefit of an Accounting consultant), you can access the Research & Development (R&D) concession which permits you to deduct 125% of your assessable income (up to 175% for longer R&D commitments). Other countries are sure to have a similar system in place to promote R&D and innovation.
Any work you plan on doing which will cost you money (more than AU$20k in a financial year), grow your products/services, but not directly attract income is likely to fit into the R&D category. By way of example, our company turns over between AU$500k and AU$1m each year and we spend between $50k and $100k (10%) on R&D activities. Our industry sector demands this of us. Applying the concession means our company would effectively reduce the taxable income by between $62,500 and $125,000! That would make a BIG difference to our annual profits. But alas, the company structure I established that was facilitated by my Accountant prohibits me from applying for the concession. The cost to restructure so prohibitive so we are unlikely to be able to access this concession ever. If only I'd spoken to an Accounting consultant before I had setup our company structure.
Another example: I am in the process of selling one of my companies (I have a few - don't we all!). My normal Accountant basically said that he couldn't help me and that, based on the company structure, we would be paying top tax rates on the sale price and would have Capital Gains Tax (CGT) and Stamp Duty liabilities. This would have resulted in a loss of 50% of the sale revenue in fees! Going directly to my Accounting consultant and presenting all the elements of the sale, I have been able to restructure the company and restructure the sale contract which has enabled me to reduce the 50% down to 5%. Granted the consultation and subsequent report cost me AU$5k and the restructuring work another AU$5k, but the cost was well worth the benefit (1,000% ROI to be precise).
I'm not suggesting dumping your Accountant; I'm suggesting you engage another Accountant to use as a consultant. This is how I use the two:
- Business Activity Statements, general taxation correspondence, company and individual tax returns are all handled by my standard Accountant.
- Change of company details for the Tax Office are handled by my standard Accountant.
- Questions about available tax deductions/concessions I direct to our Accounting consultant.
- Questions about the best company structure given a particular industry, particular Director's situations and particular exit strategy I direct to our Accounting consultant.
- Questions about structuring for sale or managing a sale, I direct to our Accounting consultant.
It is quite likely that, your Accounting consultant will be able to work with your standard Accountant to minimise costs for you (this is how my Accountants operate). The Accounting consultant will also be a Chartered Accountant so could theoretically implement all of the recommendations they suggest for you. However, their standard Accounting rate is likely to be much higher than your standard Accountant's rate. Therefore, they will generally be happy to guide your standard Accountant to implement their recommended changes. They'll know what should and shouldn't be outsourced to your standard Accountant but feel free to ask them about the Pros and Cons regarding any particular change they recommend.
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