Accounting for the funeral industry

Daniel Defoe famously said the only certainties in life are death and taxes.

However, accountants familiar with the funeral industry will tell you that the situation is a little more complicated than that.

The UK’s funeral industry is changing. As the country’s population continues to rise, the number of people dying each year also increases. In 2015, 529,655 deaths were registered in England and Wales, an uptick of 5.6 percent on the previous year. But, despite this boost in demand for the funeral industry, business is struggling.

Dignity, one of the largest funeral care providers in the country, saw the number of funerals conducted last year drop by 3,000 on 2015’s figure. The provider claims this is due to the increased competition from new entrants in the industry, as well as being the result of more families taking funeral arrangements into their own hands.

Apart from large operators such as Dignity and The Co-op, funeral parlours tend to be small, family-run businesses. The majority have local links to their community dating back for several generations. As many as 75 percent still have fewer than ten employees, but this is beginning to change.

“There is still a strong independent presence in the funeral industry, and I think there always will be,” says Philip Allcock, in-house accountant at Norfolk-based Allcock Family Funeral Services. “In the past, funeral homes would often be run part-time by people who worked in other occupations such as labourers or carpenters. But now, the business has become more regulated and there are a lot more financial considerations than before.”

With the introduction of the Make Tax Digital initiative, these small enterprises will be required to submit quarterly tax returns to HMRC. While some funeral homes continue to manage their own tax affairs, a growing number are turning to professional accountants for expert financial advice.

“Funeral directors require ongoing communication and support,” says Kevin Jutson, partner at accounting firm Albert Goodman. “The preparation of management information provides key forms of financial analysis unique to the industry – price per funeral and management and control of disbursements for example. Taxation advice centres around the significant advantages which can be obtained through good use of annual investment allowance concerning fleet additions and parlour improvements.”

Undertaking oddities

In the last five year, the average amount families are spending on funerals has decreased by as much as 28 percent with an average funeral service now costing around £3,897. When you factor in the various other expenditures involved, including press notices and clearing debt, the average real cost of dying climbs closer to £9,000. In some parts of the country the cost of dying has outstripped the cost of living tenfold.

Between the rising costs of estate administration and increases to probate legal fees, the traditional burial is now out of reach for many families. Funeral poverty, where the price of funeralcare outstretches a family’s ability to pay, is increasingly common and parlour’s margins are suffering.

Alongside a boost in popularity of cremations, the list of post-mortem possibilities continues to grow. From poetic lunar burials to environmentally regenerative memorial reefs, to mushroom death-suits, people are getting more and more imaginative with their funerals. There are even death apps that facilitate the passing of authority, final wishes and music choices from the deceased to whoever they nominate.

Bringing financial strategy to funeral homes

As the number of options increases, accountancy professionals are finding the rules governing tax in the funeral industry are less clearly-defined than before. While a coffin or urn provided by an undertaker as part of a funeral package is exempt from VAT, a headstone is not. When bodies become diamonds, the lines blur and undertaker’s feel the need for specialist consultation.

“VAT is the most frequent issue we are asked to advise upon,” explains Jutson. “Partial exemption calculations are complex, can vary significantly during the financial year and most importantly can have a significant impact on cashflow.”

Declining margins make financial planning a challenging practice. In a sector with a remit for compassionate customer service, it can be hard for undertakers to do what’s best for their bottom line. By outsourcing their accounting to professional firms, they benefit from astute budgeting and review.

As the industry evolves, successful funeral providers must be able to quickly recalibrate their balance between custom and creativity. Meanwhile, their accountants must be on their toes in order to supply forward-thinking advice and service.

Jesse Onslow Norton is a writer, editor and communications consultant at Flibl. A former coder, his editorial work focuses on fintech, digital transformation, policy and regulation. His clients include corporations, governments, startups and SMEs from across the world. Follow him on Twitter @JesseOnslow.

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