After coronavirus, can Government afford the cost of unregulated accountants?

First-class financial advice has been crucial for businesses to survive the pandemic and will be even more important in the economic recovery. But not all advisors can be trusted.

At a time of national crisis, when businesses and members of the public need financial advice they can trust, it is disturbing to think that anyone can call themselves an accountant.

Yet, the reality is it is possible to set up without relevant qualifications, without supervision or contributing to the cost of anti-money laundering measures.

AAT is concerned by this inequality and its effects.

HMRC’s data shows that two-thirds of complaints relate to the one third who are not regulated. It also states that the promoters of tax avoidance schemes are mostly outside professional bodies.

During the pandemic, the importance of professional knowledge and adhering to ethical standards has come to the fore. But instead of supporting consumers by rewarding accountants who maintain their CPD and follow an ethics code, in 2020, HMRC and Government were working on a new Economic Crime Levy (ECL) to be imposed on professional bodies. This charge could actually incentivise accountants to be unregulated and join the sector that poses most risk.

Uneven playing field

AAT Fellow Member Ali Jaw comments: “ACCA and AAT and all those bodies can pay (the ECL), but we as members will see our fees go up because they will have to pass on the cost. Those who aren’t part of those bodies won’t have to worry, so it’s not a level playing field.”

Research for HMRC’s concedes this very point. There is “an uneven playing field and agents that [are] not members of a professional body could undercut those that are members because they do not have the same level of expense in terms of fees for membership, CPD requirements, and professional indemnity insurance.”

“People who are unqualified massively undercut us on price,” says Rachel Martin, founder of  Accountant_She. “It costs us a lot of money to be regulated as accountants. That increases our hourly rate and fees.

“Quite often we’ll get people come to us who are surprised by our fees and it’s because they’ve been with an unregulated accountant.

“As a practice owner, I feel like the benefits of engaging with someone who is regulated are obvious, but a lot of people don’t and just want the accounts done.”

Why regulation matters

The cost of an unregulated accountant may be lower. So, too, can be the standard of service.

Rachel Martin says: “Can you imagine being with an unregulated accountant in 2020? The level of support clients would have received would have been nothing. The level of engagement and being proactive – making sure everyone knows which grants they’re eligible for – would have been very little. If 2020 taught us anything, it was the importance of having a trusted accountant.”

James Moggeridge, the co-founder of Multiply Accountancy, has had first-hand knowledge of the problems from unregulated accountants.       

“We’ve taken over clients and had to inform them that they’ve not been complying with the pensions rules for the last three years and have a £10,000 bill,” he says. “Technically, the lion’s share [of liability] is the staff’s, but they can’t pass it onto the staff because it’s three years on and people have left. Being a member of a professional body is no guarantee of quality, but there is at least recourse for clients in that position.”

AAT Licensed Member Farid Gasanov knows what it is like to inherit a client from an unregulated accountant.

“In the case of one of my first clients – a candle-making business – the business owner had picked up all these penalties and she didn’t understand why. She had paid an accountant to do the job but he stopped returning her calls and emails,” he explains. “It turned out he had simply not done anything and charged her for the work done.”

How things can go wrong

Here are three examples from AAT members and Council representatives of the kind of problems that can arise from unregulated accountants.

1 – Charging to transfer

An AAT licensed member was approached by a new client to assist with accounting and taxation affairs. For this to happen, the member requested all handover information from the outgoing accountant. The information was not forthcoming in the agreed timeframe. Furthermore, the outgoing accountant was requesting £875 from the client to send the information. The member pointed out that this was not only highly unusual, but unethical, and forbidden by AAT’s code of ethics.

2 – Made up figures

An AAT licensed member took on a new client. The AAT member focused on VAT initially and it transpired that the previous tax agent had “made up” figures in returns, as they had “felt sorry” for the client. The AAT member registered as the new agent, producing detailed breakdowns for each of the VAT returns and assessed the liability to be approximately £48,000. The AAT member arranged for the liability to be settled in full. The AAT licensed member then worked on corporation tax and assessed the liability to be £49,000. This liability was also paid in full.

3 – Taking client funds

An AAT licensed member took on two taxi drivers. Both clients had used the same unregulated tax agent firm previously. When the clients tried contacting that company, they were unable to do so – it transpired that it had disappeared with client funds.

Time to regulate to raise standards

AAT believes the time has come for accountancy to be regulated through compulsory membership of professional bodies.

Adam Harper, Director of Professional Standards & Policy, AAT, comments :

“People should be able to have complete confidence in their accountant or tax adviser and feel that they are getting appropriate advice and support to ensure their business can not only survive, but thrive as we enter a critical stage of the UK’s economic recovery. Mandatory membership of a relevant professional body, including AAT, would help to boost that confidence and reinforce the role accountants play in helping individuals and small businesses across the country to grow and succeed.”

It’s not just AAT that would like to see the accounting profession regulated. “We are definitely not against [regulation]. It would be in our members’ interests,” says Maggie McGhee, executive director for governance at ACCA. Given the Government’s efforts to ensure professional bodies enforce standards and ongoing professional development, requiring all those calling themselves accountants to register with a professional body would do so, without the need to establish a regulatory agency. 

HMRC is open to change

HMRC is increasingly open to ideas to raise standards across the profession. It has proposed that all tax advisors have Professional Indemnity Insurance (PII).

AAT believes compulsory membership of a professional body is the way forward. For HMRC to get behind this and really raise standards it needs to gather more evidence, including from accountants.

How you can help

AAT, therefore, invites members to be a force for change. Please share your experiences of the non-regulated sector.

You can help in two ways:

• Take part in our regulation poll and help build a fuller picture.
• Submit an example of how unregulated accountants have affected you or your clients.

Give us your feedback now and help build a profession ready to help the nation’s recovery.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.