The conversation started in a friendly enough way. The caller was a regular reader of Forecourt Trader and was quite complementary about the way this column regularly drew attention to some of the financial problems that affect retailers, especially the difficulties arising almost as casual by-products of fuel price inflation.

He thoroughly agreed that banks and card companies were making windfall profits from price rises, and threw in a few choice words about the pricing and contract practices of the utility companies in passing.

But suddenly his tone became less complementary: "I’ve seen you mention lots of costs over the years; you’ve had a pop at suppliers and services almost everyone except accountants; you’re like lawyers and doctors you never criticise each other in front of the punters."

A week later the conversation resumed, this time in his office at a medium-sized modern forecourt in a scenic part of the East Midlands. The retailer had just received an invoice from his local accountant for completing the company’s June 2011 year-end financial statements, doing the Corporation Tax return and filing the accounts at Companies House: all for the sum of £5,000 plus VAT. It was 15% higher than the equivalent one from the previous year, and he wasn’t happy. He threw down the challenge: "Am I over paying?"

Talk about having to tread carefully

Q: Are you a limited company? A: Yes.

Limited company accounts have to be presented in one of several prescribed formats (depending on the size and type of company) and are generally prepared in more detail than those for sole traders or partnerships even if some of that detail can then be hidden in the publicly-filed version. Hence they are usually more costly to prepare than sole trader financial statements.

Q: Do you need a statutory financial audit? A: How do I know?

Just because you operate as a limited company doesn’t mean that you need a ’statutory’ financial audit. If your petrol retail business meets the following criteria, then you almost certainly do not require one: Annual turnover (net of VAT) below £6.5m

Balance sheet total assets below £3.26m

In this instance the retailer met both criteria and so there was no need for an audit of the year-end accounts. That was good news, since financial audits are governed by a myriad of regulations, can be quite time consuming, and are therefore likely to be expensive compared to the cost of producing the annual accounts alone.

Q: Do you give the accountant a large bag full of paper once a year and tell them to get on with it? A: No, they do quarterly VAT returns for me at £500 a time.

If your day-to-day book-keeping consists of filing paperwork in a black bin bag and giving it to the accountant to sort out, then you will end up paying them to do so.

However, we’d suggest that £500 just for a quarterly VAT return looks rather steep, even in those circumstances. In this case, the retailer ran a modern twin-pos set- up feeding a respectable back-office PC system and his daughter-in-law spent three days a week keeping a very tidy set of business records, so there was certainly no justification for ’bin-bag accounting’ prices. He should be looking at no more than £350-£400 per quarter for full management accounts and VAT returns based on the set-up that they already use. The critical part that many retailers fail to grasp is that if someone offers to ’do the VAT’ for them then that person will already need almost all of the same information that would be required for a set of management accounts.

The VAT return really falls out of the management accounts as a by-product, and the retailer could be getting a vast amount of extra information for the same cost.

Q: Have you been in trouble with HMRC any time in the past few years? A: No, of course not.

This may seem like a rude question to ask a stranger, but it is important to know whether the accountants have had any work to do for their client in connection with tax investigations and the like. Any kind of HMRC query can involve protracted correspondence between the accountant and HMRC at the very least, and if the investigation is more formal then the time spent on providing paperwork, explanations and even accompanying the client to interviews will soon mount up.

Thankfully in this case the retailer had no history of any irregularities on the tax side.

The retailer was getting impatient for a straight answer to his question: "Am I over-paying for accounting?" So we started to do some sums. He was currently paying his local accountant £2,000 a year for four simple VAT returns, then £5,000 for a set of annual limited company financial accounts without audit and corporation tax return. Seven grand a year (plus 20% VAT) with no useful management information between annual accounts. Our suggestion to him was that he could try asking his accountant why the business should be paying more than £1,800 a year for four sets of quarterly management accounts including the VAT returns, with around £1,800 for the year-end and corporation tax costs. That’s £3,600 a year all in, against the £7,000 they’d charged in the past year. We were too polite to criticise his accountants after all, they may have been providing some services that the retailer wasn’t aware of. But the obvious conclusion is that when it comes to accounting, ask the provider what you’re getting for the cost and be prepared to shop around if you’re not satisfied with the answer.

Topics