Anticipating, scheduling, and satisfying demand profitably is the cornerstone of any business success. Accountancy firms typically have predictable annual demand for the bulk of their services, albeit with surge periods. Audit clients can be reliably scheduled for annual work. The hours and expertise required are relatively easy to predict based on size and previous experience. By looking at the client base in aggregate, auxiliary services can also be estimated and planned for with reasonable accuracy. The exception to this rule is VAT advisory work. The transaction-based nature, and increasingly frequent changes resulting from case law and policy updates, mean that attempting provide VAT services using 100% in-house resources is putting many firms’ profitability and/or reputation at risk.
The VAT advisory landscape
VAT demand is inherently unpredictable, with spikes generated by clients, government policy and macro-economic factors - all outside of an Accountancy firm’s control. A relatively small client could have a large, time sensitive VAT project arising from property transactions or developments, whilst large clients may not require any specialist advice in any given year. Similarly, all clients may require advice simultaneously when there are case law developments or policy changes. This is becoming particularly apparent in the post-Brexit landscape where the UK government can introduce industry policies to target specific industries and supply chains as we saw during the pandemic. This means that to satisfy demand in-house, firms will unavoidably have periods where demand outstrips capacity and other periods where they have excess VAT capacity. Both scenarios negatively impact performance.
Demand outstripping capacity
Amid the current VAT recruitment crisis1, many firms are struggling to satisfy even base levels of VAT advisory demand. Consequently, insufficient capacity is the most common scenario in UK VAT teams. Firms are dealing with this in a variety of ways, such as turning away work, which is impacting growth, or staff having to work increased hours leading to staff burnout and further exacerbating resourcing challenges.
Whether or not expected it is commonplace for employees to work longer hours to manage demand peaks. This is an unsustainable response as it puts long term and harmful pressure on individuals, with nearly half of financial professionals already exceeding 50 hours2. This is particularly problematic in the current environment, with accountant burn-out at record levels post-pandemic3. With such high demand for appropriately qualified resources, firms allowing this strategy to run are unlikely to retain their staff; especially when 57% claim work-life balance is a ‘very import” factor in choosing a new role4.
Alternatively, firms may also try to juggle client projects to smooth demand, use non-specialist or more junior staff without the necessary experience or VAT training, or lean on partners and senior executives to increase their billable hours. Each of these approaches result in a sub-par client experience and a high opportunity cost, putting core revenue streams in jeopardy for the sake of temporary VAT requests.
In the unlikely event a firm can recruit and sustain a large enough in-house VAT provision to meet customer demand peaks, they will be faced with a different dilemma. How do they utilise that fixed capacity at the times when demand for VAT advisory wains? The majority of firms choose to try and retain capacity utilisation and profitability by adding non-VAT responsibilities to their VAT Team’s role. This is often only viable in the short term, as one of the leading causes of burnout and high staff turnover is spending too much time on the less specialist, more peripheral elements of the role5. VAT advisors are also more costly, so using them for work outside their specialism reduces the overall ROI of the firm, not to mention the drop in job satisfaction that specialist VAT staff experience when they have little technical VAT work to do.
What is the solution?
Given this impossible dilemma is aged old and appears in many areas of many businesses, the solution could be surprisingly simple. Outsourcing offers a flexible approach to supply and demand. It means you don’t have employee recruitment, overhead or sickness to add to the costs and challenges. With many models and options to choose from to flex with your firm, that could also offer a lucrative additional revenue stream, the choice to outsource is a practical and workable solution for many mid-tier accountancy firms looking for a sustainable and even scalable VAT advisory provision.
If you are struggling with the impossible dilemma and are looking for a solution, get in touch today.
1 A recent report from blt https://www.blt.co.uk/cm/blog
2 A recent article from https://www.robertwalters.co.uk/
3 https://www.accountingweb.co.uk/practice/general-practice/accountants-burned-out-amid-never-ending-stress
4 A recent article from https://www.robertwalters.co.uk/
5 https://www.journalofaccountancy.com/newsletters/2 021/mar/mitigating-recovering-burnout.html
