Many accountancy firms struggle with the idea of outsourcing potentially billable work. We hear the initial objections of ”it costs more than doing it inhouse” or “it's opening up further risk” often. Work is often outsourced at times of crisis and desperate need to cover recruitment or skills gap, or to assist with an urgent project. However, when the true cost of internal VAT provision is factored, it suddenly becomes an attractive prospect for Firm’s looking to build a VAT provision.
We’ve taken a look at typical sized mid-tier firm and what costs they would incur with recruitment of, and maintaining, an internal VAT consultant versus outsourcing and it makes for interesting reading.
| Hiring an in-house resource | Outsourcing | |
|---|---|---|
| Direct recruitment costs | £6,000 | £0 |
| Indirect recruitment costs | £2,000 | £0 |
| Total employee cost | £45,0001 | £0 |
| Additional costs of employment (pension, NIC and other costs of employment) |
£28,0002 | £0 |
| Hours available for client work (based on 60% billable, 100% recoverable) |
10023 | As many as required. 400 completely flexible hours for the same total cost – pay only for what is required. |
| Total cost | £76,000 (As related to a single qualified hire) | Demand led – usually hourly rate or fixed fee project cost |
The financial burden is not the only risk an organisation takes when entering the recruitment game. 20% of new hires leave within 45 days6 of starting and how many can actually be considered the unequivocal success that would allow and organisation to achieve the utilisation stated above? The direct and indirect costs of recruitment are likely to be exacerbated in the coming years as available talent is reduced. In fact recruiting at Manager level and below is purported to be the Indirect Tax world’s next crisis5. We are seeing recruitment of senior VAT roles, and now more junior ones as well, taking a year or longer. That is a huge chunk of billable work possibly going to another firm (which means other non VAT work may follow!!) or not being done at all putting your clients at greater risk and you left with potential reputation damage.
Even if we assume that a firm could make an efficient, long term, properly trained hire; and then successfully manage client expectations to navigate the mandatory leave required; and then schedule all work perfectly and to deadline - is it really worth risking your customer base on ‘best case scenario’.
Risk versus benefit
The risks and benefits of both inhouse and outsourced suppliers look a bit like this.
| Risk | In house (per team member) | Outsourcing |
|---|---|---|
| Physical space, training, mentoring, benefits and HR. | Extensive and ongoing | None |
| Ability to service customer demand peaks in a timely fashion. | Limited, only one client project can be worked on at a time | Unlimited – multiple resources matched with requirements |
| Cope with troughs of client – balancing the books. | Still have to pay employees and cover all related costs | No demand on payment if PAYG and a known fixed fee if retained |
| Time to increase capacity | 28days on average4 | Instant |
| Time without access to suitable qualified VAT advice. | Statutory leave, plus unplanned absence2 | None |
| Opportunity cost of using finite employee positions for more lucrative synergistic accounting roles. | High | None |
When faced with all the sums and the facts outsourcing suddenly becomes, not only an option in crisis, but a valid, long term strategic decision to help grow your Firms VAT business.
1 https://uk.talent.com
2 https://accountingservicesforbusiness.co.uk/true-cost-of-an-employee-calculator/
3 https://clockify.me/working-hours
4 https://www.glassdoor.co.uk/employers/resources/40-hr-and-recruiting-stats-for-2020/
5 https://www.emonics.com/blog/why-do-50-percent-of-all-new-hires-fail-and-how-to-avoid-it
6 https://resources.workable.com/tutorial/new-hire-turnover-rate
