Should it be based upon on a percentage of your turnover? Or the amount of time spent on your affairs? Or should it be in line with what their competitors are charging their clients?
The answer is: It depends.
It depends on the role that your accountant plays as this varies substantially from one accountant to another.
Role Of an Accountant
At one end of the spectrum, you will have those accountants that see you once a year.
You will go to their office to drop off your records, they will do your accounts and will let you know what your tax bill is, and you will then see them again next year.
At the other end of the spectrum, you will have those accountants who work with you throughout the course of the entire year. They are essentially your trusted business adviser. They will assist you in managing your finance function, they will give you ideas on how to grow your business and profits, they will act as a soundboard for any of your questions and will proactively come up with ideas to help you save on tax.
It is crystal clear that these two types of accountants are world apart and therefore so should be their charges.
So how much should your accountant charge you?
Going back to the first three questions asked, your accountant should definitely not charge you on the basis of the amount of time they spend on your affairs.
It’s totally unfair because if your accountant is unorganized and is spending more than required time on your affairs simply because of their inefficiency and is making you pay for that extra time, then it is definitely not justified.
Therefore, a more efficient method that your accountant can implement, is to base their charges on the amount of value they bring to you.
The value could be quantified by the amount of tax that they saved you in the year and subsequent years or by the amount of extra profit they’ve helped you generate through their advisory services or by how much time and money they have saved you by fully managing your finance function, thereby saving you the cost of recruiting, of training, of managing qualified finance professionals to do the same which might have cost you between £50,000 - £100,000.
Bottom line is the price you pay has to be less than the value you receive.
The onus is upon your accountant to communicate and demonstrate the value they are generating, and then you can decide whether their stated price is reasonable or not.