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Fee Indexation

Fee Indexation Policy

From April 2022 we are introducing an annual indexation adjustment to our client fees.

This article explains how it will work, and who it applies to.

 

Summary

From April 2022 we will apply an indexation charge to client fee agreements from the third year we’ve acted onwards.

During 1 April 2022 to 31 March 2023 the percentage will be 3%, in respect of invoices raised during that period which for the most part will be for 2021-22 returns and accounts.

We plan to hold the adjustment at 3% each year for the next few years.

As this only applies from the third year we’ve acted for you, it will apply immediately to clients for whom the first tax year we acted was 2019/20 or earlier.  For clients where we started acting later, the introduction will be deferred by 12 or 24 months.

This will apply to all clients / all services other than FreeAgent subscriptions.

This is a new departure for us, and we may well have to tweak the process a little as we go along, whilst keeping to the broad principle.

 

Why Are We Doing This

Regularly reviewing fees has been an ongoing difficulty for Whitefield over the years.    This means our fee levels have dropped in real terms.

To give a couple of examples:

  • Our £1,000 + vat PSC service was originally priced at £650 in 1995, and if it had kept pace with inflation would be £1,298 + vat now
  • Our £200 + vat Solo Yoga Teacher service was set at that level in 2014, and has never been increased – it should be £238 + vat now

    Inflation sources, Bank of England (https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator)

Additionally, many of our clients are on bespoke fee agreements, which we aim to review every two or three years, but in reality often go many years without review.

We’ve been working on ways to address this for a while, including a couple of false starts.

Surprisingly it is not a knee jerk reaction to current inflationary pressures in the wider economy; we’ve been working on this since last summer.

 

Indexation Percentage

Depending on what measure you use, and what date, headline inflation is around 5.4% at present.  Of course different businesses and households have their own individual inflationary profile dependant on cost base.

Rather than working strictly to indices we are aiming to smooth the percentage so will work with a 3% annual adjustment for 2022/23 invoices, and our intention is to remain at 3% for the next few years, subject to annual review and wider economic circumstances.

Hopefully the Bank of England and Treasury will get inflation under control, and if that is the case, please bear in mind that smoothing means our annual percentage may be above central inflation measures at times.

To contextualise this, elsewhere in the economy Vodafone have recently applied a rise of 3.9% plus 5.4% CPI, total 9.3%; energy prices, as everyone knows, have increased by around 50%; rail fares are rising by 3.8% which in December the Government reported was “capped below the current RPI measure of 7.1%”

 

How We Will Apply This

General Clients

For most of our clients we will apply the specified percentage to all fee invoices raised between 1 April 2022 to 31 March 2023 against fixed price fees contracted under a Service Level Agreement.

The following services will not be subject to indexation:

  • Ad hoc consultancy and project work which is subject to a separate Service Level Agreement
  • FreeAgent subscriptions where priced and charged separately.

For the period 1 April 2022 to 31 March 2023 this means for the most part indexation will apply to our invoices for 2021-22 accounts and returns.

We will apply indexation after the third year we’ve acted for you, which means:

  • If the first tax year we acted for you was 2019/20 or earlier, then indexation will apply from 1 April 2022
  • If the first tax year we acted for you was 2020/21, then indexation will apply from 1 April 2023 (i.e. for work in respect of 2022/23 and subsequent years)
  • If the first tax year we are acting for you is 2021/22, then indexation will apply from 1 April 2024 (i.e. for work in respect of 2024/24 and subsequent years)

There may be a few instances where our client services do not fit neatly into these definitions, e.g., if we act for a company only without acting for directors, in which case we will base the introduction of indexation on the number of financial years we have acted for you.

Personal Service Company Clients

Our PSC service is structured on a retainer basis, i.e. a monthly charge,  and with this in mind we will modify the implementation of indexation as follows:

  • The monthly charge will increase by 3% from April 2022 for clients who joined us before 31 March 2021
  • For clients who joined us after 1 April 2021 the start of indexation will defer to 1 April 2023
  • There will be no retrospection to the previous tax year

 

Practical Issues

We will adjust client Direct Debits shortly.

We do not propose to re-issue Service Level Agreements, but we will write to each client individually, confirming start date for indexation, and the amount.

Please allow a short time for us to work through this across all our clients.

As mentioned above this is a new departure for us, and we may well have to tweak the process a little as we go along, whilst keeping to the broad principle.

In practical terms there are some changes to our Terms of Business to reflect indexation, and these  can be viewed at
Log of Changes in Terms of Business

Finally, looking ahead, with developments in HMRCs Making Tax Digital Programme, notably MTD for Income Tax from April 2024, it is likely that we will need to embark on a wider restructuring of our fees and support offerings which will subsume the above issues.  We will be working on this during the remainder of 2022 for discussion with clients during 2023.
Making Tax Digital for Income Tax – Position Statement on Prospective Fee and Service Changes