Development updates: April 2015

In this month’s roundup of the latest development and careers news, the Big Four accounting firms come out on top in UK consulting sector survey, demand for HNWI tax lawyers soars, while Focus Accounting merger with Haines Watts Worcester creates £1m firm

Big Four accounting firms dominate UK consulting sector

The Big Four accounting firms dominate the UK consulting market, with their specialist consultancy arms posting an 8.9% increase in revenues last year compared to the overall growth rate of 6.6% across the professional services sector.

The UK consulting market recorded strong growth in 2014 to reach £6.02bn, with the Big Four accounting for £2.34bn, according to analysis from Source Information Services.

However, the analysts warned that future growth could be hit by new EU regulations on audit independence and non-audit services, as well as the future blacklisting of services accounting firms can offer, all of which are putting the sector under threat.

Fiona Czerniawska, director of Source Information Services, said: ‘The market has been bright for consulting firms across the board – but it’s the march of the Big Four that in many ways stands out.

‘The performance of the Big Four firms could hardly have been better during the last two years, though their fortunes could change due to new EU audit regulations that came into force in 2014.’

The report’s analysis suggests the consulting practices in the biggest accountancy firms are well-positioned to make the most of work in the financial services industry which is by far the biggest sector for the UK consulting market, and which grew by over 6% last year.

The Big Four further benefit from the fact that financial management and risk services, one of their specialisms, was also one of the fastest-growing consulting service lines in the UK in 2014, up 7.1%.

Overall, the consulting sector with the biggest growth rate was in technology, up 7.7% to £2.23bn, and a number of Big Four firms have announced investments in digital consulting recently.

Source predicts the consulting market will grow by 6% in 2015, but warns that regulatory changes at both EU and local level regarding the supply of non-audit services by the auditors of large companies may hit the Big Four’s share.

Czerniawska said: ‘Although this regulation will not become binding for some time, it is already having a significant effect on UK clients’ choice of auditor, and it’s the single biggest issue facing the Big Four as they are forced to walk away from what is in some cases a substantial chunk of their client base.

‘They will hope to make the revenue up elsewhere – but we are bound to see a mixture of winners and losers in such a shake-up,’ she added.

ocus Accountancy is set to merge with Haines Watts Worcester, a member of the Haines Watts Group, creating a million pound turnover accounting practice.

The newly merged practice will be headed up by current owner of Focus Accountancy, Tim Pearce, an Evesham-based firm which specialises in working with owner managed businesses.

As co-owner and senior partner at the newly merged practice, Pearce will work closely with current partners, John Elliott and Trish Sayer of Haines Watts Worcester. Pearce will take the lead in the combined firm and continue to offer business support and advice to growing family owned businesses.

Elliott, currently the lead partner at the Worcester office and a specialist tax partner and tax adviser, will head up the firms’ tax offering while Sayer will continue to develop the firm’s audit and compliance services.

The newly merged firm will have a turnover of around £1m in fee income, with split income of around £400m for Focus Accountancy, and £600m for Haines Watts Worcester.

Elliott was heading up the Worcester firm but will now hand the reins to Pearce. Elliott said: ‘I’m actually the tax partner and so now I want to get on with focusing on tax. Tim is young and keen, and has built up his own practice.

‘To be in his 30s and to have built up his own practice and client base is really impressive. To merge with a young guy and his firm at his age is a really strategic move for us.

‘You can buy blocks of fees from people that are retiring but their clients tend to be retiring too. It may build up turnover, but it is not so strategic,’ added Elliott.

The new firm will have 20 staff based across the Worcester and Evesham offices, with the majority of the team working out of Worcester. 

Demand for high net worth tax lawyers

The government’s crackdown on avoidance has raised demand for tax lawyers with expertise in corporate tax and high net worth individuals (HNWIs).

In a survey of sideways and lateral partner moves in the UK’s tax and private client sector, recruiters Wilkinson Partners and law firm Withers Worldwide  analysed 65 moves across the sector in 2014 by tax and private wealth professionals.

Corporate tax dominated partner moves, accounting for half of hires, but one in four (23%) were private wealth specialists and 14% worked in tax litigation.

Tom Wilkinson, managing partner of Wilkinson Partners, said: ‘We are seeing many firms which scaled back their private client practices, or cut them altogether, recognising that there is significant demand for these services and trying to rebuild teams. Tax litigation experts are also in demand as HMRC gets increasingly active and powerful in its anti-avoidance measures.’

There is particular demand for partners experienced in transfer pricing, tax value chains and indirect tax, while the scarcity of supply means such experts are hard to find and are currently ‘worth their weight in gold’.

The majority (83%) of sideways moves occur at firms in London, but while only a quarter of hires were women partners, they appear to be more likely to make a move to another firm than their male counterparts. 

Daniel Isaac, employment law partner at Withers, said: ‘Only 26% of the lateral hires were women, but the statistic should be considered against the fact that 15% of law firm partners and 17% of accountancy firm partners are female.

‘Considering these low levels of representation, this shows that women proportionally moved more than men last year.’

Employment law: HCL Insurance case raises questions of age

When seeking to change employment contract terms, some employers may decide that if they cannot get agreement through consultation and negotiation, they will dismiss the employees and offer to re-engage them on the new proposed terms and conditions.

The obvious risk in this approach is that the employees may claim unfair dismissal. The recent case of Braithwaite and others v HCL Insurance BPO Services Ltd UKEAT/0152/3/14 shows that making some changes could lead to discrimination claims too.

HCL Insurance had gone through a period of rapid expansion during which it had taken over a number of different operations. This led to staff being employed on a variety of terms.

Years later the business started to incur substantial losses. It was assessed that introducing standard terms and conditions throughout the firm could save up to £2m a year. Consultation took place and many employees agreed the changes, but some of those who would lose a substantial number of benefits refused to accept them.

Eventually these employees were dismissed and they brought claims not just for unfair dismissal, but also for age discrimination.

It was held that the dismissals were fair. There were sound commercial reasons for the changes and the new terms and conditions were fairer across the workforce. However, it was found that the changes were potentially discriminatory.

The requirement for employees to sign a new contract if they wished to remain employed amounted to a policy that placed older employees at a disadvantage.

They had acquired the greatest amount of benefits and so would lose the most under the changes. Nevertheless the age claims still did not succeed. In the same way that the employer had established a fair reason for dismissal, it was also able to show justification for the changes.

Comment: The decision shows that while certain changes may indirectly discriminate, the employer will have a valid defence if it can show the changes are justified. Here there was a need to reduce staff costs to ensure the future viability of the business and to have in place market-competitive, non-discriminatory terms and conditions.

The changes to terms and conditions were a proportionate means of achieving that legitimate aim.

Legal updates by Sophie Brookes and Christoper Davies, Gateley LLP

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Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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Christopher Davies |Associate and professional support lawyer, Gateley plc

Christopher Davies is an associate and professional support lawyer at Gateley plc, and has specialised in employment law for 20 year...

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