THIS TIME LAST YEAR, tax service lines were beginning to pull themselves out of the hole of the recession.
It had been a year of slow but steady growth, returning it to pre-2008 levels. The value of the Top 50’s tax arms have breached the £2.5bn mark, in the latest Top 50+50 table, representing overall growth of the service line of around 2.7% since 2012, with the caveat that some new firms have entered the fray, while some regulars haven’t participated this year.
Be that as it may, growth is growth, and tax has shown remarkable resilience, especially given the political football it has become both in government and the mainstream media.
Despite the widespread public outcry over tax avoidance – with a sizeable portion of the vitriol directed at accountancy – demand for tax services remains undiminished.
Unsurprisingly, the Big Four again make up the bulk of the fee income, weighing in at just shy of £2bn – but it has not all been uniform growth for major players. While EY posted an impressive 16% increase in tax fee income, KPMG followed up last year’s 12% growth with 3% contraction. PwC remained in top spot, taking £659m – a 2% rise – while Deloitte took second place with £529m fee income – a 6.6% jump.
Baker Tilly managing partner Laurence Longe’s prediction of the emergence of a “Mid Three”, is certainly borne out in this year’s tax numbers. Grant Thornton and BDO both posted tax fee incomes upwards of £80m – almost twice that of RSM Tenon and Baker Tilly (which submitted last year’s figures). However, given the latter two’s recent amalgamation, a combined tax function would place Baker Tilly in fifth, marginally ahead of Grant Thornton. All this comes despite Tenon’s staggering 20% contraction, although it should be borne in mind that despite PKF’s absence from the table, BDO’s figures only takes into account three months of PKF’s fee income.
The Big Four’s mixed fortunes over the past year is, in many ways, a microcosm of the fortunes of the rest of the Top 50.
At a glance, the biggest winner this year was Francis Clark, which saw tax fee income rocket 27.8% to £8.5m – the second consecutive year it has enjoyed such a jump (27%).
MHA MacIntyre Hudson grew tax fee income 17.1%, something which the firm’s managing partner Rakesh Shaunak puts down to organic growth. “We had heavy investment in tax resources a couple of years ago – for example, our employment taxes team we brought in – and we’re now beginning to see the benefit coming through from that.”
When examining the figures it becomes clear that while much of the news is heartening, it should be noted that while a substantial portion of the growth we’ve seen is organic, a significant amount has been derived through M&A activity. That said, further down the table, Kingston Smith, Hazlewoods and Bishop Fleming have all posted impressive increases, growing 13.4%, 17.4% and 18% respectively.
The legislative landscape, of course, has shifted significantly over the past 12 months, and in particular, preparations are being made for the arrival of the long-awaited General Anti-Abuse Rule.
But while some fear that change, there are opportunities for the profession to undertake new work, with clients keen to comply, although materially, it should change little for mainstream firms steering clear of contrived schemes.
The headline element of the last year, however, is what was an embryonic recovery has been cultivated and consolidated. It has hardly been a whirlwind of precocious growth, but it has been steady, and ultimately tax is in a far healthier place as a result.
The next year, if approached correctly, could prove exciting.
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