In the current economic climate, when ‘Big Four’ fees have remained largely
unchanged, we have seen a marked trend, certainly among medium to large-sized
companies, towards bringing various parts of the tax function in-house. But,
cost savings aside, why bother?
Compare this with the legal world, where in-house lawyers used to be
considered the profession’s poor relation. The in-house people were thought of
by many as those who sought an easy ride, worked nine-to-five and who just
couldn’t handle life in the fast lane. But how things have changed; whereas they
were once the gatekeepers between the provision of external legal advice and
their own management team, the tide appears to have turned and they are now seen
as an indispensable, cost-effective and expert resource. In-house tax functions
are now attracting a high calibre of accountant; the stigma of working in-house
is no longer there, and the same applies to the accountancy profession –
particularly tax professionals.
So, from the company’s point of view, why does it make sense to run an
in-house tax function? Economic factors will certainly weigh heavily, both in
terms of the potentially considerable cost savings and also from a budgeting
point of view: internal advice and compliance come at a relatively fixed and
Continuity and convenience are also important. An in-house tax team will have
a thorough knowledge of the business and a sharper understanding of what its
specific needs and issues are.
Graham Kilbey, now a tax consultant and formerly in-house with the likes of
Tesco, Balfour Beatty and Cadbury, believes this is a critical factor. “The
in-house team can act quickly and efficiently to a business’s changing
strategies – from acquisitions to asset disposals to major employee issues. A
third party adviser cannot hope to compete with the in-house team in terms of
prior knowledge of the issue and speed of response.”
From a compliance perspective, increasing regulation helps to persuade compan
ies or public sector organisations to have the expertise on tap for when a
tricky or complex situation develops; a wrong decision can result in substantial
penalties being levied. And since FDs now need to take personal responsibility
for the accuracy of tax computations by signing the tax returns, their attitude
can be that it is safer to work with a tried and trusted internal team over who
he or she has close control.
But once we move away from simply giving advice and towards actually seeing
through the problem from start to finish, we can start to think in terms of
fast, pragmatic solutions. It is surely essential to have staff on hand to deal
with any bumps in the road, a team that will work closely with the finance team
as a whole and develop strong working ties with senior management.
Graham Kilbey believes that when an organisation is looking at bringing its tax
function in-house, it needs to compose its team according to the overall tax
strategy. “It’s essential that the board knows what the overall tax strategy is
and takes ownership of it. Only then can you decide what sort of tax department
you need and the resources that will be required,” he says.
“A company can get real strategic and commercial value by having someone
in-house who can take advantage of their proximity to (and understanding of) the
business and the ability to provide spontaneous input.”
While this is undoubtedly a big step for most organisations, the drawbacks
appear to be surprisingly limited. When many businesses are reducing staff
numbers, the FD may have trouble getting the additional headcount signed off by
the board, particularly where senior people are involved. Another issue that may
arise is the difficulty in educating some of the non-accounting functional heads
that this internal resource exists and needs to be involved in certain decision
From a career point of view, a move in-house gives the tax professional the
opportunity to gain valuable commercial experience and broaden their knowledge
base, which makes them more attractive to the senior positions that blue chip
companies offer and exposure to some of the ‘sexier’ cases.
The increase in popularity of the in-house tax team has attracted more female
candidates, partially due to more flexible working arrangements.
Over the past few months, we have seen a significant rise in candidates
wanting to enter the in-house market. In fact, it is currently the most searched
for key word when targeting a new job.
And, if some people still have a question mark over the status issue, there
is no doubt that in-house tax experts rank equally with, if not higher than,
their public practice counterparts.
For those organisations that feel establishing a new in-house tax function
would be a step too far, a strong interim manager can sometimes provide the
bridge between internal and external relationships. This person can bring real
experience and skill to a team that may well be under resourced. As well as
bringing cutting edge thinking to the business, their impartial eye should
quickly spot areas of weakness that may have been overlooked and this can result
in immediate tax savings or recoveries.
Finally, we should bear in mind that external providers have a vast array of
resources at their fingertips and can draw on a wider pool of expertise, and
this is one of the reasons why they still have an important role to play.
Bringing work in-house does not necessarily remove the need for external
advisers but it can mean that external spend can be better managed and more
value derived from the relationship.
Philip Jolley is manager of the taxation division at WH Marks Sattin