One of the issues that can quickly put a business in trouble is non-compliance with taxation. In most countries, tax evasion is a criminal offence that attracts severe penalties. It is customary for established companies to let their accounting or auditing department handle their tax-related issues, but many small and large businesses are now embracing outsourcing.
Outsourcing tax preparation and compliance means that a company is contracting its tax-compliance obligations to a professional agency. Both small and big companies now adopt this style chiefly because of the benefits it brings. But while it is beneficial, outsourcing such a sensitive duty to an agency also comes with some risks.
Therefore, this article explores the pros and cons of this practice to help you make an informed decision.
Pros Of Outsourcing Tax Compliance & Preparation
Access To More Experts
Most tax prep agencies work with a team of many experts. These people specialise in different accounting sectors, and their experience and expertise will make it almost impossible for your company to falter in its tax duties. Compared to having in-house employees who, at best, may number just two to five, agencies have better human resources to give the best possible advice and technical assistance in tax-related matters.
Lower Costs
Hiring a full-time accounting professional comes with overhead costs that can affect a company’s revenues. But with outsourcing, a company can avoid the operational costs that come with hiring, such as PTOs, sick leaves, salaries, training, office essentials, health insurance, etc. Outsourcing is an intelligent way for upcoming businesses to enjoy more return on investments (ROI), as companies only pay for the services they request.
Access To The Latest Technology
Tax agencies are usually in touch with the latest software and technology like Xero. As it goes, if there is the newest software for calculating and preparing taxes, offshore agencies are often the first to become aware. They consistently achieve this level of awareness because they are specialised in what they do. And with better technology, the chances of defaulting, making mistakes in estimation, and other issues become slim.
Timely Services
No matter the nature of the accounting or tax compliance services you are asking for, you can quickly get on board by using an offshore tax agency. Unlike just providing training for a rookie or updating the knowledge of your existing staff, the agency already has everything covered and will get down to work immediately after you engage them.
Customised Solutions
Many outsourcing companies excel at rendering tailored solutions to their client’s tax prep needs. These customised services include pricing models, engagement frequency, and auditing needs. Business owners can always discuss their specific needs and challenges with tax prep firms and find a solution that will work for both.
Cons of Outsourcing Tax Compliance & Preparation
Risk Of Data Breach
Outsourcing your company’s tax compliance and preparation means sharing your firm’s financial records with a third party. If your partnering company does not have a solid data security architecture, a breach can lead to your company’s sensitive information getting into the hands of unauthorised individuals. That is why understanding the privacy policies of the outsourcing firm is crucial before engaging them. Besides, they must have an excellent track record of maintaining clients’ confidentiality and providing top-notch cybersecurity technology.
Less Control Over Business Functions
Allowing someone else to handle an essential part of your business is an act of trust. It means you are relying on them and relinquishing some degree of control over your business’s activities. If they choose at any point to be lax or an act of nature prevents them from carrying out their functions, your business loses. That aside, it is unlikely that you will get an instant response on your business’s records with an outsourcing agency. Unlike when you handle the process in-house or by yourself, you cannot determine when the outsourcing company will do its job.
Outsourcing Cost
It is important to state that outsourcing to a tax prep company is not cheap, and it is only more affordable in the long run when compared to hiring permanent in-house professionals to handle it. Some companies may have hidden charges that business owners are unaware of until they are about to checkout. That said, with proper communication and clarifications before reaching an agreement, there should be no surprise bills.
Missed Learning Opportunity
Startups that outsource their tax compliance and preparation may miss out on an opportunity to learn how things work. And without hands-on experience in the process, they may be unable to bargain effectively with the outsourcing company or challenge their decisions if necessary.
How Do You Know If You Need Outsourcing Services?
While outsourcing tax compliance can be a great move, it is unsuitable for EVERY business. There are also indications that show when a company should reach out to a tax prep outsourcing firm. Some of these indications include the following:
- You struggle with deadlines:- Your company must respond to queries and correspondences from local tax agencies to avoid bigger problems. If your company is not meeting deadlines to respond to tax enquiries from local authorities, it may strongly indicate that you need external help.
- Inadequate Skill Sets From In-House Staff:- Has your company defaulted before because your in-house accounting team had gotten some calculations wrong? Perhaps, it happened because your company’s employees have to wear different hats. Whatever the reason, if you sense that your in-house team does not have the requisite skills to file the correct tax details, outsourcing is the right step to take.
- You Are Reaching Your Team’s Carrying Capacity:– One way to know if your team is nearing its elastic limit is the level of innovation team members bring. With a work overload, employees often become less effective, which affects the company’s performance. Such a period is not the time to burden them with the extra work of preparing tax compliance documents.
Conclusion
Understanding your business’s needs is key to deciding whether outsourcing your tax compliance and preparation is necessary. If you have determined that outsourcing is the best for your company, it would be in your interest to confirm the firm’s reputation, especially in data security and efficiency, before trusting them with your company’s books.
Looking to engage an experienced consultant to manage your company’s taxes? Look no further! Timcole is your answer. With us as your partners, you would always be tax compliant and on time every time. So contact us today to discuss your accounting and taxation requirements.
