Contractors' Questions: Is my accounting fee fair?

Contractor's Question: Please advise on whether the following is the normal practice with regard to a limited company which is not receiving salary due to being between contracts. My accountancy company have advised that their Service Agreement, which they have sent me to sign, is for 12 months and then 90 days notice and they will continue to charge me £32 per week. However I have no salary coming in for the past 4 weeks, so this hardly seems fair.

But the accountant says their Limited Company Service is an annual service and that the firm is legally required to charge clients the same fee whether they currently require payroll services or not. Charges continue, they claim, because there are affairs such as end-of-year accounts, and VAT return, which they do throughout the year on my behalf.

Though what happens if don't get the contract I'm hoping for? Would I be legally obliged to pay my accountant for the limited company service even though that the company is not generating any turnover? What would happen if I have to wind up the 'Ltd'? Am I really stuck having to continue paying these fees for the next 15 months?

Expert's Answer: This is not an unusual situation. Agreements quite often have a minimum term and whether you have to continue to pay to the end of the term depends upon the wording of the Agreement. To find out whether you are able to get out of this Service Agreement before it expires naturally, your first port of call should be to read the Agreement through carefully to see whether it permits you to 'break' the Agreement early. If this is not permitted under the Service Agreement then it would appear that, to avoid breaching the Service Agreement, you will have to continue to pay the fees.

If the Service Agreement is between the accountancy company and the limited company and you decided to wind up the 'Ltd', then the company would no longer exist to be able to make the payments. However, there could be negative consequences for you and/or the directors and shareholders of the limited company if you do this. First, the Service Agreement might set out the consequences of the company being wound up during the life of the Service Agreement (e.g. financial penalties). Second, the shareholders and/or directors of the Ltd may find themselves being pursued for the debts of the company.

If on the other hand the Service Agreement is between the accountancy company and you personally, and you decided to wind up the Ltd, then your winding up of the company is unlikely to make any difference. In any event you should read the terms of the Service Agreement to check if there is any mention of what would happen to the Service Agreement in these circumstances.

In future, it would be advisable to read the contents of any accountancy contracts that you enter into carefully to check that you can get out of them if the limited company runs into difficulty. If they do not contain this type of provision then you can ask the accountancy firm if one can be included.

The experts were Simon Bennett and Sian Barr of Fox Williams, a business law specialist.

Sunday 12th Sep 2010