Outsourcing tax returns or software, compared

It's twenty to eight on a Tuesday in March and the overnight batch is in. Fourteen files went out on Friday. Eleven have come back finished. Three have come back with questions.

The first question asks whether the beach house was available for rent for the whole year. You know the answer. You knew it in January when you sent the file, and you didn't write it down because it was obvious to you. So you type two lines, send them, and the file goes back into tonight's queue. You'll see it again tomorrow morning, which makes it a day for a sentence.

Underneath it, in the same inbox, is the renewal from the provider.

Most practices that outsource have had that morning, and plenty renew anyway, often for good reasons. Before you do, be clear about what you're buying. An outsourced preparer and a piece of software both sell preparation. Neither sells the work either side of it, and the honest comparison is about which of that work each one leaves on your desk.

The work that goes offshore well

It flexes the other way as well. A month with no work costs nothing, which a salary can't say. For a practice whose season is lopsided, that alone can justify the arrangement.

Software vendors tend to skip the main point, which is that a preparer is a person. They can ask a question, read the answer, and change their mind. Give a good offshore team a client who answers in fragments, a bookkeeping catch-up that's two years behind, or a shoebox of receipts with a bank export that stops in April, and they'll make sense of it. Software is at its worst on exactly that file. It reads documents well and can't untangle records that were never kept.

A long-running arrangement with the same preparer also learns your conventions. After a season or two they know how you like a rental schedule laid out and which clients always forget the second account. That knowledge is worth something, and it's easy to underrate it when the only number on the table is the invoice.

The work that comes back to you anyway

The brief. Someone has to assemble what the preparer needs and write down what they need to know. On a salary-and-deductions return that's a few minutes. On a trust with three properties and a part-year rental it can be most of an hour. And it's written by whoever knows the client, which is usually the person whose time you were trying to buy back.

The round trip. A question asked at four in the afternoon in your office is a question asked in the middle of someone else's night. The answer comes tomorrow, and the file sits until it does. One query is a day. Three queries, spread across three exchanges, is most of a week. The price per return doesn't change, but how many returns you can get through before the deadline does.

The review. This is the expensive one. A file you can't trace gets re-done instead of reviewed. If the workpaper doesn't take the partner from a figure to the page it came from, they rebuild the work to sign it, and you pay for preparation twice, the second time at partner rates. We wrote about what makes a file quick to believe in why workpapers come back from review. That applies to an offshore team's file as much as to a junior's.

A good provider doesn't make these go away. They're the part of the cost that a per-return price doesn't move, and they're where the comparison with anything else gets decided.

Pricing a return honestly, on both sides

We're not going to quote a provider's price. We don't have one we can stand behind, and yours is on your invoice anyway. What you can do is price the shape. For each outsourced return, count the minutes someone in your office spends writing the brief and answering the queries. Multiply that by what an hour of that person costs you. Add it to the invoice. That's what the return costs.

Then do the same for software, and be just as strict about it. Software doesn't need a brief in the same way, because it reads the documents, but someone still has to get the documents in, answer its questions, and check the draft. Those minutes count too. So does the time it takes to learn a new tool, and so do the files it can't do, which go to a person anyway.

A fortnight of honest logging will tell you more than any comparison table. Pick ten outsourced returns from last season, roughly typical, and estimate the minutes on each. If you're trialling software, put the same ten through it. Don't count review minutes on either side unless one side plainly changed them, because review stays with you whichever way you go.

There's also a cost neither invoice shows: the busiest month. Every arrangement looks affordable in February. Price it against the weeks when your volume jumps, and ask what the turnaround is then, not now.

Once you have the numbers, our outsourcing cost calculator does the arithmetic. You put in your provider's price per return, your volume and the staff minutes either side, and it sets that against a software price per return. The outsourcing column only ever holds your figures. If the outsourced side comes out cheaper for your client mix, believe it.

Using both: software in front, people behind

Done that way round, software is also a sorting step. A first draft that says what's missing, and which figures it couldn't support, tells you which files are the shoebox ones before anyone writes a brief. Those go to a person, in your office or overseas. The rest don't need a brief at all.

It can shorten the briefs that are left, too. If the preparer starts from a draft where each figure already points to its page, part of the brief is already written. They can spend their hours on the questions that need a person, and less of them typing figures off statements.

What doesn't work well is the reverse: sending everything offshore and running software over what comes back. That pays twice for preparation and still leaves the round trip in place.

What neither changes

So the obligations that come with handing work to someone else come with you either way. You should be able to tell a client who handled their information and in which country, in a sentence. If a provider can't answer that in a sentence, it hasn't thought about it, and the same goes for a software vendor. The TPB has separate guidance on outsourcing and offshoring, and we keep it, cited and linked, on the FAQ rather than paraphrasing it here.

And one question that nobody puts in a comparison: where your next senior comes from. Whatever takes the junior work out of the building, a team overseas or a program, takes the apprenticeship with it. Either can still be the right call, but then the practice needs a deliberate answer about where judgement gets learned, and we wrote about that in the junior work is where seniors come from.

Where we sit

The longer version of this comparison, with the at-a-glance table and the calculator, is on outsourcing tax returns in Australia. It's written to be useful to someone who reads it and then renews with their provider, and that's how we'd like this post to be read too.