Outsourcing bookkeeping services
What are the obligations, barriers and costs that an existing company must deal with before beginning to provide accounting services as an additional business for outside entities?
At some point the management of a company may decide that it would be a profitable sideline to offer accounting services to its external clients. The question arises whether the company must first include such services in the articles of association among the subjects of the company’s business, and amend the company’s entry in the National Court Register to reflect the new line of business, before beginning to provide such services to clients.
In Poland, from a commercial or tax law perspective, the lack of such a provision in the articles of association or the commercial register will not have a negative impact on the company or its clients. If an agreement to provide accounting services is valid despite the failure to include such services in the subject of the company’s business, performance of the service agreement will be legally effective also for purposes of tax law, in the sense that the parties will be entitled to settle VAT on the services and the client will be able to deduct the expense as a revenue-earning cost.
Nonetheless, if the actual business performed by a company is inconsistent with the subject of the company’s business as stated in the articles of association and the commercial register, it may give rise to liability to the company on the part of the management board members for acting contrary to the provisions of the articles of association. Therefore, the first step the company should take before opening this new business line is to amend the articles of association and the commercial register entry accordingly. This will entail costs such as notary fees and court fees.
At the staff level, under the Accounting Act, the service of maintaining accounting books and tax records for other entities, and preparing tax declarations for clients, must be performed by an authorised individual, i.e. a certified accountant, auditor or tax adviser. Thus the next step will be for the company to hire qualified personnel.
The final requirement before starting this line of business is for the company to take out civil liability insurance to cover potential losses connected with providing accounting services. The minimum coverage per event depends on the scope of accounting services performed, in the Polish zloty equivalent of EUR 5,000 (for tax advisory alone), EUR 10,000 (for maintaining accounting books only), or EUR 15,000 (for activity including both maintaining accounting books and tax advisory).
A company providing accounting or tax advisory services may be liable if the services are performed by persons lacking professional qualifications or without obtaining civil liability insurance.
An individual within the company handling accounting services may be subject to fiscal penal liability for maintaining the client’s books unlawfully, i.e. for intentionally maintaining the books in a manner that is not fair and accurate. A bookkeeper may be found guilty of violating the Fiscal Penal Code even if there was no loss.
Apart from potential liability of the individual bookkeepers, the company itself may be liable under the Civil Code to a client if the client suffers penal or administrative sanctions, for example because of underpayment of tax, due to the fault of the company providing accounting services. The client could seek damages in such a case based on general principles of contract law.
A company providing accounting services may also be held liable to the client for a loss caused by breach of the service agreement. As a taxpayer, the client remains liable for its tax obligations even when it outsources the accounting function. Thus if the company providing accounting services fails to perform the agreement properly, and the client suffers a loss as a result, the client may assert a civil claim for damages.
Aldona Leszczyńska-Mikulska, Tax practice, Wardyński & Partners
Łukasz Śliwiński, Corporate Law, Restructuring, and Business-to-Business Contracts practices, Wardyński & Partners