I've just been speaking with one of our clients, who runs a small but growing accountancy practice in North London. Well, he thought it was small but growing, until he logged on the HMRC Online website this morning and found that, actually, it was rapidly shrinking.

According to the HMRC website, he is down to 2 clients. A bit of a shocker for him and, no doubt, for his clients.

It appears that those terribly clever IT type people over at HMRC have done some kind of service upgrade and have managed to migrate several thousand records into the ether.

But don't worry, the "technicians are working on this". Well, that's OK, then, isn't it!

Following April's change in the rules governing managed service companies (MSCs), it appears likely that HMRC will clamp down on those MSCs who are claiming to be "professional accountants".

Following the new regulations implemented in April, many managed service companies appear to have rebranded themselves as "professional accountants" in an attempt to exploit an exemption in the legislation.

However, contractors should be warned that their one man limited companies could be deemed MSCs "if they are supported by a specialist service provider (MSC provider) who is 'involved' with their company."

The penalties for this will be that the contractor will be liable for full tax and NI on his or her earnings.

Personally, I fully support the PCG's attempts to get the law clarified and to support contractors in their attempt to show that they should not be classed in the same bracket as full time employees.

However, contractors would do well to listen to the advice of Matthew Brown, Managing Director, giant group, who says :

"Contractors and recruiters dealing with MSC providers are taking huge financial risks. A lot of MSC providers are reassuring their clients that they are fully compliant with the new law, but they are fooling themselves if they think HMRC would introduce anti-avoidance legislation, only to leave a 'loophole' allowing MSC providers to sidestep it by claiming to be 'professional accountants'."

Despite the best attempts of the regulators, the 'big 4' auditing firms are still growing and there is still little real competition to their control over the industry.

Between them, they averaged growth of 15% last year and audited the books of 349 of the top 350 UK firms. And, most worryingly, the dominance of the PwCs and Ernst & Youngs shows no signs of slowing.

Although the Financial Reporting Council (FRC) has, according to Gavin Hinks, editor of Accountancy Age, "worked hard to convince corporates and potential clients that the mid-tier firms are viable alternatives to the Big Four", the problem here is two fold.

Firstly, there is a trust issue. Simply put, big business has heard of Deloitte, KPMG and the other two major auditors. They think that if it's good enough for the top 100 companies in the UK, then it's going to be good enough for them. This is a barrier that all the regulating in the world can't overcome. The regulators may be concerned that such a lack of competition undermines the authority of company audits, but big business isn't sharing that concern.

Secondly - and this may seem a trivial point - but the nature of auditing itself makes it easy for only a few firms to dominate the marketplace.

At Just Accountants.co.uk, we work with a bunch of accountants who are also registered auditors. And the problem they find is one of capacity: because these are generally small firms and because of the time it takes to conduct a full audit, they are unable to commit to more than a few per year.

This leaves the way clear for a few monster companies to dominate this sector and perversely, it increases worries about 'trust'. After all, if the company you are asking to audit your firm conducts audits very rarely, fears about accuracy, competence and trust invariably raise their heads.

If the FRC really wants large companies to look beyond the big four, then they are going to have to do a little better than say it "encourages competition".

The staff of many companies who outsource to a payroll bureau now receive their payslips by email.

However, Section 8 of the Employment Rights Act 1996 reads: "An employee has the right to be given by his employer, at or before the time at which any payment of wages or salary is made to him, a written itemised pay statement." [emphasis mine].

This has lead to some suggestions that electronic payslips may not be lawful.

The Paypershop.com article linked above puts a strong case that suggests that emailed payslips may not fully comply with current legislation.

For example: employees must be "given" their payslip. However, if the employee cannot access their email - when they are on holiday or sick, for instance - then it cannot be said they have been given their payslip.

While it does appear that HMRC is accepting of electronically delivered payslips, there nevertheless is a risk if staff are unable to see deductions made from their pay on payday. This opens employers up to employment tribunals that could lead to the employer having to repay 100% of the deductions "even if they were legitimate or statutory deductions."

In the first of what, hopefully, should be an occasional series, I would like to present to you 'Pointless Tax Rules: Part One'.

The first pointless tax rule concerns reclaiming VAT on cars:

VAT can only be reclaimed on vehicles if there are no windows or seats in the rear.

Yup, you read that right. You can't reclaim VAT if you can see out of the back windows. Not that you would want to if there aren't any seats.

So that means lorries and, um, what else? Even most Ford Transits have back windows! Can someone link to a picture of a vehicle that isn't a lorry on which you can reclaim VAT, because, for the life of me, I can't think of one.

The trend among small business owners in the UK seems to be increasingly to use their accountants as financial and business advisors.

In research conducted by Venture Finance, 78% of SMEs said that they could rely on their accountant to give them unbiased financial advice. While this advice does seem to mainly be concerned directly with business issues, accountants are also providing personal financial advice on issues such as investments, insurance and savings plans.

Personally, I would far rather trust my accountant to give professional, financial advice than an 'independent' financial advisor or a representative from a bank.

Rather sweetly, only 46% of accountants rated themselves as the most trustworthy in the financial services and legal sectors. However, you can bet that independent financial advisors and others selling financial products would love to be trusted by 78% of their clients. It is, of course, a trust that shouldn't be abused and I, personally, would hate to see accountants move too far away from their core competencies. Nevertheless, it's good to see that the relationship between small and mid-sizes UK businesses and their accountants is one based on trust and understanding.

I work with a lot of accountants over at Just Accountants.co.uk and pretty much each one has a different idea of their 'ideal client'.

We have accountants that don't like to work with cash only businesses; accountants who only work with contractors; accountants who specialise in start-ups and new companies; accountants who prefer owner-managed businesses with a turnover above £200,000 p.a - the list is ever growing.

I know this stuff because they tell me. And - if you are trying to find an accountant - this is information you will need to know too. However, put simply, most accountants would prefer the income from a client than not. And who can blame them? There are thousands of chartered accountants out there and they are all competing for business.

Nevertheless, when you are trying to find an accountant, whether you are self-employed or the financial director of a multinational corporation, you need to find out what type of clients that accountant prefers. That way you will end up with a responsive, helpful professional who can assist you as you grow your business.

For that reason, I recommend against comparing accountants on price. There are some great fixed fee based accountants out there and there are some good ones who are comparitively cheap, but if their preferred client is an owner-managed limited company and you are a self-employed hairdresser, then you are not necessarily going to get the service you need.

Accountancy, more and more, is a service based business and you have the right to expect that your accountants will be ready and willing to assist you. But you do need to ask the right questions.

Ask your prospective accountant if they specialise in any particular area, call them up at 5:15pm on a Friday afternoon and see how easy they are to contact; try to arrange a meeting for a time that suits you, not them. All these things will indicate whether this is the accountant for you.

Of course [beware, unsubtle promotional pitch coming], you could always find an accountant through Just Accountants and we'll put you in touch with accountants that are right for you : http://www.justaccountants.co.uk/quote.html

While I personally have nothing at all against the Customs and Revenue, I do believe that the IR35 legislation is a mess and that the new legislation governing managed service companies is even worse.

That's why there's a certain amount of schadenfreude in seeing the Professional Contractors Group's continued success in IR35 related court cases.

While this piece on Contractor Calculators.co.uk is slightly too gloating in tone, it does make clear some of the flaws of the legislation governing contractors' tax affairs.

The HMRC seems determined to label all contractors as employees and tax them accordingly. The reality is, of course, very different but - either to maximise tax revenues or because of anachronistic attitudes by legislators - the attempt to equate contractors with employees continues.

In the articles, Barry Roback, CEO of the Watford-based accounting firm JSA comments that: "These workers bear the risks of working for different companies at different times, with none of the privileges of employees. So they should not be treated like them.".

This is a view I agree with most strongly and it is for this reason that the PGC's continued success brings a smile to my face.

OK, we'll kick this blog off with an odd one.

According to the Chinese Ministry of Finance, Chinese accounting standards will be brought into line with those of the EU from January 1st 2008.

Obviously, as China opens up as a market to the rest of the world, this is no bad thing, but the question I have to ask is: how is anyone going to audit this? Are teams of SAS trained chartered accountants going to travel to Beijing to check up on whether the Chinese are secretly not doing it right?

It's a good notion, but I'm going to be interested to see how this idea works (or doesn't, as I suspect) in practice.