Most UK accounting firms raised their fees last year. Most of them also made less money.
That combination should not be possible. But it is happening across the profession, and the numbers are specific enough to be uncomfortable.
ICAEW's 2025 research on mid-tier firms showed 100% fee growth across respondents. Revenue up across the board. On paper, the profession looks healthy. Dig one layer deeper and the picture changes.
63% of those same firms reported reduced profitability despite growing revenue. Wolters Kluwer's 2026 survey found 71% of firms still expect margin pressure to continue this year. The fees went up. The profit did not follow.
This article explains the mechanism behind that gap, why it is not going to resolve on its own, and what the firms actually recovering their margins are doing about it.
The Maths That Does Not Work
The margin problem in UK accounting practices comes down to a straightforward arithmetic failure. Input costs are rising faster than the fee increases firms are pushing through.
Accounting salaries rose an average of 7% in 2025, above general inflation and meaningfully above what most firms built into their fee reviews. That increase alone is uncomfortable. But it is not the only cost moving.
From April 2025, employer National Insurance Contributions rose from 13.8% to 15%. The secondary threshold at which employers start paying NIC was cut from £9,100 to £5,000 per year. For a firm employing ten people on average salaries, that change added several thousand pounds to the annual wage bill before a single new hire, a pay rise, or an additional software seat.
Software costs are up. Professional indemnity costs are up. Recruitment costs, when firms can find the right candidates at all, are up. CPD and regulatory compliance costs are not going down.
A 5% fee increase does not beat a 7 to 8% cost increase. You just work harder to land in the same place - and because the cost base is now higher, the gap compounds next year.
A 5% fee increase on a £500,000 revenue firm brings in £25,000. A 7% increase in a salary bill that accounts for 60% of revenue costs an additional £21,000 before the NIC changes. The NIC threshold cut adds more on top. The numbers leave almost no room, and any surprise - an unexpected hire, a client dispute that consumes unplanned time, losing a senior staff member - tips the year into reduced margin or loss.
Why Raising Fees Further Is Not the Answer
The instinctive response to a margin problem is to raise prices. Some practices are doing this, and some of them can sustain it. But most cannot, for two reasons.
First, the accounting market has become more competitive at the point of client acquisition. Online comparison, fixed-fee specialists, and app-based bookkeeping services have created a pricing ceiling in many segments that mid-tier practices cannot push through without losing clients or referrals.
Second, and more fundamentally, fee increases do not change the cost structure. A 10% fee rise buys another twelve to eighteen months before the same conversation has to happen again. It does not solve the underlying problem, which is that the cost to deliver a unit of accounting work in the UK has risen structurally and will not come back down.
You can charge more for the same work. You can also do the same work for less. Both improve margin. Most firms are only trying one of the two.
The firms recovering profitability are not doing it by charging their clients more than competitors charge. They have made a structural change to their cost base, and that change has a specific shape.
The Two Layers Most Practices Bundle Together
Every accounting engagement contains two distinct types of work. Most practices do not separate them, and that bundling is where the margin problem lives.
The first is what you might call the relationship layer. Advisory conversations. Tax planning. Reviewing a set of accounts and applying judgement to them. Talking a client through a restructure or an HMRC query. This work requires a senior person who knows the client, understands the context, and can make a professional call. It cannot be standardised, and it should not be cheap.
The second is the delivery layer. Bank reconciliations. VAT return preparation. Payroll processing. Year-end file preparation. Management accounts production from source data. This work is structured, repeatable, and governed by clear standards. It requires skill and accuracy, but it does not require a senior UK-based accountant who costs £40,000 to £60,000 a year plus NIC.
Stays onshore with senior staff
- Advisory and tax planning
- Client conversations and review
- HMRC queries and correspondence
- Final sign-off and judgement calls
- New client onboarding and relationship management
Moves to qualified offshore CA team
- Bookkeeping and bank reconciliation
- VAT return preparation
- Payroll processing
- Year-end accounts preparation
- Management accounts production
Most UK practices bundle these two layers together and staff them with the same people at the same cost. The partner or senior accountant does some of the advisory work and some of the data processing. The junior does the reconciliations but also fields client calls the partner should be handling. The work mixes, the cost structure blends, and the real cost to serve any given client becomes invisible.
What the Firms Recovering Margin Are Actually Doing
The firms recovering margin in 2025 and 2026 are not doing something exotic. They have made one structural decision: they have separated the delivery layer from the relationship layer and moved the delivery layer to a qualified offshore team running the same software, to the same standards, at a fraction of the onshore cost.
The revenue line stays identical. The client experience does not degrade. The fee does not change. What changes is the cost to produce the work. The bank reconciliation that used to cost the firm £45 of senior staff time now costs £12. The VAT return preparation that consumed two hours of a qualified accountant's time is prepared offshore and reviewed onshore in forty minutes. The margin on that engagement recovers.
| Work type | Bundled model (all onshore) | Separated model (delivery offshore) |
|---|---|---|
| Bookkeeping (monthly) | High cost Junior onshore: £30-50/hr all-in | Lower cost Qualified offshore CA: fraction of onshore rate |
| VAT return prep | High cost Senior reviewing own preparation | Lower cost Offshore prep + onshore review only |
| Year-end file prep | High cost Mixed senior/junior onshore time | Lower cost File prepared offshore, reviewed onshore |
| Payroll processing | High cost In-house payroll resource | Lower cost Offshore processing, onshore client contact |
| Client advisory calls | Onshore senior: appropriate | Onshore senior: unchanged |
This is not a new idea. Offshore accounting support has existed for over a decade. But the reason it is gaining traction in 2025 and 2026 is not the same as it was five years ago. The conversation has shifted.
Why 2026 Is Different
Five years ago, the offshore accounting conversation was mostly about cost reduction. Practices that used offshore teams were typically looking to cut overhead, and the framing was often defensive: save money, protect against recruitment difficulties.
That framing still exists. But it is no longer the primary driver for the practices engaging with offshore support in 2026. The primary driver now is margin recovery under cost conditions that are structural, not cyclical.
The NIC changes are permanent. The salary inflation in accounting is not going to reverse. Software costs are going up, not down. A practice that waits for the cost environment to improve is waiting for something that is not coming.
Offshore accounting support in 2026 is a margin strategy. The cost reduction is the mechanism. The outcome is a practice that can grow its client base, hold its fee levels, maintain quality, and actually see profit grow when revenue grows - which is what should happen but has stopped happening for most UK firms.
Have you calculated your actual cost to serve the average client?
Most firm owners we speak to have never done that number. A 30-minute conversation with a qualified CA covers what your cost structure looks like and whether separating the delivery layer makes sense for your practice. No deck, no upsell.
Book a free consultationThe Number Nobody Has Run
Here is a question worth sitting with: have you ever calculated the actual cost to serve your average client, not just the fee you charge them?
Most firm owners have not. The calculation is not complicated. Take your total annual staff costs, including employer NIC, pension contributions, and any benefits. Divide by total chargeable hours across the team in a year. That is your loaded cost per hour. Multiply by the actual hours spent on each client relationship over twelve months.
Compare that number to the fee.
For many practices, the result is a surprise. Clients who have been with the firm for years and whose fees have not kept up. Clients whose complexity has grown since the original engagement letter was signed. And clients where the cost to serve is actually very low because the work is clean and straightforward - meaning those clients are subsidising the others, and nobody has noticed.
The cost-to-serve calculation is not a prelude to firing clients. It is a prelude to rational pricing and rational delivery choices. Some clients should pay more. Some work should be done differently. Some relationships justify every hour they cost. The point is to know, rather than to feel.
EarthOne works with UK accounting firms on exactly the delivery model shift described in this article. The for firms page walks through how it works in practice. Published pricing is on the website - no call required to understand what it costs. And if you want to talk through whether separating the delivery layer makes sense for your firm's specific situation, the consultation starts here.
