Changing Your Tax Advisor: Process, Timing and Required Records

Changing your tax advisor for a German GmbH requires a structured handover of the company’s accounting and tax affairs. The key questions are which work has already been completed, which matters remain open and from which date the new advisor will take responsibility for each service.

A change can also be organised during the financial year. Termination of the existing engagement is governed by the current engagement terms and the applicable termination rules. The operational transition then requires a clearly defined handover.

For financial accounting, VAT, payroll, annual accounts and tax returns, the handover should make clear which advisor is responsible for which period. The transition date does not have to be identical for every service.

That allocation of responsibility is one of the central elements of a well-organised change of tax advisor.

More on our process: Changing Your Tax Advisor for a German GmbH.

The handover date follows the actual status of the work

1 January may appear to be the obvious date for changing your tax advisor. In practice, the calendar date alone says little about whether the transition will work smoothly.

The actual status of the work is more important.

For example, financial accounting may be complete through September, the October data may already be with the previous advisor and the prior-year annual accounts may be close to completion. In that situation, it can make sense to separate the services. Ongoing accounting can move from an agreed month while the previous advisor completes the annual accounts already in progress.

This creates clear responsibility for both areas of work.

The same applies to VAT, payroll and outstanding tax returns. These services follow different cycles and may be at different stages when the transition takes place.

A professional handover reflects that reality.

Financial accounting needs a clear handover status

For ongoing financial accounting, it must be clear through which period the books have been processed.

The quality of that handover status matters more than simply knowing that a particular month has been booked.

Unresolved bank transactions, open receivables or payables, clearing accounts, tax accounts and unusual entries remain relevant after the advisor changes. These items need to remain visible during the transition.

The new accounting process therefore needs a clear and understandable starting point.

A EUR 40,000 balance on a clearing account does not become easier to explain because the advisor has changed. The economic background still needs to be understood.

The handover date separates periods of responsibility. Unresolved transactions remain open until they have been properly clarified.

DATEV does not resolve open accounting issues

Many German GmbHs already hold their accounting records, documents and tax data in DATEV.

That can make the technical handover easier. A structured advisor change still requires more than moving data between systems.

Before the new advisor takes over, it needs to be clear which datasets exist, which periods have been fully processed and which unresolved matters remain within those records.

Technical transfer within the same system environment does not resolve accounting questions. Unreconciled accounts remain unreconciled. Missing documents remain missing. An unexplained transaction does not acquire an economic explanation simply because the underlying data has been transferred.

The technical and professional aspects of the handover therefore need to be coordinated.

Which records and documents from the previous engagement must actually be provided depends on the individual engagement and the applicable legal requirements. Internal working papers of the previous advisor do not automatically form part of the client records that must be handed over. Rights of retention may also be relevant in individual cases.

The transition should therefore define specifically which data and records are required to continue the accounting and tax work.

Payroll needs its own handover date

The handover date for payroll needs to be particularly clear.

Payroll continues every month. Employees expect to receive their payroll documentation regardless of whether the company is changing tax advisors in the background.

Before the transition, it therefore needs to be clear which provider is responsible for the final payroll period and from which month the new provider takes over.

This also includes employee master data, compensation, variable pay, joiners, leavers and any changes that have not yet been processed.

Payroll should therefore be treated as a separate area of work.

A general statement such as “the engagement moves in November” is not sufficient if it remains unclear who is responsible for the November payroll.

More on this: Payroll for German GmbHs.

Annual accounts may follow a separate timeline

Annual accounts follow a different work cycle from ongoing financial accounting.

Where the previous advisor has already made substantial progress, it can be practical for that advisor to complete the annual accounts. Where the work has not yet started or the accounting records have already moved into the new engagement, the annual accounts may form part of the new mandate.

That decision should be made deliberately.

Moving ongoing financial accounting does not automatically require annual accounts that are already in progress to move at the same time.

The allocation of responsibility needs to remain clear.

This determines who is responsible for the year-end entries, which records are still required and who will prepare the related tax returns.

More on this: Annual Accounts for German GmbHs.

Open matters belong in the handover

Changing tax advisors provides a useful point at which to make the actual status of the engagement transparent.

This includes outstanding tax returns, queries from the tax authorities, ongoing tax audits, unresolved VAT matters, open accounts and missing records.

Each of these matters needs a clear owner.

One matter may be completed by the previous advisor while another moves into the new engagement. Both approaches can work.

Problems arise when the status has not been documented and each side assumes that the other advisor is responsible.

The handover should therefore include a reliable overview of all open matters.

Authorisations and responsibilities after the advisor change

The operational transition will often also require changes to authorisations, access rights and communication channels. The adjustments required depend on the services being taken over.

If the new advisor assumes responsibility for financial accounting, tax returns and ongoing tax advisory work, the necessary permissions and communication channels need to be in place.

Responsibility for the recurring tasks also needs to be allocated clearly. This includes filing returns and notifications, responding to correspondence and monitoring outstanding deadlines.

The new engagement structure should leave no ambiguity about who is responsible for each task.

Corporate groups need a handover plan for each entity

For groups with several entities, a single transition date may not reflect the actual status of the work.

The holding company may already be fully booked. An operating GmbH may still have unresolved VAT matters. Payroll for another entity may be handled by a separate provider.

The status of the work is specific to each legal entity.

The handover should therefore be documented separately for each company.

For every entity, the parties should know which services are moving, which periods are complete and which matters remain open.

This becomes increasingly important in larger groups.

Intercompany accounts, cost allocations and loan relationships can only be managed reliably where the entities involved are working from consistent data.

More on this: Accounting for Holding Companies.

Financial processes often change after an acquisition

Changing tax advisors after an acquisition is often part of a broader reorganisation.

New ownership can change reporting requirements, financing structures and internal responsibilities.

The existing accounting may be technically correct and still no longer fit the company’s new financial processes.

A buyer may require faster monthly reporting, clearer treatment of holding and financing structures or a consistent reporting framework across several portfolio companies.

In that situation, the advisor change forms part of the integration following the acquisition.

The transition needs to fit the new financial organisation.

A simple transfer of data does not fully address those requirements.

More on this: Post-Acquisition Accounting.

The required records depend on the scope of services

There is no universal document package for changing tax advisors.

For financial accounting, relevant records will commonly include accounting data, accounts, balances, open items and reconciliation information.

For annual accounts and tax matters, prior-year financial statements, tax returns, assessments and information on unresolved tax matters may also be required.

For payroll, employee master data, previous payroll records and unprocessed changes become relevant.

The exact handover depends on the services the new advisor is actually taking over.

The key issue is continuity of the underlying processes.

The new advisor needs to be able to continue the agreed services from a clear and understandable data position.

Communication with the previous advisor should remain factual

The previous advisor will usually hold information required to continue the engagement. A structured handover therefore requires clear coordination regarding the entities involved, completed periods, work still in progress and the data required.

The transition date and allocation of any remaining tasks should also be documented clearly.

Where requested by the client and appropriate in the circumstances, the new advisor can coordinate the professional handover directly with the previous advisor.

This gives the transition a clear framework and keeps the line of responsibility between both firms transparent.

The condition of the engagement drives the transition effort

The cost of changing tax advisors cannot be described meaningfully with a single standard amount.

A GmbH with fully reconciled accounting, a completed prior year and complete records can be taken over much more efficiently than a corporate group with several outstanding annual accounts, unresolved balances and an ongoing payroll transition.

Ongoing fees after the handover depend in particular on transaction volume, headcount, the number of entities, reporting requirements, annual accounts, tax returns and the level of ongoing tax advisory work.

The condition of the existing financial organisation therefore has a direct impact on the effort required for the transition.

More on this: Fixed Fees.

A structured handover creates a reliable starting point

A change of tax advisor is complete when responsibility within the new engagement structure actually works in practice.

Financial accounting continues from the agreed period, payroll has a clearly defined payroll month and responsibility for the annual accounts is allocated. Each outstanding tax matter has an owner, and the required data and access rights are available.

The new engagement then starts from a defined data position.

CLIQ provides ongoing financial accounting, payroll, annual accounts, tax returns and tax advisory services for German GmbHs and corporate groups. We coordinate the handover with the previous advisor and define which services will be taken over from which date.

Learn more about our process: Changing Your Tax Advisor for a German GmbH.

Further services: Accounting & Reporting and Tax Advisory for German GmbHs.