The global tax advisory market has seen global revenues contract by 9% – over US$3bn (2.23bn) – in 2020 to result in a market size of US$33.4bn (£24bn), according to a new report by Source Global Research.
At a local level, the report revealed that the UK market size contracted by 21%, which is a drop from nearly US$4bn (£2.9bn) in 2019 down to US$3.15bn (£2.3bn) in 2020.
However, despite the slump, demand for tax advisory work has actually held up better than many other areas of the wider professional services market, with the global management consulting market shrinking by 13% to US$21bn (£15.6bn) in contrast.
At the same time, the report forecasts that the global tax advisory market will recover quickly, with a growth rate of 7% expected.
The report added that the Covid crisis has changed the shape of the tax advisory market “significantly”, with M&A activity and international tax work stalling. M&A-driven tax work contracted by 21% in 2020, reducing total revenues from US$1.6bn (£1.23bn) to US$1.3bn (£963m).
In stark contrast, compliance-related tax management fared relatively well throughout the pandemic, despite organisations initially trying to do more of this work in house, with only a 5% contraction in revenues on the back of efforts to shore up cash reserves by taking advantage of tax deferrals and other government support schemes.
The report also reveals the pandemic has had a “dramatic impact” on growth rates at the sector level, with only the pharma and healthcare sectors experiencing growth in tax advisory work in 2020 (19% and 4% respectively).
However, looking below the surface at the industry-level, high-tech and telecoms industries experienced significant growth of 22% and 16% respectively, and tax advisory work in the insurance industry also grew by 4%.
For those tax advisory firms that do win work, fee rates are coming under increasing pressure, something that will represent a significant challenge throughout 2021. Just 3% of clients surveyed in March 2020 believed that fee rates would fall across the industry; however, by September 2020, that had risen to over 60%.
Fiona Czerniawska, MDand co-founder of Source Global Research, said:“The pandemic has radically reshaped priorities, with many different concerns all vying for space at the top of the corporate agenda. Finance and tax functions are having to balance the demands of tax compliance with the ability to respond to new and unprecedented risks.
“That balancing act saw attempts to reduce reliance on external support early in the crisis, only for demand to recover as clients recognised that they lacked the capacity and/or capability to carry out compliance work by themselves.”