Should I get an Accountant to do my taxes?
Well isn’t that the million pound question? Or if you play your cards right, one day it just might be!
As a small or new business owner, or fresh out-of-the- box freelancer, you obviously need to consider every aspect of your business and how you can keep the costs down, especially at the start.
So, it may surprise you to hear that we (qualified accountants) quite often suggest that an accountant isn’t always necessary for managing your bookkeeping and submitting your accounts to HMRC, but we do think it’s preferred.
What actually is an Accountant?
This might be a good place to start because it will help you to understand what the role of an accountant or a bookkeeper is and how they can help you.
An accountant - prepares the accounts (from the bookkeeping once complete) and calculates the tax liability as well as completing the tax returns. An important part of an accountants job is compliance, keeping you legal. Accountants can also advise on ways to save tax, how best to structure your business, profitability, pricing, management accounts and all sorts of other goodies that will keep your business financially healthy.
Accountants usually hold a formal qualification which they have to renew every year via their professional bodies. A small number of Accountants are qualified by experience or have let their qualification lapse.
If you chose to use an unqualified Accountant or Bookkeeper you should check that they are on the Anti-Money Laundering Register (a legal requirement) and that they hold professional indemnity insurance. If you use a qualified Accountant, their professional body ensures these and other requirements are met.
What is a Bookkeeper?
A bookkeeper - looks after day to day transactions. Reconciles the bank account and ensure each individual transaction is corrected allocated within the bookkeeping software. This is very important, without a properly reconciled bank the accounts cannot even be started.
Bookkeepers can often take care of VAT returns and payroll depending on their training and experience. A good bookkeeper can save you a lot of money in accountancy fees as the Accountant will not have lots of problems or errors to fix as is often the case in DIY bookkeeping. Bookkeepers can hold formal qualification or can be qualified by experience.
What is the difference between a Bookkeeper and an Accountant?
There is actually some crossover - accountants will often prepare VAT returns and carry out payrolls as part of their service (as we do) and some very experienced Bookkeepers can do basic self assessment tax returns.
Both are really important roles and can be invaluable to your business, especially when you have both and they work together saving you money and a lot of stress.
What can Accountant do for my business?
An accountant can provide many useful and essential services for your business, no matter if you are a self-employed sole trader or a limited company:
Keep you legal.
Prepare and submit accounts to companies house.
Prepare and submit to tax returns to HMRC.
Advise you on UK tax law and how to legally minimise your tax liability.
Guidance on record keeping.
Support you with pricing, cost control, budgets and maximising profits.
What can't Accountant do for my business?
It's probably worth mentioning a few things that we are not allowed to do for clients too:
Advise you on ways to defraud HMRC.
Keep your secrets - if they discover you are committing fraud or not declaring all your income they are legally bound to report you.
Make your business successful. You are responsible for your business and its success, your Accountant is there to advise on the finance side of things but you also need to have your other ducks in a row (eg a good product or service, branding and marketing etc).
Do everything for you. The finances of your business remains your responsibility, an Accountant can advise you on many aspects of your business finance but ultimately the buck stops with you if you chose not to follow that advise.
Advise on things like mortgages, pensions or investments. You will need a Financial Advisor or Mortgage Advisor for this.
When is it ok to NOT use an Accountant for a tax return?
When it’s simple and you are organised.
If you have a simple straightforward self-employed business, are really meticulous about maintaining your records (invoices you raise and bills you pay) and can manage the HMRC deadlines yourself, then it’s probably safe to DIY.
If you fall into this category and are still asking yourself "Do I really need an accountant for my tax return?" the answer is probably not. Yet.
You could complete your own self assessment tax return by very simply adding up all your self-employed income and then all your self-employed expenses and filling in those two boxes on the self-employment pages of your self-employment tax return and hitting submit. Boom! Job done.
When should you use an Accountant for taxes and bookkeeping?
Once your bookkeeping and accounting needs go beyond this very simple set-up, then it is almost certainly less stressful and more cost-effective to call in the professionals.
Here’s some crucial points to consider when weighing up the decision to appoint an accountant to manage your numbers!
Using an Accountant will ensure you are fully compliant with HMRC. A compliance check from HMRC is a painful and stressful process. They can go back through several years of your records and demand additional tax payments and fines if they find errors - don’t take the risk.
If you are trading as a limited company the reporting rules and process is more complex than if you are simply a small sole trader and an Accountant can advise you on the most tax efficient not to mention legal way to withdraw your money.
If you are VAT registered an accountant will ensure you are on the correct scheme and are correctly reporting VAT. Getting VAT wrong can be a really expensive mistake.
Payroll can be tricky, particularly if your payroll includes more than just one director on a low salary. So if you have employees - call in the professionals! This has been invaluable for many companies who needed our help to manage furlough claims during the Covid lock-down.
An accountant will ensure you are always paying the lowest amount of tax you legally can. This is done by understanding the allowances available, the ever-changing tax rules as well as advising if your business is structured in the most tax efficient way.
Doing your tax return yourself will of course save you an accountant’s fee, but it is actually mostly likely that you will pay too much tax or claim expenses which are not allowable, causing fines, headaches and more paperwork. That’s NOT saving you anything in the long run.
How to really save fees
The best way to save money on fees is to get organised with your bookkeeping. If you hand your accountant a large box or carrier bag full of receipts and bank statements once a year, then you will be paying a lot of money for someone to sort the paperwork out before they can even get on to the accounts (which is the number crunching and legal bit).
We recommend either keeping your records on Excel (check out the fab free bookkeeping tool at the bottom of this article for just this purpose) or invest in some snazzy bookkeeping software such as Xero, which makes it super easy to manage yourself. We offer free Xero training and support with record-keeping for our clients, so you save on the cost of filing paperwork by being on top of it electronically. That means you are only paying us to add value where it counts - on your actual accounts and tax return. Win-win!
Only use professionals!
One final ‘false economy’ that you should be wary of is hiring a cheap accountant. Not all accountants are created equally. That is to say not all accountants are actually qualified (say, what?!). Yep, seriously. A qualified accountant is held to account by their professional body, they must renew their membership every year and prove they are keeping up to date through CPD (continued professional development).
So, if you are going to make the investment to use a professional to manage your accounts and submit your tax returns, make sure you are using a qualified accountant. This gives you the additional security that they are trained to a high standard, are monitored and if there’s a problem you have somewhere to go.
If you are still unsure if you need an accountant, just give us a call. Yes, we really sometimes do advise people that they can manage it alone. But often we will simply explain to you the best way to cost-effectively call in the professionals. Which is us by the way! ;-)
GET THE FREE BOOKKEEPING TOOL
To access the free bookkeeping tool mentioned in this article, simply click on the link and enter your email address. You'll get an email containing what you need!
Still unsure if you need to hire an accountant? Give us a call, we’d be happy to honestly advise you.
☎️TEL: 01480 775 611