It goes without saying that every business will have differing needs when using an accountant.
In fact some businesses may decide not to even appoint an accountant to do their accounts and tax returns and in many cases this will be perfectly acceptable.
Only a limited company with a turnover of over more than £6.5 million and a balance sheet total exceeding £3.26 million needs an audit – which would require an accountant.
Most other businesses can in fact do the accounts and various tax returns without an accountant if they so choose.
However running a business is hard enough without having to learn all of the accounting / tax rules, regulations and laws that you need to comply with.
So why not get an accountant to deal with these.
But what exactly do you need your accountant to do?
For most businesses the need for an accountant is to complete what we accountants give the posh title of:
In plain English this will mean filing your accounts and various tax returns in the correct formats and by the deadlines e.g. statutory accounts, annual return, VAT, Self Assessment, Corporation Tax, PAYE etc
Just how complex are your accounts?
Although there are some 5 million businesses in the UK, 99.9% of them are classed as small. In fact the vast majority of these would have very simple accounting and tax needs.
For example your accounts may consist:
- A number of sales invoices each week or month
- Various costs e.g. stock, advertising, web hosting etc
- Some daily / weekly travel expenses
- Mobile and other phone charges
- Monthly salary
- Use of home as office
- Annual insurances and / or professional subscriptions
- Bank interest / charges
- Sundries such as stationery, postage, Laptop etc
- And of course your accountants fee!
So how many individual transactions would this be a year?
100? 200? 500? That not too many really – is it?
Add into the mix the use of a free or inexpensive on line accounting system to record these transactions and the keeping of your accounts does not have to be the nightmare that it once was with bags of receipts, invoices, statements etc all over the place.
In fact a huge saving on accountancy fees can be achieved if you do this yourself – known as bookkeeping or keeping the books.
Modern internet based systems favoured by many progressive accountants mean that a better control of the state of the financial affairs of the business can be kept. No longer do you need to wait until several months after the year end before you know how your business has performed.
Keeping your accounts up to date in this way allows you to make better and informed decisions about your business based upon current financial data.
It also allows your accountant to provide appropriate advice based upon your current trading rather than on the figures in the previous accounts which could be some two years or so out of date!
What more do you need?
Apart from the compliance work what else do you need from your accountant?
From time to time you may have things that need clarifying – so being able to ask questions when you need to is important without the need for a face-to-face meeting.
Accountants like to give this the grand title of tax planning. For a few it is very necessary to have a clear and documented tax strategy. This usually applies where the income or business valuation is rather high.
Without being brutal – in most cases a tax planning strategy can be rather limited in content!
Your accountant should make sure that you claim all allowable costs – in the accountant’s language being those that are wholly and exclusively for business.
Many myths exist about what you can and can’t claim in the way of costs e.g. clothes, all lunches and a flat percentage of sales being commonly thought to be allowable costs.
Some seem to think that unless you pay an ‘expensive’ accountant, you will not get the right advice on what costs you can claim to make sure that you do not pay more tax than you need to.
I say this is utter nonsense!
The advice that you get depends on the accountant – whether they be cheap or expensive. There are good and bad ones whatever price you pay!
For us, being proud to be cheap, we provide all of our clients with a comprehensive guide on how to keep their accounts including what costs they should claim!
Extracting profits from your business will depend on your business structure.
A sole trader will pay income tax and national insurance (class 2 and potentially class 4) on the profits from the business.
They may wish to transfer to a limited company for tax savings and potentially take advantage of selling the goodwill of the business to the company. I wrote about this in a previous blog.
A limited company will extract the profits via salary and / or dividends.
There really are no magic answers to reducing the tax paid on profits!
Changes in your circumstances
Planning for the long term may give you a different tax plan – for example if you intend to build up and sell the business.
In addition your circumstances may change and it may be necessary to discuss your tax plan with your accountant if, for example, you separate from your spouse, you retire, you buy properly etc.
Trying to account for ifs, buts and maybes in a tax strategy can make it unnecessarily complex. Taking into accounts events that may never happened can lead to a flawed plan – so keep it simple based on what you know and what is really likely to happen.
Make sure that you keep your accountant informed of any likely or forth coming changes in your circumstances. This will help them to ensure that you tax plan remains valid.
Pay for the tax advice that you need if / when you need it!
There is no need to pay fancy fees for specialist services that you would rarely, if ever use.
You can achieve the best of both words by making sure that your accountant provides the service that you need as / when you need it at a fair price for the job.
An accountant with core trained and qualified staff plus access to specialist services can do this as we have achieved with our team of qualified accounts backed up by the team at The Tax Advice Network!
Make sure that you know exactly what you need from your accountant – control them before they control you!