Do I need an accountant?
Do I need an accountant? It may surprise you – coming from an accountant – to hear that my answer is not necessarily. If you plan your financial affairs in an efficient manner then there are many tasks that you can automate and outsource to a bookkeeper rather than an accountant.
First things first, and the most important consideration when setting up your business is to get the structure right: sole trader or limited company (link) and advise Companies House and HMRC whichever is applicable (link to what must I tell…).
The next step is to set up your, preferably cloud based, accounting system using software such as Xero, Quickbooks, FreeAgent or Reckon One. It is essential that you know your business numbers on a daily, weekly and monthly basis and that these are up to date. When you have decided which system to use, don’t install it yourself; an outsourced bookkeeper will do this for you far more quickly and will also import your opening balances from your previous system or accounts.
The advantage of your new cloud accounting system is that you can now automate much of your bookkeeping; direct bank feeds will import all your bank transactions and an app such as Receiptbank, HubDoc or AutoEntry will allow you to scan purchase invoices, bills and receipts using your smartphone and automatically upload these to your accounting system. Linking your invoicing system will automatically import your sales invoices.
The administrative work required to finalise your bookkeeping is now simply a matter of reconciling your bank transactions and paying bills; you can either do this yourself or preferably outsource these tasks to your bookkeeper.
Each month, or weekly if you process a lot of transactions, you can review your profit and loss, balance sheet and cash reports or have your bookkeeper prepare a full management report. If you’ve created an annual budget and uploaded this to your accounting system then you can prepare a report comparing your actual and budgeted results.
At the end of your accounting period you can prepare a summary which will form the basis of your annual accounts (what are accounts..)
So far so good and you haven’t needed to engage the services of an accountant….but here’s where you might want to.
If you trade as a limited company you must file statutory accounts in a prescribed format at Companies House. Although these don’t need to be audited (unless your turnover is greater than £10m) it is sensible to get an accountant to transfer your annual summary into the required format.
Your annual accounts will also form the basis of your tax return to HMRC, either for corporation tax or your self-assessment tax return if you are a sole trader. Before submitting your tax return it is advisable to check that you have claimed all the tax deductions and allowance to which you’re entitled, such as an allowance for working from home or R&D tax credits which you may not be aware of. An accountant can do this quite easily.
Up until this point you’ve used an accountant only sparingly, however now may be the time to consider accessing their experience as a business advisor. Not all accountants offer this service – or are qualified to – but if you want to build a successful business the advice of a suitably qualified accountant can be invaluable.
Look for one who is a member of an organisation such as the Institute of Chartered Accountants in England and Wales (www.icaew.org.uk) and preferably one who has a Business Finance Professional (BFP) qualification. Your accountant then becomes an independent sounding board for your business and can act as your business mentor. Clients often tell me that just having someone to talk to who is knowledgeable about their business is one of the most valuable services an accountant can provide.
In summary here are some of the things for which you may want to consider using an accountant:
- Business structure: sole trader or limited company?
- Should I incorporate my business and if so when?
- Which cloud accounting system is best for my business?
- Preparation of annual statutory accounts;
- Am I eligible for any tax reliefs and allowance I haven’t claimed?
- Preparation of corporation tax returns (CT600);
- Preparation of self-assessment tax returns;
- Acting as a business mentor, sounding board or business advisor.