Do I need to hire an accountant or bookkeeper?

You might feel that your start up or small business is not big enough yet to hire an accountant or bookkeeper. Alternatively, you may feel that your affairs are relatively straightforward and you can do it yourself.

However, running a business is demanding enough without having to learn all of the accounting/tax rules, regulations and laws that you need to comply with. Doing it alone can be time consuming and costly if mistakes are made.

Accountancy

There are good reasons for hiring an accountant at different stages of your business growth, including for:

  • business planning
  • annual accounts and tax returns
  • VAT registration and returns
  • mortgage applications or lease negotiations
  • budgets/forecasting
  • general financial advice
  • ceasing/selling your business.

In addition, your circumstances may have change suddenly and it may be necessary to discuss your plans to ensure continuity in your business.

An accountant can also further explain which business structure is right and help you choose the one that best suits your growth plans. Which structure you choose will define your responsibilities with respect to the paperwork to be filled in, the taxes you will have to manage and pay, and how you can personally take the profit generated from your business.

The main business structures include:

  • Sole Trader – you are self-employed and liable for the debts of the business to the full extent of personal assets and can be made bankrupt.
  • Partnership – the above mentioned liability also applies to partners, unless they have formed limited liability partnership.
  • Limited Company – as the name suggests, the liability of the business is limited to the assets owned by the business, not you personally. However, lenders, landlords and some suppliers may require personal guarantees.

Bookkeeping

In order to ensure that you are filing your accounts and various tax returns in the correct formats and by the relevant deadlines (for example statutory accounts, annual returns, VAT, self-assessment, corporation tax, PAYE etc), it is essential that you set up a proper bookkeeping system.

You can save on accountancy fees by doing much of the bookkeeping by yourself and there are many low cost or inexpensive accounting systems to record your business transactions. These are designed to help you to keep a digital copy of your receipts, invoices, statements etc all in one place.

When you hire an accountant, they can help you choose the right system for your needs and guide you to producing the information that is required for HMRC, Companies House and banks/lenders. Many modern software systems mean that a better control of the state of the financial affairs of the business can be kept and you can know how your business is performing at the push of a button.

An accountant or qualified bookkeeper can also advise you on what you can claim in the way of expenses. Getting it wrong can be costly, and an accountant should make sure you claim all allowable costs and what HMRC call those that are wholly and exclusively for business.

If paperwork is not your strong point, most accountants offer bookkeeping services to take away the stress, but charges can vary considerably. If in doubt, ask for a quote for services.

Registering your business with HMRC

All businesses must register with HMRC so annual tax returns can be issued. Personal tax returns will be required for individuals (self-assessment) to pay income tax on the profits your business makes together with any applicable National Insurance. Companies are required to submit annual corporation tax returns and pay corporation tax on profits.

You must also register for VAT if you expect your takings to be more than the registration limit. The limit can change, so find out what it currently is here.

If you are taking on employees, a PAYE scheme must be set up and earnings advised to HMRC under the system of RTI (Real Time Information).

Companies must also put together statutory accounts to be filed with Companies House. There is also a requirement to file an annual return.

It can be daunting dealing with government paperwork and compliance when you run your own business. This is why so many small businesses hire an accountant when the first tax filing is due. Preparing your tax documents correctly could save you money by filing on time, paying the correct amount of tax, and avoiding penalties and interest.

An accountant can help you out at any stage of your business. Ask yourself whether you are on top of all the essential business tax issues. If the answer is no, then it may be worthwhile exploring the services of an accountant and/or bookkeeper.

We recommend that you use an accredited accountant. As a starting point, you can use the ICAEW’s directory