Accountants provide a vital service for businesses of every size. They can help to ensure that you meet your financial and legal obligations, and offer access to knowledge that you might not otherwise be able to use.
Yet many small businesses choose to do their accounts in house. If you are considering whether or not to hire an accountant, you should make sure that you consider your legal obligations, and the degree to which a qualified professional can help you to fulfil them.
Can you do your own accounts?
Business owners are not obliged to hire an accountant. You are perfectly entitled to keep your own books, and prepare and submit accounts yourself. Indeed, a large proportion of small businesses choose not to use a professional accountant – often because it is seen as an unnecessary expense.
However, preparing and submitting your accounts accurately and in accordance with the law can be a complicated and time-consuming process. As a business owner you have a legal responsibility to keep comprehensive records and provide your accounts in a suitable format. If your accounts are inaccurate, or you submit them late, you will be fined and legal action may be taken against you.
A qualified accountant can help you to avoid these problems. They can also offer a wealth of advice that can help your business as a whole, particularly in the early stages of start-up.
The rules regarding business size
All business owners are legally required to keep adequate and accurate records throughout the year, and to submit an annual return to HM Revenue and Customs. If yours is a limited company or limited liability partnership (LLP), you must also file accounts at Companies House. This can be an arduous process, particularly if your firm has complex financial affairs. But small and medium-sized firms can take advantage of a range of exemptions and special rules that may help reduce the accounting burden.
Most small and medium-sized companies and LLPs can file what are known
as ‘abbreviated accounts’. For small companies, this means that you do
not have to file full balance sheets, a director’s report, or a profit
and loss account. You must, however, provide abbreviated balance sheets
along with accompanying notes. Medium-sized companies must provide
everything required of large companies, with the exception of a full
profit and loss account.
Do you qualify as a small or medium-sized company?
Small companies are deemed to be those with an annual turnover of £6.5 million or less, and a total balance sheet of £3.26 million or less. The average number of employees in the firm over the course of the financial year must not exceed 50.
Medium-sized companies must have an annual turnover of £25.9 million or less, and a total balance sheet of £12.9 million or less. The average number of employees must not exceed 250.
How else can an accountant help?
Accountants are often not required if your firm is very small, and intends to file abbreviated accounts. They can, however, help you to decide whether or not this is a good option for your business.
Many firms choose not to file abbreviated accounts, because potential lenders look more favourably on applications from businesses about which they can find more information. Accounts filed at Companies House are one of the first ports of call for lenders looking to evaluate an application for credit, and full accounts can provide them with more of the information they need.
Aside from this, accountants can also provide you with more general advice about your financial prospects. For example, your accountant might be able to help you identify ways in which your firm could expand, or potential cost savings in your business. Of course, the manner in which this advice is provided will depend on your arrangement with your accountant; some will provide consultations for free, while others will require a retainer fee if you intend to have regular contact.
It is also worth remembering that accountants’ fees can be offset against tax. This can significantly reduce the financial burden associated with hiring a professional to help you fulfil your obligations. You should also consider the amount of time you will spend preparing your accounts if you choose to do it yourself. This can be a lengthy process, and one that will take you away from important tasks for which you may be better qualified.
Small business owners are not legally required to hire an accountant. But, given the potential difficulties associated with preparing and filing the necessary documents, many choose to entrust the accounting process to a professional – and spend their time running their business instead.