An accountant is not just for tax returns.
There. I said it!
As it gets towards the end of the year, I see so many posts popping up on Facebook – “can anyone recommend a cheap accountant to do my tax return?”.
There’s definitely a misconception that all accountants do is fill out tax returns and it’s true that when you start in business, it may well be all you need them to do. Plenty of people complete their own tax return, without using an accountant at all.
But unless you’re a self-professed tax wizard, having an accountant do it for you means they will spot opportunities that you don’t know about yet, to save you paying more tax than you absolutely have to.
Once your business is established, you’ve got a good client base and you’re making some decent money, this is the point where you’re likely to want more from your accountant than you did when you started out.
The truth is that if you only see your accountant once a year, you are really missing out.
Your accountant has a wealth of skills and knowledge – but the problem is that most people don’t know which questions to ask them, to get the most from the relationship. So today I’m going to share a few insider tips with you!
Not all of these will apply to you, depending on you and your business, but many will be relevant. If your accountant is reluctant to give you time in their diary to chat about these things, you may want to think about whether you’ve got the best accountant for this stage of your business. It may be that you’ve outgrown them, especially if you work in the digital world and have an accountant who’s not used to working with people in the online space.
So here goes!
Question #1: Should I be a sole trader or limited company?
There used to be an arbitrary cutoff that if you made a profit of more than about £18,000 – £20,000 a year, you should be a limited company because you’d pay less tax.
But over the years tax allowances have changed, rules have changed and it’s not as tax efficient to be a limited company as it once was.
When you couple that with the increase in rates and corporation tax that came in from April 2023 – and the fact that being a limited company means you need company accounts and other regulatory stuff that makes your accounts that much more expensive to prepare – for some businesses, it may no longer be a good idea to be a limited company.
Of course, not all limited companies are formed for tax purposes. Sometimes it is about the security of having that limited liability and knowing that if your business goes pear-shaped, somebody can’t sue you and take away your family home. Sometimes it’s about the supply chain, in industries where major suppliers will only deal with limited companies. But for the majority of business owners, forming a limited company is to do with the amount of tax they pay.
So it’s definitely the first question to ask, to make sure you’re still choosing the right option for you!
Question #2: Do my profits look typical for a business in my industry?
We’re not talking about the amount you make here, but percentage profits.
When you look at your % of gross profit at the top and your % of net profit at the bottom – is this broadly in line with other businesses in your industry? The same goes for your expenses and the percentage that you spend on these.
If your accountant doesn’t know and isn’t prepared to find out, maybe again it’s time to question whether they’re the right fit for you.
It’s all well and good to focus on the amount of sales you make, but if you’re not creating profit out the bottom, there’s no money for you to take as dividends. And no matter how passionate we are about our work, we’re all in business to get paid!
Question #3: What other expenses could I be claiming?
And do these expenses need to be claimed in this accounting year, or is there some flexibility as to which year they can be claimed in?
We all have costs in business, some of which we spend out for in one go. If you’re paying for something now that is to do with growing your business in a couple of months’ time, and your accounting year falls in the middle, it might be that your accountant feels it justified that it goes in next year’s expenses, because that’s where you’re going to see the profit that’s associated with that cost.
Equally if you have a client who pays you upfront for a 12 month programme – and part of that falls in this tax year, and part falls in the next tax year – some accountants will allow you to pro rata the payment so that it’s more accurately reflected as to when the business is carried out.
Each accountant has got their own views on this type of thing, and some are more black and white than others! The secret is finding somebody who is comfortable with how you run your business and is able to present your figures in the best possible way.
Historically, most business owners focused on claiming as many expenses as they could, so they could reduce the amount of profit they were showing on paper and therefore pay less tax.
But as many people have found to their detriment over the last few years, if you’re showing low profit, you may struggle to get a mortgage. The old days of income self-certification are long gone and now mortgage lenders expect you to be able to prove how much you’re earning and how much money you have to pay your bills, to demonstrate that the lending is affordable.
So it really is about striking the right balance. It’s about working in partnership with the right accountant and the right financial adviser – to make sure you’ve got the right amount of money you need to live on; that you’re paying the right amount of tax; and that when the time comes, you qualify for the mortgage you need.
Hopefully today’s blog has given you some food for thought and a useful place to start!
If you want to know more about planning your financial future and what these things might look like for you – or if want to work out the profit in your business and KNOW you’re on the right track – then just click here to book call now.
We can chat about your next steps and I can let you know about all the ways that you can currently work with me!
Until next time,
Claire