Accountants can play a vital role in the success of a business. Although many small companies choose to do the day-today bookkeeping themselves, there are still various benefits of using a chartered accountant. We take a look at the reasons you need an accountant for your limited company below.
1. Saving time
Aside from general bookkeeping, limited companies have various accounting duties, including filing annual accounts and preparing tax returns.
All this work takes up valuable time which may be more profitably used in other areas of the business. Because accountants routinely undertake these sorts of tasks, they can generally process this work faster and more efficiently, which can save a company both time and money.
2. Tax efficiency
One of the main reasons that businesses use accountants is to reduce their overall tax burden. Understanding the various deductions that can be made (e.g. expenses, capital allowances and other corporation tax reliefs) and how best to manage profits to minimise any unnecessary taxation can prove invaluable to the financial health of a company.
Accountants can ensure that companies comply with their legal taxation obligations, whilst taking advantage of any entitlements which help to optimise net profits.
3. Filing of accounts and tax returns
All limited companies are required to submit annual statutory accounts, which must include:
- Profit and Loss (P&L) statement
- Balance sheet
- Any additional notes pertaining to the accounts
There are specific deadlines and methods of filing these accounts.
In addition to the annual accounts, companies must file a company tax return once a year. This will include a calculation of profit and loss for purposes of corporation tax (which is different from the P&L statement prepared for annual accounts).
There are separate deadlines for the filing and payment of corporation tax.
A further mandatory annual filing is the confirmation statement (previously known as the annual return). This confirms the registered details of a company (e.g. current registered office, appointed directors, issued shares) so that Companies House has the most up-to-date information on the public register.
Most company directors will need to also undertake their own self assessment tax return once a year. If they take a salary in addition to dividends, it can prove rather tricky to make all the relevant calculations and fill out the various forms.
A company accountant will be able to take on all these mandatory filings and tax returns, ensuring that they are all completed accurately and filed on time. This can save a lot of time and effort, and allow company owners to get on with the job of managing their business.
4. Tax deductions
There are a wide number of expenses, capital allowances and other corporation tax reliefs, which can help to reduce the overall tax burden of a limited company and maximise profits.
Understanding which costs cannot be deducted when preparing company accounts is just as important as knowing which ones can be used to offset profits. Getting this wrong can lead to fines and even criminal sanctions. An accountant can ensure that all the permissible deductions are made in line with the latest rules and regulations.
5. Avoiding tax investigations
Every year HMRC conducts thousands of investigations into the tax affairs of companies – which they call Tax Compliance Checks. Whilst a chunk of these are known to be random checks, the majority are sparked off by some kind of red flag, such as significant discrepancies or obviously incorrect figures – even just filing late returns.
Accountants help companies to stay on top of filings and ensure accounts are accurate, which means that HMRC is less likely to conduct a compliance check, which in turn avoids the time and effort required to cooperate with the formalities of an investigation.
Furthermore, if a spot check leads to a full enquiry being opened, knowing that the books are kept in order by an accountant provides extra peace of mind.
NB: It is sometimes rumoured that merely the optics of having an accountant managing the accounts of a limited company can reduce the likelihood of a compliance check – but the veracity of this remains unknown.
6. Avoiding penalties and fines
Delayed or inaccurate tax returns or other company filings can lead to various fines and penalties, including having a company struck off, directors being disqualified, or even criminal sanctions.
One of the key jobs of an accountant is to ensure regulatory compliance with accountancy matters, so that the reputations of companies and directors are not tarnished as a result of omissions, inaccuracies or delays in annual filings, etc.
7. Record keeping and software
Smaller businesses which have substantial transactions may struggle to maintain records using accounting software. Cost of dedicated software aside, there is a learning curve to learn how to use this software, and time must be invested to use accounting packages effectively. It is often easier to simply pass on company records to an accountant, who will not only have access to their own accounting software, but will be highly skilled in its use.
8. Business planning
It is often difficult for business owners, who are preoccupied with day to day pressures, to take stock of their financial situation and consider future business strategy.
A skilled accountant can help company directors to assess their current position, analyse seasonal trends, and use various pieces of financial data to plan how best to capitalise on any opportunities. Accountants are able to help out with cash flow forecasting, to enable directors to make the right decisions at the right times.
9. Best practice
Accountants can help business owners develop methods of best practice for dealing with company accounts. They can advise on the most useful record keeping software, identify the best times of year to plan future investment, and how often to review the financial situation of a company.
Directors who want to do the majority of accountancy work themselves will still generally benefit from having a professional accountant as an external resource – someone who is able not only to step in if their specialist skills are required, but who can also help the company to devise efficient strategies for staying on top of their accounts themselves.
10. Increasing profits
The finances of a business require constant maintenance and fine-tuning to minimise losses and maximise profits. An accountant can undertake routine assessments of the financial health of a company, diagnosing any existing or potential future problems, and taking action to fix and avoid these. For example, if there are multiple business debts, these can often be consolidated to save substantial amounts of money.
Conversely, it may sometimes be better to divert profits to tax efficient investment vehicles rather than using them to pay off interest-free loans. Accountants are able to spot the various pitfalls and opportunities, and ensure that overall profits are maximised.
11. Keeping up to date with regulations
Tax laws are always being revised and updated. Even the more basic rules relating to corporate filings of accounts are subject to change. It’s easy to miss a legal development or overlook a new regulation, which can lead to detrimental business consequences including fines and penalties.
Accountants keep abreast of all the latest regulatory and taxation changes, and can help to ensure limited companies are not in the dark when it comes to new duties of compliance, etc.
12. An insurance policy
If the statutory filings (e.g. annual accounts and corporation tax return) are completed by an accountant, they will be responsible for any mistakes or inaccuracies (assuming they were supplied with the correct information).
This means that if a company gets into trouble, they will generally be able to claim any losses from their accountants, who will in turn have professional indemnity insurance.
13. Access to finance
Businesses looking for access to finance so they can expand or diversify will generally have multiple options, including equity finance and conventional loans, as well as the possibility for external investment or crowdfunding.
An accountant can help companies to assess the pros and cons of various funding options, based on their current financial situation. They can also assist with putting together the paperwork for an application or pitch, and even attend any necessary meetings, to ensure the best possibility of achieving a successful outcome.
14. Professional advice
Although accountants obviously specialise in accounting, they can provide more general business advice, just as any other trusted professional. A company owner who works closely with their accountants and lawyers may come to rely on them for insights and angles which they may otherwise miss.
Once a company has grown to a certain size, they may have an in-house accountant, who will also sit on its board of directors (e.g. as a non-executive director) and help the management team to form business decisions.
15. Peace of mind
Company owners generally have to juggle many different duties, but accounting is often one of the important routine tasks which can lead to feelings of anxiety, especially if left until the last minute.
Knowing that a professional accountant is looking after the various filing requirements and meeting the company’s filing deadlines can provide priceless peace of mind.