Your accountant directly impacts how much you earn. Invest the time upfront to find the right accountant and reap the rewards
Starting a limited company can feel overwhelming. There is a company to form, accounts to sign up for, new terms, new responsibilities and a barrage of documents – all can leave you feeling a bit lost. And towards the top of the list can be a simple question: do you need an accountant? And how would you go about finding one?
It is not uncommon to hear about £5,000 mistakes. A simple mistake on a tax filing can lead to an additional £5,000 in taxes – at least this is what happened to a good friend. After some probing, it turns out his accountant hadn’t properly understood his situation and had done the accounting all wrong. After a lot of arguing back & forth, the accountant agreed to do additional work to resolve the issue, and this brought the bill down to £800. This, and many other similar experiences, highlight the importance of doing your diligence to choose the right accountant.
The purpose of this article is to give you the context and background you need to ask the right questions, especially when you may know what they are. Specifically, the article will tackle:
Let’s dive in.
The simple answer is that there is no legal obligation to hire an accountant if you are a sole trader or a limited company. However, you should ask yourself a few questions:
For the vast majority of people it is probably a better use of your time to focus on growing your business and not spend hours doing (and likely second guessing) your accounting. Accountants can bring two primary benefits:
In addition to the above, there are other benefits that might apply including:
This is not to say it can’t be done. With the quality of freelancer-focused accounting software (e.g. FreeAgent, Quickbooks, Pandle) it is certainly possible to go it on your own and get some help along the way. However I would strongly recommend only doing this if you have an accounting background or have many years under your belt of running a limited company.
There are a few different factors to look out for when choosing an accountant.
(1) Type of contact you would like to have with your accountant
Broadly speaking there three types of accounting firms:
An online self-service firm generally uses as much technology as possible to streamline the accounting process. You will use their software to upload report your income and upload expenses, and the software does the rest. These services naturally tend to be lower cost, but you can lose out on tailored advice.
A dedicated account manager is someone you can go to when you have questions about your accounts. However, he or she is likely handling communication with hundreds of accounts and has a team behind him/her doing the accounting, so there are some limitations. This is the service I initially signed up with.
In the case of a dedicated named accountant, you get a specific individual that knows your business inside and out and is someone that you build a relationship with over the course of months and years. While they will likely have a team behind them, they are much more involved in managing your accounts and can provide you with more in-depth and nuanced support and guidance. This level of service generally comes at a slight premium but provides a much richer experience. I opted for this service after my first accountant made the big tax blunder and I have not looked back.
(2) Relevant experience, competence and qualifications
It goes without saying that an accountant with more experience will, all things being equal, be better than someone with less. Every accountant should be able to do the basics – complete monthly payroll, complete your tax filings etc. but someone with specific experience related to your business will understand your needs better. I’d recommend going with an accountant that specializes in limited companies and if you are a contractor, one that specializes in contractors.
It’s not easy to directly assess how competent a potential accountant is. I’d recommend assessing a few things:
To be considered a qualified accountant in the UK, you need to have completed the course of and be a member of one of several professional bodies, namely:
Institute of Chartered Accountants in England and Wales (ICAEW)
Institute of Chartered Accountants of Scotland (ICAS)
Chartered Accountants Ireland (CAI)
Association of Chartered Certified Accountants (ACCA)
Association of International Accountants (AIA)
There are also some qualifications that are considered lower-tier, and members of such bodies, such as the Association of Accounting Technicians (AAT), are not considered professionally-qualified accountants.
Most companies will charge you a fixed monthly (or sometimes annual) fee. The fee will largely depend on what is included within your package, the reputation of the firm, the level of service and the effectiveness of its sales process.
Be sure to benchmark what is included in each package against each other. For example, some packages include a an annual self-assessment, while others can charge anywhere from £95 to £300+ for a self-assessment depending on its complexity.
When doing your diligence, look for signs of good communication, such as timely responses, clear and professional language and good rapport.
Good communication is critical to ensure things run smoothly and will give you peace of mind when questions and issues inevitably crop up.
Even if you are signing up to an online accounting service you can also assess the quality of communication by doing some tests. How long does it take to get a response to your emails?
At the end of the day, you have to be able to trust your accountant, given that they’ll be handling such a crucial and sensitive aspect of your business.
A good way to go about this is to get personal references where possible. Online reviews certainly help, but these days many are fake. Having said all of this, trust is a bit subjective, and you might need to go with your gut when trying to make a final decision.
While a good accountant is crucial for your business, the good news is that finding one can be simplified if you follow a structured process:
Below are some details on each of the above steps.
Making the right choice always depends on your needs and priorities. The two most important factors are to think about what cost you are comfortable with and whether you are comfortable going with an online service or want the attention of a dedicated named accountant. If you are new to running a limited company, I’d recommend opting for a dedicated named accountant. You can always switch to a lower priced option once you become familiar with how everything works.
Now that you have a cost level in mind and know what kind of service you are looking for, scan the market to find 7-10 accountants that fit these criteria. A few suggestions are:
Have a list of questions ready based on the priorities you set out before to make sure you’re covering of all the important points. You can even put them in a spreadsheet to compare answers side-by-side if you want to be more methodical. Below are some suggested questions to get you started.
An hourly fee is more common amongst ‘mom and pop’ accountants and are more likely to be offered by freelancers. Pretty much all other accountants charge a fixed monthly or annual fee with a defined list of services. I’d recommend going with an accountant that charges by the hour to avoid surprises.
A firm might market packages with low prices but charge hefty additional fees for essential components such as a self-assessment (which every Limited Company director needs). Make sure you clarify these points so you’re comparing packages like for like.
This is more likely to happen if you’re buying a fixed-fee package. Understand the costs and try to negotiate them down.
While you cannot expect a one-man accountant to always be available, you should still expect a reasonable response time from whoever you work with. If you have time-critical requirements, you should look for a firm with extended availability, which is generally one of the larger firms.
Pretty much all accountants will tell you they will promptly respond, but the true test is the feeling you get from your various interactions with the accountant. How long does it take to get them on the phone, and how quickly do they respond to your emails?
See if your accountant offers any tools or resources to help you, such as software to record transactions and issue invoices, spreadsheet and document templates or access to guides and knowledge databases. These are more likely to be offered by larger firms, especially online firms that depend on a lot of automation to offer affordable packages. The advantage of these tools is that they can reduce the amount of time you need to spend providing your accountant with what they need to carry out the service. Software can also give you a view of your earnings, payroll, and taxes in real-time, which is a nice bonus.
When dealing with large firms, check if you will have a dedicated account manager, as it can be frustrating trying to deal with a different person every time you need some support. Ideally your dedicated point of contact will be your actual accountant as opposed to just a liaison, but this is generally only the case at smaller firms.
There are big advantages to using your business accountant for your personal finances since they will have an accurate picture of your financial situation and can help you make the right choices to avoid paying unnecessary taxes. Also, you may save on costs by bundling services with one provider.
If you also need some other services, such as company registration, a virtual office or payroll services, it might make sense to get them from the same company, so that you’re not managing multiple accounts. Make a note to see if these are available.
It’s difficult to judge a potential accountant’s abilities yourself, which is why it’s a good idea to look for professional qualifications.
Every accountant should be able to file tax returns, complete legal documents correctly and so on, but someone with relevant experience will understand your needs and the finer details of relevant laws and regulations etc. Definitely choose an accountant that specializes in Limited Companies and assess if they have experience in your industry. The more help you want with tax planning, the more relevant this is, as accountants with specific experience will know the intricacies of what can and cannot be expensed in different industries.
Once you’ve gone through 7-10 options and collected most of the information you need, stop and take a breath! You will probably be ready for a long nap or a strong whiskey – whatever your guilty pleasure is! At this point you will be unlikely to find any offerings that are wildly different to what you have seen already, so now focus on making a selection.
Keeping in mind the priorities you set at the start, use the information you’ve collected to create a shortlist of 3-4 options. Now is the time to pick up the phone to fill in or clarify any missing information and more generally, get a better feel for the person/company you will be working with. Do they seem excited to work with you? Are they responsive? Are they knowledgeable about your company, industry and specific situation?
At the very least, you should be able to get a better idea of the kind of responsiveness you can expect in the future. If something feels “off” at this stage, it’s usually a good idea to trust your instincts and go with someone else.
Congratulations – you’ve just done your diligence and homework to select a key partner for you as you start your journey of running a limited company!
Once you have settled on someone, have a further conversation to decide on the specific arrangement/package. At this stage, it never hurts to try and negotiate for the best deal possible.
Make sure you’re both very clear on the terms and expectations from each other and seal the deal! And remember, you’re not obliged to keep the same accountant forever, so if it’s not working out down the line, you can simply switch to a better option.
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