Accountancy - How to save money with an accountant.
Accountancy - How to save money with an accountant.
This article is mainly based on United Kingdom principles of accounting.
What is an accountant?
A qualified person who is trained in bookkeeping and in preparation, auditing and analysis of accounts. Accountants prepare annual reports and financial statements for planning and decision-making, and advise on tax laws and investment opportunities. (www.businessdictionary.com)
Types of Accountants
In the UK, there are no licence requirements for individuals to describe themselves or to practise as accountants, but to use the description “Chartered accountant” they have to follow certain ground rules, shown below, in order to be certified.
- · The chartered accountants obtain recognised qualifications that enable them to register with official governing bodies.
- · If they do not have these titles they may not be qualified. It is thereby crucial to be aware that people may call themselves book keepers or accountants without a certified qualification, but they cannot call themselves a chartered accountant.
- · British or Canadian accountants who are members of a professional body that has a royal charter.
- · All the professional accountancy bodies in the UK and Ireland that have a Royal charter are members of the Consultative Committee of Accountancy Bodies (CCAB).
There are 6 governing bodies in the UK and www.britishservices.co.uk describe these as:
- Association of Chartered Certified Accountants (ACCA) Recognised qualifying body. Aims to achieve and promote the highest professional, ethical and governance standards and advance the public interest.
- Association of International Accountants (AIA) A Recognised qualifying body. for company auditors.
- Chartered Institute of Public Finance and Accountancy (CIPFA) Recognised qualifying body.
- Institute of Chartered Accountants (ICAEW) Recognised qualifying body.
- Institute of Chartered Accountants in Ireland (ICAI) Recognised qualifying body.
- Institute of Chartered Accountants of Scotland (ICAS) Recognised qualifying body.
Role of an accountant
An accountant is qualified to offer business start up advice, keep records, prepare for the tax submission, manage VAT records and transactions, as well as manage pay and other financial costs and benefits of employees.
How can an accountant help me?
An accountant can provide financial information and advice concerning your business, along with performing tests to check financial information and systems. Financial guidance on maintaining accounting records and advice on tax planning is also important to receive within current legislation in order to minimise tax liability.
Hiring an accountant frees up your time to see more patients, spend more time with each individual and generally to manage your practice. In addition, an accountant may be able to manage your accounts in a way that will result in you paying as little tax as possible, since they are aware of the legal requirements in regards to these matters.
Employment status and hiring an accountant
• Employed- You are paid a set salary and your employer is responsible for sorting out accounts and tax.
• Self-employed- It depends on the size of your practice, whether you are the owner or an associate, a partnership or sole trader. Typically the more complex the accounting the more beneficial it would be to use an accountant.
Legal requirements for maintenance of records
Legally you have to keep records for payments made regarding your business and for any income you receive. This is so you can fill in your tax return and show that the figures are right. HM Revenue and Customs states on their website www.hmrc.gov.uk that you need to keep/have:
- · Invoices for sales and purchases
- · Receipts for business expenses
- · Bank records
- · PAYE (PAY AS YOU EARN) If you have employees
- · VAT (VALUE ADDED TAX) Chiropractic treatment is exempt from VAT. Businesses in the UK that are not exempt have to register for VAT if the sales were over £70k in the last 12 months.
- · Annual tax submission These must be prepared before submission. This is the most time consuming part where an accountant will be particularly useful in knowing the ways to pay the least tax.
Good record keeping will save you time in the long run and help you run your business more efficiently
GCC states “you must keep sound financial records and keep to relevant legislation” (effective from 30th of June 2010 Code of Practice and Standard of Proficiency), in other words this means it is your responsibility to keep up to date with current legislation and a good accountant will manage this for you.
Risks of using an accountant
The cons of having an accountant is that the service that they provide may cost you more than you save. So if you are the only one responsible for sorting out your own tax then it would be more cost effective to manage this yourself. If you’re unlucky and your accountant is not very good, you may not be aware of problems or mistakes found in your finances. It is important to bear in mind that even though you have a tax adviser or accountant, you are personally responsible for your own tax affairs and the accuracy of all information supplied to HMRC.
How can I find an accountant?
www.businesslink.gov.uk, a government website says when establishing your own business it is important to look for an accountant as early as possible in order to keep up with the financial records from day one. It is a good idea to start looking for an accountant by asking friends, colleagues, family, bank, lawyer etc. to recommend someone as this is the best way to know if they are reliable. Before employing an accountant, consider their experience (whether or not they have worked with chiropractors before or if they have a good understanding of your business requirements). Also check their professional associations, reputation, qualifications and whether or not they have indemnity insurance (If there are any problems with the work the accountant has done, you could be able to claim for any financial loss suffered as a result). The Citizens Advice Bureau outlines a useful strategy on their website for identifying, employing and managing an accountant that is summarized below.
When visiting prospective accountants
•Shortlist 3 clients to visit and find out the following information:
- – Ask about qualifications
- – How many partners there are in the practice
- – Are they experienced in dealing with businesses of a similar size and at a similar stage of growth to yours?
- – Do they understand your business sector and its needs?
- – Who will look after your business on a day-to-day basis?
- – What are their estimated response times?
- – Will they remind you when you need to submit accounts, or send you updates on changes in tax law etc.?
- – Do they offer any additional or specialist services?
- – What are their charges and what do the charges cover?
- – Can a fixed fee be arranged for the first 12 months
Identify an appropriate accountant by asking the right questions.Some examples to use for an interview are:
- – Experience – With clients of similar size and type
- – Charges - what do they cover? Do they offer all-in fees?
- – Personnel - who will look after your business most of the time - a partner or someone more junior? The more senior the accountant is, the more expensive they will be. Also sometimes smaller practices suit smaller businesses.
- – Efficiency - what are their response times?
- – Added value - what additional services are available?
Once you have chosen an accountant they will issue a letter of engagement. This will be the contract between you and your accountant and should detail:
- Your responsibilities
- The accountant's responsibilities
- Their fees and how they will be charged
Things to consider when deciding to employ
- Can they help you develop your business?
- Are they able to offer you advice?
- What services you will be charged for and how and when you will pay for them.
- What level of access you will be given to the data held about your business? This is important as you might need data to update your business plan or for a tender document. You will also want easy access to this information if you ever decide to change accountants.
- Take your business plan and other useful information to the meeting. A good accountant should want to know as much about you as you do about them.
- A good accountant should also be happy to pass on names of clients for you to take up references.
Managing your relationship with your accountant
You should maintain a good relationship with your accountant by keeping to deadlines, providing necessary records, communicating any changes in the business and discussing major financial issues. You should review your relationship with your accountant every 3-5 years addressing the following issues:
- Is my business still getting value for money?
- Is my accountant informative and easy to contact?
- Does my accountant still suit the needs of my business?
- Complaints should be addressed following procedures agreed within the contract, usually escalated via their registered body.
Ending the relationship with your accountant
It is important to check the terms and conditions of your agreement and it is important to not sign a new agreement with another accountant until the current one is ended. If the relationship is ended inappropriately the accountant has the right to withhold your figures and other data they have on record about your business until payment under the agreed terms and conditions has been made.
One small business story
... "We had an accountant for our family business for over 10 years and thought we had a good relationship with him. However, in the last 2 years he suffered a breakdown and completely mismanaged our accounts. He did not come to speak with us and we assumed that all was well. When the problems eventually came to light it ended up costing us tens of thousands of pounds and our relationship with our accountant. If we had kept a closer eye on our financial affairs ourselves this would never have happened. My advice would be to develop a good working relationship based on trust, but keep hold of the reins." ... William, Bristol.
This highlights the importance of being as aware of the financial matters of your company as your accountant!
A self-employed person’s story
... "I manage all my accounts myself to save money. I attended a small business management course that was funded by my local authority and learned how to keep good records of all expenses and costs to offset against my earnings. I put aside 30% of my earnings into a high interest but safe savers account to pay the tax at the end of the year so I never get into a situation where I cannot pay what I owe and earn interest on it at the same time." ... Sarah, Colchester.
This highlights the support that government initiatives make available to help people set up in business. It is worth researching free courses and other support available in your local area.
Accountant. BusinessDictionary.com. WebFinance, Inc. Virginia. http://www.businessdictionary.com/definition/accountant.html [Accessed 12 February 2011].
British Services. Accountants and Bookkeepers. 2011. London. Available from:http://www.britishservices.co.uk/accountants.htm [Accessed 12 February 2011].
Business Link. 2007. London. Practical Advice for Business. Available from: www.businesslink.gov.uk [Accessed 12 February 2011].
Citizen Advice Bureau. 2005. London. Employment in England. Available from: http://www.adviceguide.org.uk/index/your_money/employment/self-employment_checklist.htm [Accessed 12 February 2011].
General Chiropractic Council, 2010. Standard of proficiency required for the competent and safe practice of chiropractic. London. General Chiropractic Council.
HM Revenue & Customs. 2005.London. Individuals and Employees. Available from: http://www.hmrc.gov.uk/index.htm[Accessed 12 February 2011].
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