Getting The Most From Your Accountant
Your tax return: how was it for you?
Did you find that ensuring your self-assessment tax return was filed on-time by your accountant was more stressful than you would like? Find your accountant hard to get hold of, or progressively more stressed, as the 31 January deadline approached? Or did you spend your evenings and weekends searching in vain for that missing paperwork, as your accountant worked round the clock to ensure you avoided a late filing penalty?
Was completing your tax return more stressful than it should have been?
Photograph by the author
So with your tax return now filed, penalties avoided and tax liabilities established, are you reflecting that your accountant didn't perform as you might expect? While it's true that your accountant is providing a professional service and should manage their clients, spare a thought for the complications involved in closing out all the queries from the whole client base to one deadline. The question you might not have thought of is: "Did I perform as my accountant would expect?"
You and your accountant
Tax returns are something no-one enjoys. You're self-employed, working all hours to keep the business you love afloat, and you employ an accountant for that sort of thing anyway. But leaving the preparation of your tax return to the last minute is risky: accountants' work inevitably ramps up as the deadline approaches, increasing the chance of errors and reducing time to resolve queries that arise. You also won't know what tax is due to be paid until the last moment, and from a purely business point of view you'll appreciate this is not the best way to manage and plan your cashflow.
How do you rate the service your accountant provides?
Does my accountant perform as I would expect?
Getting more from your accountant
It's partly down to you!
So, how can things be improved? Like any business relationship, it's a two-way street - you have obligations too:
1. Talk to your accountant. Your accountant's professional duty is to prepare accounts and tax returns accurately based on the information you provide. If you haven't told them everything, they can't be expected to account for it properly.
Keeping good accounting records is essential
Photograph by the author
2. Keep a record of all income and expenditure transactions:
a. raise an invoice for every credit sale;
b. provide a receipt for all cash sales; and
c. obtain a receipt or invoice for every purchase.
And don't keep these records in a shoebox, unless you're happy to pay for your accountant's time to sort them out! File (or scan) them in separate folders in a logical order (by date, for instance). If it's not obvious what some of them are for, write an explanatory note on them. If you file them as you go it'll be a lot easier than trying to tackle them all at the end of the year!
3. You are not required to have a separate bank account for your business, but it would certainly help your accountant if you do. Keep a record of all transactions through your business bank (and PayPal) account:
a. keep all your bank statements, cheque stubs and paying-in books;
b. keep the card receipt for all debit card payments or withdrawals; and
c. ensure there are records to support all direct debits, standing orders and bank transfers.
Cross-reference the transactions appearing on your bank statement to the invoices and receipts you are keeping.
It's not impossible to produce accounts and tax returns with incomplete records, but they will be more accurate, and stand-up to scrutiny better if inspected by HM Revenue & Customs, if everything is properly documented and every transaction substantiated.
4. If you run a business that holds stock, make sure you take regular stocktakes. Even if you believe your stock level doesn't fluctuate much over the year, you won't know if stock is going missing or obsolete if you don't count it. A stocktake for your yearend accounts is essential to substantiate the value, and ensure the profit for the year is correctly calculated. Your accountant can advise on the best methods to value the stock, the key is that you know what quantity of each item is held.
5. Everyone that runs a business knows that, ultimately, cash is king. Without it, you simply won't be in business. But while important, 'cash' does not automatically equal 'profit', and your tax liabilities are calculated based on your business' profits. If your accountant only produces financial accounts for your business once a year simply to support your tax return, consider asking them to produce management accounts quarterly or even monthly. These will help you and your accountant spot trends and issues earlier, will reduce the amount of work still to do at yearend, and enable reasonable estimates of your future tax liabilities to be made as the financial year progresses.
Ensure the accounts are meaningful to you, and not just a box-ticking exercise for the tax authorities; exactly what do you need to know to run your business? Accountants inevitably run their practices on standardised systems, but these should not preclude the tailoring of reporting to your requirements. The production of in-year management accounts will also keep you at the forefront of your accountant's mind; you may get a better service and avoid being pushed to the back of the queue when deadlines loom.
6. Let your accountant act as your tax agent. This means they will receive copies of all your correspondence from HM Revenue & Customs. Let them deal with HMRC on your behalf. There's nothing more confusing for an accountant than a client having conversations with the tax authorities that they are not party to.
7. Don't buy accounting software. Yes, you read that correctly, I'm not trying to promote software here. It would be irresponsible. If you want to undertake the bookkeeping element of accounting for your business yourself, ask your accountant what software they recommend. What interfaces best with their systems? If you want to undertake the bookkeeping yourself to reduce costs, you should at least consider the following questions first:
a. Will it actually save me money? I may need to invest in, and maintain, the appropriate software. And I'll definitely need to invest time every week or month to record the entries - would that time be better spent on running and growing my business (or spending time with my children/partner, before they forget who I am?).
b. Do I know what I'm doing? Do I really want to? Some basic bookkeeping knowledge is a must, if the information you provide to your accountant is to be useful. In the worst cases, resolving incorrect postings can take your accountant as much time as undertaking the work themselves. It's not impossible though, with a little training. If your accountant has provided you with software to use, they really ought to include training on bookkeeping basics, as well as how to use the software, if they care about the quality of the data they will receive.
If you do use accounting software, make sure you cross-reference the postings to the invoices, receipts, bank statements etc. that you are filing.
I still want to do my own bookkeeping
And I want to know what I'm doing!
If you are still keen enough to want to learn about bookkeeping for yourself, you could try the following books (UK readers):
Bookkeeping for Dummies
Bookkeeping Workbook For Dummies
Keeping It Simple:
Small Business Bookkeeping, Cash Flow, Tax & VAT
Small Business Accounting:
And for US readers, try the following:
There's more you can do...
8. Avoid nasty fee surprises: many accountants will agree a fixed fee in advance, and some will offer monthly payments. Also, pay your accountant on time. If you operate as a sole trader, rather than a limited company, your accountant can withhold documents belonging to you which relate to work they have undertaken but not been paid for.
Filing your accounting records logically can save time and money
Photograph by the author
9. Be ahead of the curve. Provide documents and records to your accountant on time. Your accounts and tax return can be prepared as soon as the tax year is finished on 5 April; if your accountant has all the required records this removes one hurdle to completing the task early. The sooner it's done, the sooner you'll know how much tax is due when. Completing your tax return early doesn't mean you have to pay your tax early, just that you are forewarned of what is due.
10. If you don't understand, ask. You're paying for a service after all. And don't forget, even if your accountant prepares your tax return for you, you are still personally responsible for the accuracy of all information supplied!
11. Discuss your future plans for the business with your accountant before implementing them. Your accountant may be able to advise a better way to structure the plan for tax purposes, draw on their wider knowledge of the local economy and act as an impartial sounding board in respect of the risks involved.
If you've read this far, and you are self-employed in the UK I hope this lens has been interesting and useful. If you're based elsewhere in the world, most of the above is still applicable if you ignore the UK specific deadlines and tax-speak. And, if after all the above you're still not happy with your accountant, maybe it's time for a change? See details below of my lens on Choosing an Accountant.
The author is a Chartered Management Accountant, with 15 years post-qualifying experience in industry, practice and the public sector.
Hopefully, you found this lens interesting and useful. Oh, and that the pictures weren't too boring - it's amazing how hard pictures are to find to illustrate accounting and tax! Any suggestions?