If you are considering setting up a limited company, choosing an accountant to look after your tax affairs will typically be one of your first tasks. But, do you have to appoint an accountant?
Do you have to hire a limited company accountant?
No, there is no legal obligation to hire an accountant when running a limited company. And assuming you qualify as a ‘small’ business, you aren’t required to have your accounts professionally audited.
Importantly, however, you still must submit your statutory year-end accounts to both HMRC and Companies House.
However, just because it’s not a legal requirement doesn’t mean it’s not strongly recommended!
Being a company director comes with many financial and legal responsibilities that can be overwhelming without professional guidance.
Some good reasons to hire an accountant for your company
The costs are reasonable
A typical contractor accountant will cost between £70 and £120 per month. In real terms, the monthly cost of a fixed fee accountant has barely changed due to competition between suppliers.
Typical fixed fee rates for contractors are substantially lower than the annual fees many general small business accountants charge.
When you weigh the monthly cost against the time saved and peace of mind gained, many contractors find a reasonable monthly fee worthwhile. It also allows you to focus on being a contractor rather than getting bogged down in admin.
Prepare your company’s year-end accounts and submit them to HMRC and Companies House.
Deal with VAT and submit quarterly returns.
Run the company payroll monthly, calculate income tax and NIC liabilities, and pay any liabilities on time.
Deal with HMRC and Companies House on an ongoing basis.
Complete your personal tax return and submit it by 31st January each year (with payment).
Submit your annual Confirmation Statement to Companies House
Ongoing bookkeeping and reconciling bank statements.
Assuming you have the expertise to take on these tasks, do you have the time?
Many small company owners underestimate just how time-consuming it is to stay compliant. Errors or late submissions can lead to penalties and stress, making DIY accounting more costly than it appears on the surface.
The risks of errors are reduced
As a limited company director, you are personally liable for any mistakes made in preparing your accounts. Using a professional to look after your accounts will minimise the risk of errors.
You’re paying for expertise, which could save you money
The tax savings a qualified accountant could help you realise may well be more than the annual fees they charge in return. A good accountant will know about the latest changes in tax legislation and will be able to advise you accordingly.
For contractors, this will mean being up-to-date on IR35, Off Payroll, and the MSC rules.
Good tax planning includes structuring your company’s shares and extracting funds from your business in the most tax-efficient manner.
Do you really want to deal with HMRC yourself?
If HMRC has any enquiries into your company’s tax affairs, your accountant will deal with them on your behalf. Many would not relish dealing with the tax authorities in person.
It’s also worth noting that HMRC correspondence can be intimidating and time-sensitive. An accountant can quickly interpret what is being asked, and respond accurately on your behalf.
Professional references
And finally, if you need a solid reference for a mortgage or tenancy application, your accountant will usually be happy to provide one for you at no extra cost. Many lenders will only accept a reference from a chartered or certified accountant.
This can be especially important if you’re self-employed or a contractor, where proving your income can be more of a nuanced process than it is for a regular ’employee’.
Other options
With outstanding accounting software on the market (such as Xero and the excellent FreeAgent), managing your day-to-day accounts has never been easier.
However, software cannot compile and submit your annual company accounts for you.
You may choose to have an accountant compile your company accounts and manage the rest of your tax affairs yourself.
In this case, you might expect to pay the equivalent of half the annual fee of a typical contractor accountancy service for an annual accounts-only service.
This hybrid approach is popular among tech-savvy business owners who are confident with day-to-day tasks but still want expert help with statutory filings.
You will inevitably have questions along the way or need help dealing with HMRC on certain issues, so you should carefully consider if you will be better off overall by opting out of paying for an accountant.
The vast majority of contractors use an accountant, as they take care of a wide range of obligations on your behalf, leaving you free to concentrate on making the most out of your contracting career.
