Accountants don’t just assist with your taxes, they provide guidance on all issues relating to the financial growth of your business. They are key to your success and add significant value at each stage of development, from sole trader to limited company. Here are seven ways an accountant will save you money.
They’ll save you money AND find you money
Accurate record keeping will show where your money is going and where you need to cut costs, and there’s no one better placed to analyse your books than an accountant. For Limited Companies with more complex cash flows, this is particularly useful.
Your accountant will help you spot trends to earn higher profits and to understand which of your business investments yield the greatest returns. They’re also best placed to identify areas where you can reduce costs, tightening up your bookkeeping and preventing any costly mistakes.
Get your tax return in on time… even if your yacht catches fire
Almost 750,000 Sole Traders missed their Self Assessment tax return deadline in January, according to HMRC. That equates to fines totalling upwards of £746,000,000 in 2018 alone. For Limited Companies, the penalty for missing a deadline is even higher at £150. This cost increases to £1,500 if your business accounts are missing for more than six months.
An accountant will ensure you never fall foul of HMRC’s deadlines, which means you’ll avoid the fine and won’t need to grapple with outlandish excuses at year end. Our favourite excuse for missing the deadline was, “my tax return was on a yacht…which caught fire.”
In addition to ensuring you never miss a deadline, a dedicated accountant will make sure your tax is filed correctly and all your documents are in order. If your business is ever audited, you’re completely covered, giving you total peace of mind.
Never fall foul of the law
Fines and tax deadlines aren’t the only risks involved in running a business. Scratch the surface of tax law and things become rather complicated.
Running a Limited Company can seem like a minefield of rules and regulations. Even paying yourself as a director can be complicated as you need to understand whether or not small business dividends is the most tax-efficient way to pay yourself.
For example, if you put a loan into your business, you need to pay yourself back before you’re able to take dividends. The first £5000 of dividends is tax free and you need to sign legal documentation every time you take dividends out of your business. You’re also only able to pay yourself if you’re making a profit.
For successful sole traders and contractors, the tax laws can be equally as confusing. IR35, for example, will result in increased tax and National Insurance liability for contractors, which could prevent them from growing their businesses in the future. Paying or reclaiming VAT and keeping all VAT-related deadlines in order may be an issue too.
These are all areas an accountant will not only advise on but also manage for you, making the whole process simple and stress-free.
Cash flow advice
82% of businesses fail due to severe cash flow issues. Effective cash flow management is essential for the successful running of businesses of all sizes. Cash flow issues can arise for a range of reasons, one of the most common is your clients not paying their invoices on time.
Cash flow management is the analysis and optimisation of the net amount of cash receipts minus cash expenses. Put simply, if your business doesn’t have enough money in the bank to pay your expenses, you’ll soon find yourself in a dire situation. An accountant will help you to understand and keep on top of your cash flow.
They’ll help you decide when to go Limited
As your business changes and grows, the way it’s structured has a significant impact on your tax liability and how much you can take as an income. Your accountant will help you understand the tax implications attached to business growth, aiding you in making an informed decision about when to choose limited company vs. sole trader.
Turning your business from a Sole Trader to a Limited Company can help you save on upper threshold tax liability and National Insurance costs. Your accountant will also help you to make projections for future revenue and map out the most tax efficient way to get you there.
Switching from sole trader to limited means that you can no longer use the cash basis accounting and must switch to accrual accounting, or “traditional accounting”. Your accountant will help you understand differences between these two schemes.
You’ll even get help with your personal finance
If you’re a Sole Trader, your personal finances will likely be closely linked to those of your business. This can pose a great challenge when you’re looking to grow a business, as you need to ensure the two remain distinct and don’t place too much of a burden on each other.
Your accountant will provide the advice needed to help you stay in the best, most tax effective position, and remain mindful about how your personal relationship with money affects your business. They’ll also provide advice on pension schemes, which are tax-deductible, as well as any personal investment schemes.
Invaluable Business Intelligence
The best accountants possess solid business knowledge and can help you make informed decisions to grow your company. They’ll offer invaluable advice and insights when it comes to building your business plan and assessing profitability, which will help take your business in the right direction.
By analysing your accounts, accountants can help you to determine your most profitable clients and map out how to expand your market reach. They’ll help you to model and evaluate finance options and provide you with management accounts that clearly demonstrate profitability. These will be necessary when (and if) you ever want external investment or are looking to sell or merge your business.
Bonus Point: Expense Management
Claiming expenses is vital to ensure your taxable profit is as low as possible. There is a range of things you can claim as an expense, which your accountant will offer extra advice and guidance on. To help, here’s a list of the most typical small business expenses that reduce your tax.