That monthly accountant fee? It feels like an expense. It appears on the bank statement every month, the fixed cost that many a small business owner loves to resent. Yet when it comes down to it, the true cost is often in not having an accountant on board — not necessarily because they earn their keep, but because small businesses save more with an accountant than they spend.
When Should You Register for VAT?
Most businesses assume that they must register for VAT when they reach the mandatory threshold; only some think of the time in which they register. But time can cost or save thousands and it’s not always a clear decision.
Register too early and you need to submit quarterly returns and administration that you do not need until you reach that threshold. Register too late and you miss out on reclaiming VAT that you invested in registration costs for your startup, or you miss out on VAT for major purchases. There’s voluntary registration, where sometimes it makes sense to register when below the threshold and at times, it doesn’t.
However, small business accountants will factor in whether it’s more cost effective to voluntarily register based on what you’re buying, who you’re selling to and how VAT might impact upon your pricing. Get it wrong? You lose out on thousands of reclaimable VAT. Get it right? Oftentimes this decision saves more than a year of accountant fees in one swoop.
Capital Allowances? What are Those?
When it comes to buying equipment (including vehicles) or making improvements to a property, capital allowances are rarely claimed. But capital allowances are often applicable. But the rules are complicated and change regularly.
Therefore, many business owners either fail to claim them at all or fail to claim them correctly. For example, a van qualifies for first-year allowance; a 100% allowance that saves thousands through tax savings. Office equipment, computers, vehicles and machinery all have different treatment based upon when purchased and what for.
The Annual Investment Allowance alone allows up to £1 million qualifying expenditure. Most small businesses do not hit that amount but even £20,000 can net £4,000-5,000 in tax savings. That’s money saved that’s not going to HMRC.
The Pension Contribution Question
Employer pension contributions have the potential to be one of the most tax-efficient ways to draw money from a limited company by keeping money within the company without any immediate personal tax implications.
Employer pension contributions qualify as business expenses which means they reduce corporation tax but do not generate income tax or National Insurance for the director.
However, it’s about timing. Contribute too much too soon and one hits annual limits/allowances; contribute too little too soon and one’s paying too much in tax and failing to accumulate a proper pension.
Accountants calculate the numbers based on profits, personal tax situation and longevity goals to determine what contribution would be best — and rarely is this figure the same from year to year. These tax savings surpass accountant fees alone just from this decision — and that’s not including building up a pension pot at the same time. Essentially, the advice pays for itself.
The Salary vs. Dividend Split
Your limited company’s director salary vs. dividends pay split is a decision you must make every year. Get it wrong and you’ll either be subject to unnecessary national insurance or miss building entitlement for state pension contributions.
The best ratio changes annually based upon new tax rates thresholds, personal allowance parameters based upon what has been taken by others. What was good last year might cost additional amounts this year.
The personal allowance is relevant. The dividend allowance is relevant. Do you have other income? What’s your profit level versus immediate payment? Does the time of payment matter? Is there a large lump sum being drawn at year’s end?
Not everyone can approach this with the same answer either; it’s specific to profit levels throughout the year versus lump sums taken and personal circumstances behind the scenes. Get this right and you typically save £1,000-3,000 unnecessary each year, so it’s not just one-time savings.
Claimed Expenses
Most business owners can make claims for obvious expenses but what about those less obvious expenses that over time add up?
For example, working from home? There’s a simplified calculation or actual cost method — one might yield more than the other by hundreds of dollars. Using your personal car for business? Mileage allowances compounded can add up quickly — but only if you track them accordingly. Car phones and internet? Client subscriptions? All allowable.
Then there are timing issues whether certain expenditures can be claimed when paid versus invoiced or upfront versus end of year — it all matters as does spending when it’s profitable enough within the fiscal year versus waiting until the next year starts.
Accountants are well aware of these allowances and know what their clients missed along the way — an extra £5,000 legitimate business expenses mean £1,000+ that would otherwise have gone to taxes stays with the business.
Mistakes That Would’ve Cost Everything
This is where accountants justify their expenses — by ensuring disasters don’t happen. Late filing penalties start at £100 but increase from there. Get your tax calculation wrong and interest charges ramp up quickly. Fail to report and penalties per month can take thousands away from otherwise good quarterly earnings.
But mistakes that cost the most money come from those that accountants can help prevent. For example, accidentally taking your company over the VAT threshold at some point during the year means you need to register it within 30 days — which means registering too late.
Getting IR35 status incorrect could mean years later you’re receiving a tax bill costing thousands you’ve since invested elsewhere since it shouldn’t have been yours in the first place.
Misunderstandings regarding categorization trigger investigations.
These tangible events happen to businesses all the time — but they rarely happen when accountants are involved because it’s less expensive than accounting fees over time. One avoided penalty makes accounting worth it for life.
The Value of Time
Many business owners think they’re saving money by completing accounting themselves — but that’s only when their time is free.
If it takes one ten hours monthly effort compiling and tracking books/tax considerations then that’s ten hours they don’t spend growing their business, getting client work done or strategizing for their next growth campaign.
Those same ten hours could be generating far more income than any accounting fee would otherwise detract.
Additionally, there’s stress involved. Business owners wake at night worrying about finances or compliance standards — even if they haven’t made money mistakes — because they’re uncertain if they’re doing things correctly, if they’ve missed something, what occurs when HMRC investigates?
When Accounting Fees Actually Make Sense
The reality is that accounting fees save massive amounts but in order to break even does not come down to dollars or pounds; it comes down to penalties avoided or taxes saved.
For example, a sole trader may not find accounting services saving overwhelmingly; however a limited company with complexities of multiple revenue streams and expenditures will typically find success that outweighs expense.
Therefore it’s only logical that it’s typically feasible once businesses tally two or three above-mentioned anecdotes — accounting fees pay for themselves multiple times over for established businesses when combined with reduced stress.
Most established businesses look at accounting as an unnecessary fee; once accounting services are explored with established accounting plans in place it no longer feels like an expense justifiable when value exceeds it every single time for payment else.
What if the client would’ve never made those mistakes in the first place? They’d resent paying for something they think they can provide on their own — but accountants know they save money down the line rendering every penny worth it.
