If you’re running a small business as a sole trader, then you may be opting to complete your tax return and even VAT returns yourself – and this is perfectly fine! If you’re just starting out, have relatively few transactions and your business operations are straightforward, then this could be a cost-saving solution that works well for you. If, however, you are wondering whether you “should” be using an accountant or not, then we recommend looking out for these 5 signs that will most likely point towards you needing expert help:
1. You’re making mistakes
Whether HMRC have spotted your mistakes, or you have that nagging feeling that something is not quite right (perhaps your tax bill looks obscenely high for your earnings, or suspiciously low), making mistakes on your tax returns has serious detrimental consequences. Not only could you face fines if HMRC determine that you have not taken reasonable care (up to 30% of the tax owed), but you could also be overpaying tax, or face cashflow issues if you have underpaid tax that will need to be repaid. Continual mistakes that get picked up by HMRC may also flag you up as someone to investigate, even if no mistakes have been made, which can be a stressful experience.
If you find yourself making mistakes, then it could be wise to seek out an accountant to help. Not only will their experience mean they are less likely to make mistakes, but most practices will have a review process which means that your tax return is thoroughly checked through. Not only that, but accountants will use specialist software which may flag up errors or ensure certain sections are completed before being able to submit to HMRC.
2. You’re missing deadlines
Running your own business is much more than a full-time job. When you add in the annual deadline of completing your self-assessment tax return, it can feel like a real interruption to your day-to-day operations. It’s understandable that you’ll want to prioritise your business, serving your customers and clients, but if you’re guilty of leaving your tax return to the last minute then you may be adding pressure onto yourself to get the task done in time. Missing your self-assessment tax deadline results in an instant £100 fine, so it’s definitely one to avoid.
However, there’s more to keep your eye out for than just the usual 31st of January deadline. Watch your turnover carefully, as once you go over £85,000 in any 12-month period, you’re legally obliged to register for VAT and complete regular VAT returns. Depending on your VAT scheme, it could be an annual deadline, but more commonly, it’ll be a quarterly requirement. The fines for late VAT registration or late VAT returns can rack up quickly, so it’s important to stay on top of these deadlines. If you’re struggling with having enough hours in the day to do it all, then using an accountant to help could be well-worth the cost.
3, You’re getting busier
All your hard work pays off once you see your business growing, but how do you manage to do it all if you’re getting busier? One solution may be to hire staff to take on the extra workload. This does not come without its own challenges as you’ll need to invest time into training them for their role. In addition, if you go down this route, be aware that you’ll have to set up a payroll system to pay them, pay your employers’ National Insurance, as well as automatically enrol them onto a workplace pension scheme. There’s plenty of good payroll software out there for sole traders to manage this themselves, but the complexity of payroll regulations is what often stumps people, such as dealing with sick pay or maternity/paternity pay. If you’re getting to this point in the business, then using an accountant with payroll knowledge and experience can be incredibly helpful.
4. You’re not claiming for expenses correctly
It would be incredibly useful to everyone if HMRC had a comprehensive list of allowable business expenses, but alas, that is not the case. Claiming correctly for all legitimate business expenses is often where most sole traders miss out and pay more tax than they have to. For example, if you run your business out of your own home, did you know you can claim a part of your household bills as a business expense? You can either use the flat rate method (which is much simpler) or apportion your bills by the use of your home and the time spent working at home. The calculations can be a bit daunting and so many people will opt to use the flat rate method which may be less generous. Other common mistakes made include claiming for mileage to a regular place of work, expenses incurred during business meetings that fall under the category of entertainment and claiming the complete cost of capital expenditure such as computers where there is personal usage.
5. You want to become a limited company
Finally, it may be the case that after establishing your business as a sole trader, you may want to set up your own limited company. There are benefits to running your business as a limited company over a sole trader which include limited liability as well as more opportunities to make use of tax planning strategies. However, with the added benefits come more responsibilities. A lot of these will be a legal requirement to fulfil so that you remain compliant with company law such as completing your company secretarial duties, submitting annual accounts, and completing company tax returns. The more complicated that running a business becomes for you, the more seriously you should consider getting help from an accountant to support you.
Kench & Co is an independent firm of chartered accountants that have been helping businesses in Henley for over 40 years. To this day, they continue to offer free consultations to discuss how your needs can be met. Get in touch with them today to book a meeting.