When starting up a business, or assessing your approach to your personal or company tax accounts, it’s vital to know what support with HMRC you’ll need, and what you’ll need to do yourself in terms of tax and accounting tasks, writes Joanne Harris, technical commercial manager of Nixon Williams.
Considering these different factors will determine the extent of professional help you need. For example, if you are new to limited company contracting, then a more hands-on service is advisable, whereas if you already have good understanding of tax and your accounts, you may need less support.
Factors worth considering range from the payment of dividends and how often will you need to withdraw dividends from the company, to your own ability to manage basic accounting and calculate available profits.
And consider your ability to do these types of tasks semi-regularly! We find that even seasoned contractors benefit from a regular review of their accounts to ensure that they are working in the most tax-efficient way, both from a business and personal perspective. This also helps keep abreast of ever-changing legislation.
Most essentially, you must be aware of what statutory filing is necessary to ensure your accounts are compliant:
The main aim of annual accounts is to present a comprehensive report of the financial activity of your limited company during its latest financial year. These are a statutory requirement and you have an obligation to file these, even though they are of no practical use.
A company is separate from its owners (‘shareholders’). As a separate entity, the company pays corporation tax on the taxable profits and so must file a corporation tax return.
A VAT return is a form you file with HMRC, usually four times a year, to show how much VAT you are due to pay. Since the advent of making tax digital for VAT, most companies must file using MTD-compliant software. Most accountants do this for you however, you must check that they have.
A confirmation statement is to verify that company data registered at Companies House and displayed on the public register is accurate and up-to-date. You can sign-up for an email alert so you know when your Confirmation Statement is due.
PAYE stands for Pay As You Earn, and is a simple way for HMRC to collect your income tax in regular monthly instalments. You must make submissions to HMRC every month a salary is paid, so you need to communicate the salary level to your accountant if they are to do this for you. Your accountant can advise as to what an appropriate, tax-efficient salary looks like for you.
Self-Assessment is a system HMRC uses to collect Income Tax. The tax is usually deducted automatically from wages, pensions and savings. Individuals with other income must report it in a tax return. You complete this at the end of the tax year (5 April) it applies to. Although essential, a personal tax return is often not included with the cost of your company accounting.
This brings us on nicely to an important point. Make sure you fully understand what falls within your monthly fee to your accountant, to avoid confusion or hefty penalties. Statutory filing (see above) is the minimum your accountant should do. But there are other documents and resources which can add far more value than statutory documents. These are:
- An IR35 Status Review
- Management Accounts
- Tax Planning
- Bookkeeping (Consider if you are happy to do this yourself, increasingly online, or do you want to email/post your company records to someone?)
- Personal Tax calculating
These additional services are where your accountant can really add value. An accountancy package that includes an experienced accountant can save you far more money in the long term. By contrast, be wary of cheap online ‘accountants’ — these are essentially computer software with some additional guides!
The golden rule is that before you part with your cash, it is essential for you to receive a full breakdown of what your accountant is providing and, crucially, what they are not. Many contractor accountants will promote a ‘fully inclusive’ service but what this consists of widely varies, so do check and double-check.
Be aware though, even the most comprehensive accountancy service will not be able to do everything for you! It remains the responsibility of the limited company director to keep financial and accounting records for six years, including:
Also, an accountant will not make payments to HMRC on your behalf. Although they may be able to view your bank transactions, they will not be able to make payments from your business bank account for you. A good accountant will remind you of the deadlines, provide you with details of who to pay; the amount required and any reference number. But they will not make the actual payment for you.
It’s vital too to grasp that, as the director of the company, the statutory documents are your responsibility. If there are any errors or omissions, it is up to you to identify and action them. While your accountant will prepare the accounts based on the information you provide, you bear the responsibility for the accuracy of financial statements.
Last but definitely least, it’s essential to remember that, regardless of what system you chose, the liability remains with the director if you don’t get the information to your accountant and your statutory filing is late. As the limited company director, you will have to pay the penalty and any late payment interest. Choosing your accountant carefully in the first instance should mean you understand your responsibilities to avoid any financial penalties. If your accountant is not meeting your expectations, consider switching to one who can. It’s far easier than you might expect.