The Heelan Associates Guide to Accounting

Victoria Scally News

In this article, Heelan Associates Business Services Director Dan shares his view on what accounting is, should be and what an accountant can offer your business. Whatever stage your business is at.

What is accountancy and what to accounting firms do?

This may seem like a simple question, but something we have learned over the years is that many people do not really understand what accounting, accountants and accountancy firms actually do.

We as a profession are not the best at educating people on this either!

With that in mind, we thought we would cover what we do, why we do it, when it makes sense to invest in an accountant and what results and benefits you can expect when working with a good one.

Accountants & Accountancy – the definition

Probably the best place to start is the dictionary:

  • Accountancy: The profession or duties of an accountant
  • Accountant: A person whose job it is to keep or inspect financial accounts
  • Accounting: The process or work of keeping financial accounts

The above gives you an idea of ‘traditional’ accountancy – we inspect your records, in many cases book-keep and produce the figures in the form of reports (accounts).


The reason people usually seek accountants out

The most basic reason most people need an accountant is to produce year end figures and tax returns – for corporation tax or personal tax.

The general type of year end work carried out is:

  • Review all of your records, separate out anything that can’t be claimed for business

(general clothing for example)

  • Look for expenditure that may be claimed but doesn’t appear to be in the records supplied, so as not to miss a tax deduction

(are you using part of your home for work?)

  • Look for all opportunities to maximise your tax savings using available tax reliefs

(special tax savings on big items like laptops, machinery etc)

  • Produce a set of accounts that show where the figures on the tax return came from.

(useful to really understand how your business performed, legally required for a limited company)

  • Complete the actual tax return(s)
  • For Limited Companies, review your ‘drawings’ from the business and make sure they are legally correct / declared in the correct way (you may have heard the term salary / dividend). Provide advice on how best to do this moving forward.

There can be many other actions but these are the most common at a basic level.

We see quite a few people completing ‘self assessment’ tax returns themselves (the last item on the list) or hear comments such as ‘its just filling out boxes so I do it myself’.

The current tax code is in excess of 22,000 pages; unless you understand this and carry out the rest of the list above we would argue that apart from missing out on some valuable tax savings, there is a high possibility you are putting incorrect figures in the those boxes!

Tax law changes daily, based on decisions in the courts – are you keeping up with that? Worth some consideration.

Other services accountants can provide

Aside from the annual need, there are lots of services accountants can provide.

Whether these are offered should be a concern for you when looking at a new accountant. It maybe fine now, but if you have ambitions to grow, can they support you? Some services that could be offered are:

Book-keeping – taking your records / receipts and turning this into a ‘full’ set of ‘double entry’ records.

This is often the most difficult area to explain the process, as many people believe a spreadsheet of expenditure or income and tidy box of receipts to be enough to count as book-keeping. In some sole trader/self employed situations this can be enough, but in a Limited Company business you need to have every penny accounted for on every date the transaction is made, matched to your bank records.

For sure, once you have staff, Construction Industry Scheme deductions and/or loans you need ‘proper’ book-keeping.

There are some great ‘cloud’ accounting software solutions that can help individuals without formal training do a really good job of this (we will cover this in another article). In many cases as a business grows (or even in the beginning if they value their time doing fee earning work) they outsource this to a professional as its more cost effective.

We have written a separate blog on this subject

One other consideration here is that HM Revenue & Customs are rolling out their ‘Making Tax Digital’ regime, which will soon require businesses to submit quarterly profit and loss information IN A DIGITAL FORMAT. For some businesses the process starts in April 2019. More on this in another blog.

VAT returns and other services related to VAT are often looked after here.

Payroll & Workplace Pensions – if your business has staff, or when it grows to that level many accountants can support you in this area.

Every employer needs to consider their obligations with staff pay. At its most basic level your staff need a payslip, which shows how much tax and national insurance you have deducted (and any pension). For obvious reasons, calculations need to be made to get to these figures!

HM Revenue & Customs then need to be a sent a report of all this data on or before the date you pay them. The pension information then needs to be sent to pension provider. All the staff need to be ‘assessed’ for pension reasons to see if they qualify each time you pay them. Accountants generally handle all this process.

In addition to that some will offer access to HR legal advice lines or other additional helpful services such as calculating holiday pay and electronic payslips.

Construction Industry Scheme services – if you work in the construction ‘game’ as a contractor you will need to send monthly reports to HM Revenue & Customs and deduct tax from your sub-contractors.

Accountants generally help in this area by ensuring you are compliant with the law. Many will produce the ‘deduction certificates’ you need to give you sub-contractors. They will often report any tax you have ‘suffered’ (been deducted from your payments) to HM Revenue & Customs, and calculate the amount due to them in the month, after offsetting amounts deducted from your sub-contractors (if you are a limited company).

Accountants will generally offer the service to claim your construction industry repayments (for personal or business), if you are due one.

Company secretarial – if you are a limited company, there is a lot of form filling to be done each year.

Accountants will usually carry out the paperwork for dividends, Companies House filings, share changes etc.

Management Accounts and Accounting updates – keeping you regularly up to date with your business affairs and tax situation.

These vary depending on the accountant, but generally include monthly / quarterly accounting updates that show you in detail how your business is performing, and how your tax situation is at that moment in time.

We are passionate believers that if you intend your business to succeed, you NEED this service and the accountant needs to have this as a core offering. In today’s changing, instant, always on world, annual figures have less meaning than they used to.

Advisory – doing more than just reporting, using numbers to advise and help your business grow.

This is a service that isn’t that common in the industry currently, but again one we passionately believe in. As experienced accountants we work with all types of clients across different sectors. As a result we are in a great position to be able to lend that experience and really help shape a client’s action by working with them on their goals. With these goals we are then able to use numbers to plan, forecast and create scenarios to help make those goals real.

How this service is carried out varies, but quite often takes the form of regular monthly business reviews and meetings to look at the plan and goals, track progress, tweak and advise.

Virtual Finance Department – carrying out invoicing, credit control etc.

Again, this is a service that is rare but is offered by some accountants. They will help you invoice your clients if you are not particularly good at it, tracking projects costs, help with credit control / chasing customer payments and the like. This is very bespoke so the services offered vary, but some accountants do offer it.


I pose a question to any prospective clients: Is the expenditure investment or spending? Will it return money to me or have a chance of gaining me or my business income? 

The rule should always be: Only ‘invest’, don’t spend.

At a basic level accountants save you money by reducing your tax bill.

I quite often end up at the same point during potential client meetings; it comes down to this – I have said “pay me X and I will save you twice X”

Even if I could only do half of this for your business, it has got to be worth considering? So does this expenditure fit my ‘rule’. Oh yes.

Tax savings can be achieved in many ways, including things like making sure you are capturing everything you can claim for, to ‘extraction’ advice (how to take your money from a limited company), use of Research & Development and other tax reliefs,  to simply stopping you being exposed to penalties and interest.

I believe people can struggle sometimes in coming to terms with a monthly or annual outgoing to the accountant – its disconnects you from the overall situation and savings. Because you are physically paying out to an accountant, but not having to actually hand all the money to the taxman that you would have, it becomes more difficult to visualise the saving. Eyes on the prize people – look at the overall situation.

As a disclaimer here, because there will be someone thinking ‘well in my first year I might not pay any tax anyway’ – in these cases you need to looker at the wider investment, we cover this further down. A relationship with an accountant should be a long term deal (presuming they continue to service you well) so keep those future years in mind along with the other benefits.

Accountancy lets you buy time

In business, I don’t want to say the cliché but……. ‘Time is Money’. Whilst this is true, money can also buy you time. As a result, you should look at what time you are being saved and what you could earn in that time. It’s a little like taking on an employee – you wouldn’t do this if you couldn’t charge more than you are paying them, or it wouldn’t be sustainable.

Let’s say it takes you 10 hours a month to do your paperwork and you bill £45 an hour for you labour – £450 you’ve missed.

You charge a day rate as a professional at £350 – £500 a day, it takes 2 days a month to do your paperwork / admin – you do the math.

I often hear ‘oh it doesn’t take that long’. Time it. No really, time it. Then record the time of day or time in the week you are doing this.

For some people it isn’t all about income, so instead ask the question – how much do I value my family / leisure time?

Access to advice – the game changer

At different stages of your business life you will need more advice than others. The odd paradox for me is that many start ups avoid the professionals at the beginning, or go for the super cheap lady down the end of the road that will just file a return. At the start up stage, you quite often need more crucial advice than at any other time (at least until you start to hit serious growing pains).

The right, experienced accountant who is committed to your seeing you succeed can lend their advice on all manner of business matters as well as tax. Even an average accountant has a wealth of experience with different businesses and would be able to set you on the right track. But hey, who wants average – go and find someone you believe will be able to help you grow. Remember the investment rule.

As you grow and need more financial data to guide your decisions, the right accountant can really put in you command of your destiny by giving you control. KNOWING, I mean really knowing, where you are is critical to business growth.

The right accountant can advise on systems, credit control, invoicing, speeding up how you get paid. They often have large professional networks that can get you access to other professionals you might need (such as finance funding, debt collectors, bankers).

The boring (but no less important) bit – legal and peace of mind

How much do you pay for business insurance? The chances of this ever returning money to you are super low. You do it for legal reasons or for peace of mind and/or fear.

Accountancy not only buys you this peace of mind, but ‘income’ and time.

The current tax code changes daily based on decisions in the tax courts. You do not have the time to keep up with this, so if you are a ‘DIYer’, how are you sure what you are doing is correct? You may google it, and there is some great info out there, but as I said – it can change daily.

The penalties for missing deadlines are ridiculous.

Most returns are £100 fine minimum.

Companies House and HMRC fines can easily ramp to an excess of £1500 very quickly. If you have filled in a box wrong on a return and HMRC look at it, they charge back interest and penalties.

A client came to us the other day (and they aren’t alone as we see these cases all the time) who had been doing his own self assessment tax return, obtaining a £2500 repayment each year. HMRC looked at it, disagreed and then wanted to look at the past 6 years as well. That could of amounted to over £30,000 in repaid tax, interest and penalties. With our help he didn’t need to pay anywhere near that, but what he paid us to defend him, and paid HMRC on some areas, cost him vastly more than it would of if he had just had an accountant over the years.

Finally, a little comment on tax
I have a saying:

‘Successful People Pay Tax’.

There is no escaping tax, but there is definitely legal ways to reduce it. Regulated, qualified accountants need to stick to professional guidelines, so they don’t perform ‘tax miracles’ (as we tend to refer to them here), but they can really increase your income by reducing this bill.

Maybe somewhat controversially, I believe having the ‘problem’ of a tax bill to reduce is something to aspire to. If this is your problem, you are on the right road.


How do I work with an accounting firm?

Good question! This is something we are asked a lot by prospective clients in our initial meetings, especially if the person has never used an accounting professional. I also cover the question on the process of moving accountant if you needed to.

The question often comes as the potential client is picturing how the ‘procedure’ and practicalities work. What do you actually have to do on a monthly/quarterly/annual basis to work with your accountant? The answer depends on the accounting firm, but I will run through some of the fairly standard types of working.

What happens at the start, or the Engagement phase?

Normally when you engage an accountant, they will send you a ‘letter of engagement’ and their terms and conditions. These explain their responsibilities and yours, along with confirmation of price etc. If they are professionally regulated/qualified they must send this to you.

Usually this comes with a request for proof of who you are (photo ID, utility bills etc). This is for due diligence under the money laundering regulations.

At this stage, if you are going in ‘the cloud’, which most forward thinking firms have embraced, they will then start the process of setting this up. The ‘cloud’ in terms of accountancy refers to online record keeping using software. I cover this in more detail below.

If you have a fresh new business most accountants will then be beavering away behind the scenes to register you for all the relevant taxes.

During this process you will often find you speak to your accountant a lot, as it’s a period that can often need the most support. If you accountant is forward thinking and service focused, they will not charge you for this, and in fact would embrace it – so please make sure to keep in touch with them in these early days with any questions.

Speaking to your accountant

Different accounting firms do this in various ways. For us it is simple. We are all over the social media world, we have office lines, mobiles and email. We have an office you can just drop into. I can’t tell you this is the case industry wide, as a lot of clients we gain cite difficulties in taking to their accountant, but in theory it should be very straightforward!

I am not happy with my current accountant – how can I work with another one?

If you already have one who isn’t servicing you / you don’t feel is it is an investment, it is usually fairly easy to switch.

A little like switching your energy deal, there is a small amount of hassle but it’s fairly painless. You find a new one you are happy with, then tell the old one you are leaving. The new accountant should then write to old one as a professional courtesy and request some ‘handover’ information.

The main point you need to consider is where you are with your payments to them and what work is due to be completed. Many forward thinking firms spread the cost of an annual bill across a period of time on monthly direct debits, so you may find its most cost effective to let the current accountant finish your previous year end and the move (for example). Worth chatting this through before deciding.

Regular practicalities

Depending on the interval at which you work with your accountant, you will need to ‘drop your paperwork off’ at a given point. This paperwork will almost always include:

  • Invoices / Receipts you have given to your customers
  • Receipts and invoices you have paid or need to pay to your suppliers
  • Business bank statements

How these are delivered depends largely on whether you are in the cloud. For example, many of our clients have access to ‘Receipt Bank’ or ‘Auto Entry’, the two market leading phone apps that allow you to photo receipts and then they arrive in the cloud. We can access them there.

Bank statements will then usually be transmitted straight into the accounting software (daily in most cases), so it’s rare to need the actual statements. If you are not in the cloud, you will need to make sure you have all of your statements accessible. From experience over the years, chasing missing periods of bank statements is the number one time waster for clients (and us), so being in the cloud really helps here!

If your affairs are not ‘usual’ business related, such as rental property, or you need less support, you may just drop everything in once a year to be reviewed and worked on.

Currently a large portion of UK business will still not be in the cloud, so it can be they will just drop their papers in ‘shoe box’ style – where it’s a box, folder or bag of this information. This information is then taken by the accountant and worked with internally.

Sometimes there is a mix of online and manual records, so you may email or (upload to a secure portal) some records. Or maybe you are paperless but just not in the cloud. Again, accountants work in different ways but they will find the right way to work with you.

The most important point to remember on manual records is that HM Revenue & Customs are rolling out ‘Making Tax Digital’ . Under these plans business will NEED to have digital records and software that can transmit data quarterly to HM Revenue & Customs. If you are not thinking about digital now, you should be, as for some business this starts April 2019.

Some of the wider benefits of cloud accounting are covered here by the market leaders .

If the accountant is carrying out Payroll or Construction Industry Scheme (CIS) services for you, you will provide them with details of the relevant employees or sub contractors. Often just an email will do.

What the accountant does

This largely depends on what services they carry out for you, but will normally involve taking those records and completing returns (such as VAT/Tax/CIS), turning them into accounts (regular or annual) or preparing your payroll.

They will then report these back to you for discussion. The format this comes in varies from firm to firm, but from our point of view it would be a mix of face to face, calls, emails, electronic and/or print (client preference).

If you are in the cloud, you can then look at your figures after the accountant has worked on them straight away and whenever you like. If you love nothing more than drilling down into your numbers, you can!


When does it make sense to invest in an accountant?

Whether you are a start-up, or a longer term tax ‘DIYer’ the question (and the answer) is applicable to you.

The short answer to the question of ‘when does it make sense to invest in an accountant?’ is pretty straightforward for the reasons we will cover:

Now. If you are a start-up, especially now.

Let’s look at where you could be on your business journey:

I’m a start up, is it a good idea?

At the early stages of your business you will need advice, crucial advice. You surely have questions such as:

  • How should I keep my records?
  • How do I invoice?
  • How do I pay myself?
  • Do I need insurance?
  • Do I need a separate bank account?
  • What can I claim against my tax?
  • Can I claim ‘X’ as a business expenses?
  • How do I pay tax? What about National Insurance?

Etc.

I am always up front on this point, and I passionately believe you are not giving yourself the best chance of success if you do not seek professional help at the beginning. 

Getting the right answers to the above is crucial to getting you off on the best start.

You may say, ‘But Dan I can’t afford that’?

If you are serious enough about business success you will cover that payment back in income you gain for your customers, so you aren’t paying it, they are. Well, them and the taxman.

Good accountants will in most circumstances cover their costs in tax savings. Firstly, their fee is tax deductible. Secondly, they will ensure you aren’t missing out on tax relief, and if you are a Limited Company, the options for tax savings with the right advice and structure are easily more than the fee.

The biggest disconnect with using accountants in the start-up stages (or in any stage) is they can be seen as an overhead, because you pay out monthly/quarterly/annually for them. Its difficult to see the end game, in that when it comes to tax bill time, your tax bill is likely to be reduced by at least their fee as a result of their work, but because you don’t get physically handed back the tax its more challenging to picture the benefit!

Using purely fictional figures as an example, you pay say £200 a month out to your accountant. Tax bill comes and its £1500 – you think ‘eurgggh £1500 tax bill’, when in reality without the accountant it could have been £6500. So the taxman has paid their fee and you’ve gained on top.

While all this is going on, working with an accountant you’ve enjoyed great advice, tax savings, piece of mind, access to their professional network and saved yourself the most important thing of all – TIME.

I’m a ‘DIYer’, why should I switch to using an accountant?

For the same reasons as above, working with an accountant will save you money and increase your income in most circumstances (either directly or in time saving). But if that is not enough of a reason, let us look at some other potential issues with doing what you are doing.

‘But Dan, filling in a self-assessment tax return is easy if you are self employed’

Easy to complete? For some, possibly. Easy to ensure the figures you put in the boxes are correct to current tax law, and that you aren’t missing out on other opportunities for tax relief? Not easy.

I’ve lost count of the amount of clients over the years that have come to us as they are being investigated by HM Revenue & Customs and need help in resolving it. In most cases they hadn’t knowingly done something wrong, they just didn’t know the law. HMRC have the power if they suspect your return is incorrect to review the past 6 years returns (more in the right circumstances). The penalties can be up to 100% of the additional tax due. Is it still easy to do now?

A relevant story on this is two different clients in this situation who under the box ‘wages’ put in their own ‘wages’ (drawings) from the business. This reduced their tax bill massively. This box isn’t for their wages, its for any one who works for them. In come HMRC for their tax, interest and penalties!

If you are a limited company, its actually very difficult, if not impossible to complete a year end on your own due to the lack of the software required to submit the format of accounts needed to HMRC. However we do see a lot of people self-forming limited companies and then worrying about the year-end later. If this is you, let me ask you:

  • Do you have your Articles of Association to hand?
  • Do you have the company registers for inspection if required?
  • Do you have a Persons of Significant Control register up to date?
  • Have you got a payroll system running during the year to maximise your own earnings?
  • Have you timed your dividends at the correct dates to ensure no personal tax issues?
  • Do you have the paperwork required to make those dividends legal?

I’ve never met anyone who is a ‘DIYer’ that has all of the above, just as a start. Sorry to be a little ‘doom and gloom’ on this one, but there is a serious amount of company and tax law here! The good news is all the above is fixable, but you need to take action now.

Accountants are unapproachable

I’ve heard this a few times. I guess the stereotype is an issue here, and with all stereotypes there must have been some truth to it! All I can say from my own experience of the industry is that it is changing, and fast. I’ve met some truly great accountants, who are super enthusiastic, knowledgeable and down to earth. I will write a future blog on finding the right accountant for you, but for now, if you go and meet someone and don’t ‘click’ with them – visit a few more.

I hope you have found this useful and informative. For more information on any of the above, contact the Heelan Associates team.