Limited company formation: why pay accountant to do this?

danwednesday

Hi,

This isn't really a tax question, but I figured the people on this forum might be most able to help out...

I'd like to form a limited company. I have had a quotation from an accountant of £500-700 to set this up, plus £750 per year to do my accounts and tax return.

I just Googled "company formation" and it seems I could set up the company myself online for £24.99. Question is, is there something I'm missing here? Why does the accountant need to charge up to £700 for this? Are there good and bad ways to set up limited companies?

The second part of my question is, if I maintain very good books (using Sage or Quickbooks) why would I need the accountant to file my tax returns for me at a cost of £750? I'm currently a sole trader, and although a pain in the !!!!, I manage to file my own tax returns each year without paying a penny. I realise the book-keeping for a limited company may be slightly more complex, but good software should handle most of this, no?

Obviously, accountants are skilled and highly trained, and can probably offer good advice on how to save tax etc, but I just can't see any value in paying so much to do the mundane tasks such as book-keeping and company formation. That is, unless there's much more to it than meets the eye.

What are people's thoughts on this? Your pointers would be very much appreciated, thanks...

hopon

Are you certain about that formation charge as that seems way OTT. A normal accountants charge is around the £150 - £200 for the company formation, vat registration etc etc. From your point a £25 online formation will achieve exactly the same end result - a new Ltd company that you can trade from.

The difference in costs can be down to whether the memo & articles, incorp certificate etc are provided electronically or hard copy & whether company books with share certificates are provided. Also completion of the vat application, CT41G for the Inland Revenue and so on.

In theory there's nothing to stop you completing your own accounts, CT600's and tax computations as long as you don't require an audit but there is a lot more involved than just your SA return, and the layouts and wording are a lot more specific. You wont get a set of accounts from Sage that would meet the filing requirements of Companies House, but you can take those figures and put them into word/excel etc.

WHA

I don't think you are comparing like for like.

The cost of forming a company is indeed very cheap, if you are just thinking about the companies house side of things. But, what about everything else. Registering for VAT, setting up a payroll scheme, registering for corporation tax, setting you up on the book-keeping, going through the differences, advising on your directors' salary and shareholder dividend planning, adivising on shareholding proportions, possibly different classes of shares, appointments of director and secretary, etc. We spend about 10-20 hours on company formations, only about an hour of which is the actually formation itself. What exactly are you getting for the quoted £500? Have you asked? If all they will do is the formation, with no advice, then they are grossly overcharging, but if they are giving advice as well and dealing with the tax authorities, then you need to pay a lot more. Whether you need to pay £500-£700 is another question - we certainly wouldn't charge that much.

Are they including the finalisation of your sole trader accounts and the transfer of the business to a limited company - there are various tax elections, reliefs etc to make, valuation of goodwill, transfer of equipment written down values and transfers of stock value, transfer of VAT registration, transfer of employers PAYE scheme, etc. If they are dealing with all the transfer issues from the sole trader to limited company, then £500-£700 starts to sound a lot more reasonable.

We do get clients who come to us a few months after forming their own company for the fabled £25 - they're in a hell of a mess as they havn't been doing the books right, havn't been properly accounting for expenses, drawing money out wrongly, not got the right tax applications, not got the right shareholder proportions, etc. It takes A LOT more time to sort it all out and always turns out more expensive for the client than had they paid a little more in the first place and got us to do it for them!

As to doing the accounts etc yourself, do you understand the format of the accounts required by Companies House, including the declarations? Have you ever seen a set of properly prepared accounts under Companies Act requirements? The accounts produced by the likes of Sage and Quickbooks are nowhere near adequate and would be rejected by Companies House and the Inland Revenue. You say that you understand how to do your own sole trader accounts and tax returns - do you know the differences between income tax and corporation tax? do you know the different rules as to which expenses are allowable for companies as opposed to sole traders? You don't learn that sort of information from an off-the-shelf accounting package and the differences are certainly not highlighted on the tax returns. Sole trader accounts/tax and limited company accounts/tax are completely different beasts and to do limited company accounts yourself, you will need to do A LOT of research.

Get a payroll form wrong, or submit it late, and you face a £100 PER MONTH fine until it is corrected - that is far more draconian than the late filing penalties for a sole trader. When you are a limited company, you have to deal with all transactions between yourself and your limited company as at "arm's length" with the proper formalities, i.e. expenses claim forms, payslips, dividend vouchers.

Generally speaking, any accountant is likely to charge between 2 and 3 times as much for a limited company as for a sole trader if you want them to do it all for you (payroll, dividends, tax, accounts, etc). This is not because they charge a higher rate per hour, it is because there is 2 or 3 times more work to do.

dejongj

I've just formed my limited company, total cost from my Accountants nothing, zilch, nada....Then again I have been with them working through an Umbrella solution for the last 7 years....Further costs will be around £1500 ex VAT per annum....This includes my SA return as well.

The setup would have included registration for VRN, PAYE etc....But I wanted to do that myself using the online facilities, just like setting up a bank account etc....For me it was primarily interest, and secondary the 'new' rules about control over your own company....

If setting up included transferring and closing down your current 'trading vehicle' then it doesn't seem excessive, otherwise it is just plain stupid....

Whilst Sage/Quickbooks CAN do the HMRC requirements, previous accountant that posted is definitely wrong there!, I am not aware of the Companies House requirements. I would however seriously suggest to use a professional accountantcy firm as there are all sorts of little rules...And having a continued relationship is all what business is about. There will be times that you need certified accounts, or if you want to remortgage the company won't take your word and books for it....

Make life a little bit easier for yourself and do pay for an accountant, but don't accept a £700 start up fee, that seems daft...

Sugarloaf

My accountant told me that the cost of preparing a set of accounts for a Limited company liable to IR35 calculations could be in excess of £700 as well as the cost of running a PAYE scheme and the cost of dealing with your personal tax return.

I am self employed, but the company I work for have told me they want me to form a Limited company. For me it seems a lot for a one man band, but you might have other reasons to form a limited company.

WHA

dejongj wrote: »

Whilst Sage/Quickbooks CAN do the HMRC requirements, previous accountant that posted is definitely wrong there!,

No, you're wrong, HMRC can and do demand accounts that comply with the Companies Act requirements if they want to.

http://www.hmrc.gov.uk/manuals/ctmanual/CTM93180.htm

This is a very common opening request in an enquiry, and not sending the full set of companies act accounts with your annual corporation tax return has been said to be a factor in them determining whether or not to instigate a formal enquiry. That's not to say some (maybe a lot) of companies "get away" with not sending in their full accounts, and are not picked up by them for enquiry.

By the way, I think you are being overcharged by your accountant if you are paying £1500 for personal service company accounts. There are many specialist firms that do the full package (VAT, payroll, accounts, tax) for £75 per month including free company formation, so you could save yourself and only pay £900 p.a. if you went with one of the specialists.

longforgotten

By the way, I think you are being overcharged by your accountant if you are paying £1500 for personal service company accounts. There are many specialist firms that do the full package (VAT, payroll, accounts, tax) for £75 per month including free company formation, so you could save yourself and only pay £900 p.a. if you went with one of the specialists.

I must say I'm really intrigued by a specialist being able to charge only £75 per month for all that work. Do these specialists pay low rates of pay to their staff ? Or is it to get the 'full package' for £75 your limited company has to be very small.

WHA

longforgotten wrote: »

I must say I'm really intrigued by a specialist being able to charge only £75 per month for all that work. Do these specialists pay low rates of pay to their staff ? Or is it to get the 'full package' for £75 your limited company has to be very small.

This sort of package is available from many chartered firms of accountants for "personal service companies", i.e. people like consultants, interim managers, etc., who, yes, do have simple accounts as they are typically only raising a handful of invoices every month for their time, and have few expenses, typically travelling, and basic office overheads. Obviously a "non" personal service company, that for example buys & sells products or have staff or business premises has more complex accounting and would have to pay a bit more. But, as is clear from the other posters message, he is a "personal service company", and in that case, the £1500 quoted is far higher than he would be offered by several well known and well respected personal service company specialist accountants.

dejongj

WHA wrote: »

No, you're wrong, HMRC can and do demand accounts that comply with the Companies Act requirements if they want to.

Hmmm http://www.hmrc.gov.uk/ebu/ct_techpack/index.htm
This is actually all the information you require to develop your own online filing application. Then HMRC also runs accreditation and recognition schemes for those software development houses with separate support lines for them.

The example linked about is for Corporation Tax, but they also have version for PAYE, VAT, Intercommunity Transit Declarations, Export schemas, EC Sales List and as per the latest budget soon there will also be the reversed sales charge lists....

WHA wrote: »

By the way, I think you are being overcharged by your accountant if you are paying £1500 for personal service company accounts. There are many specialist firms that do the full package (VAT, payroll, accounts, tax) for £75 per month including free company formation, so you could save yourself and only pay £900 p.a. if you went with one of the specialists.

Thanks for that! Although having dealt in a professional capacity with some of the so called specialist companies I do not trust them with a barge pole...First there is their marketing practises, 100's of names (ok a bit less) on the internet for what is effectively the same company...Then they come out with some wild schemes and the 'only legal' sollutions like Giant for example making an absolute fool of themselves....And some others want a %, yeah right!

And my personal tax affairs aren't necessarily that simple, sure I run a one-man Ltd company, but I am not English and have interests in other Eurpean countries...But the most important part for me, I've been doing business with mine for a long time now, they know me, and I know them....And I am happy with I am paying...

WHA

dejongj wrote: »

Thanks for that! Although having dealt in a professional capacity with some of the so called specialist companies I do not trust them with a barge pole...First there is their marketing practises, 100's of names (ok a bit less) on the internet for what is effectively the same company...Then they come out with some wild schemes and the 'only legal' sollutions like Giant for example making an absolute fool of themselves....And some others want a %, yeah right!

We're talking about two completely type of set-ups.

You, I think, are talking about the big "call centre mentality" firms, such as Giant, perhaps JSA, Filetravel, Brooksons, etc. They may have a few "qualified" accountants in there somewhere, but basically their customers deal with clerks, and the firms themselves tend not to be regulated by the chartered bodies.

What I'm talking about are the small 1/2 partner firms, with a handful of staff at the most, property regulated by the chartered bodies, where customers typically deal with a partner/proprietor directly. I know of a couple of dozen such firms off the top of my head, who frequent (and are often highly recommended in) the contractor bulletin boards and advertise on contractor specialist sites, many of whom are also members of PCG, some PCG accredited.

Same rough pricing, but a massive difference in customer service.

DropDebtFred

WHA wrote: »

We're talking about two completely type of set-ups.

You, I think, are talking about the big "call centre mentality" firms, such as Giant, perhaps JSA, Filetravel, Brooksons, etc. They may have a few "qualified" accountants in there somewhere, but basically their customers deal with clerks, and the firms themselves tend not to be regulated by the chartered bodies.

What I'm talking about are the small 1/2 partner firms, with a handful of staff at the most, property regulated by the chartered bodies, where customers typically deal with a partner/proprietor directly. I know of a couple of dozen such firms off the top of my head, who frequent (and are often highly recommended in) the contractor bulletin boards and advertise on contractor specialist sites, many of whom are also members of PCG, some PCG accredited.

Same rough pricing, but a massive difference in customer service.

Can you recommend one of these firms? I need to sort out my situation. I think I have been burnt by trusting Brookson to handle the changover from composite to limited company. They've set up the company, but still no bank account, apparently due to the amount of openings they need to make (why leave all this to the end of the year?). Anyway, i'm a bit fed up with them, so I could do with a recommendation if that's possible?