self employed, do I need an accountant?

si4star

Hi, I'm currently in full time employment and I am starting my own side business. I've registered as self-employed (sole trader) and the business won't have a very big turn over.

I'm hoping to complete self-assessment and all tax returns without having to hire an accountant. I've been looking at a system called FreeAgent to keep track of my ingoings and outgoings and submit tax returns, but I'd like to not have to pay someone or something to do all that.

However, I've been advised against doing it myself, as "it's quite complex" and "an accountant will save you a lot more money".

Is this true? And if not, are there any good guides to make sure I get a good organised start? I've not started trading yet.

If you do post comments, would you mind just letting me know a little about your background so I understand your perspective.

Many thanks.

ALIBOBSY

I do the books for my husband who works as a sole trader and also do tax returns for both of us as we are both self employed.

I find it pretty easy, HMRC give you all the information and its a case of reading the guidence and taking the return step by step.

All that said I have maths qualifications to a level and worked as a benefit adviser and then a pensions adviser and worked for a long time for the DWP so I do have a background in reading government documents etc lol.

I would say unless you have a high turnover its not worth the cost of an accountant and unless you are going to set things up as a limited business they will save you nothing.

In basic terms for a sole trader your calculation is your total turnover ie. what people have paid you, less any allowable costs such as mileage for travel, office costs-this could be a percentage of your home bills if you work from home and there are now some simple flat rates for this which you can claim, parts cost etc. There is guidence on the HMRC site of what exactly you can claim and what you can't.

You put the various details on the online form and at the end the site calculates what if any tax you are due to pay.

In your case if working as an employee where you pay tax your tax allowance will likely be wholly taken up by the job so you will pay full tax on any profit (whats left of your takings after the allowable expenses have been taken off) you make. Online there is a page where you put your info from your yearly P60 form your work so they know to charge yout tax at the correct rate.

Ali x

si4star

That's a great answer and reinforces the way I had understood it. I've read the guidance, and it doesn't seem too complicated. I guess that's why I was so unsure of why people made it sound difficult. The expenses sections in particular seem very clear.

Many thanks for putting my mind at rest.

Have a great day!

Pennywise

Look at it another way. When your car's brakes need replacing, do you take it to a garage or do you try to do it yourself? When your house needs decorating, do you get a decorator or do it yourself?

Like anything, you "can" do it yourself, but whether you do it right is entirely dependant upon how much research you do.

For small sole trader accounts, it's entirely possible to get the return technically correct, but you'll never know whether you optimised your tax position. HMRC will never give any advise on actual tax planning - they'll only "help" fill in your tax return.

That's where a good accountant earns their keep. A few examples that aren't for the amateur are factors such as whether or not VAT registration would be beneficial, whether or not to "employ" your spouse or children if they help in the business (or indeed form a partnership with them), choosing the optimum year end, timing of discretionary transactions, choice of normal basis or simplified cash basis, best option for getting relief for start up losses. Yes, the HMRC guidance looks clear, but it's written with a bias towards them rather than you, so could well suggest that you can't claim some things when in fact, the law, which is what really matters, says you can! And yes, whether a limited company would be a more tax efficient alternative.

Most businesses engage an accountant, even the smaller ones, so they must regard it as beneficial.

If your book-keeping is good and your business is simple, then a decent accountant will be relatively cheap. But, please, if you are going down that route, consult an accountant sooner rather than later as once the year end has passed, your options (if any) are even more limited as you can't change history! And, of course, an accountant can help you from day 1 as regards your book-keeping and set-up optimisation.

tiger_eyes

I'm also a sole trader and I do my own accounts. My business is very simple in structure with very few expenses and I record everything in a spreadsheet throughout the year, so it only takes a few minutes to do my end-of-year tax return online.

[Deleted User]

That is absolutely fair enough if your business is as simple as you say.

Nevertheless you would be amazed at the number of people who profess how easy it all is simply because they are able to navigate the online filing and 'get a figure' at the end. As pennywise says, it is not HMRC's job to minimise tax - just to administer and collect it. They really do not care how much you pay!

Just two examples that I have come across weekly from DIY filers - 1) declaring turnover including VAT for the last six years - of course we could only go back four years to amend. 2) Claiming loan repayments against rental income on a jointly held property i.e. not simply the interest element for the last ten years (still negotiating a settlement on this).

Within the last week my brother-in-law, a consultant at the hospital, has come to me in a totally confused state regarding this ever changing code numbers. Declaring PAYE income BEFORE pension contributions has cost him over £4000 for the out of date years.

It always amazes me when the self-employed see accountancy fees as the first call when trying to reduce costs, the very expense that can save post money.

So yes, most can complete the return and get an answer at the end. Is it the correct one? Have you claimed (or are even aware of) all reliefs and expenses that are available? Can you handle a HMRC query and negotiate a settlement?

If you are of the opinion that you can or are happy to risk that - file away!

tiger_eyes

I do appreciate your comments and I might have a preliminary chat with an accountant. My business model really could not be simpler since it's just me and my laptop, but it's possible that I might be able to count some more stuff as business expenses. Truthfully, I've needed to keep my declared profit up in order to get a mortgage, so finding more expenses hasn't necessarily been in my interest.

POPPYOSCAR

We have run our own business for over 25 years.


There is no way I would do the returns myself as you may think you know what you are doing but the reality is very different.


HMRC are more likely to accept figures from an accountant than they are from you and a good accountant will give advice as well as submit returns. Accountants also have the experience when dealing with HMRC which as an individual you do not.

[Deleted User]

Tiger Eyes (sorry. can't quote yet) - no issue at all with DIY filing so long as you know what you are doing especially if it is as simple as you say.

On the mortgage front, you may find it more difficult. Many lenders will simply insist on accounts prepared by accountants. Some will demand audited accounts (mostly through ignorance). Not having an accountant could limit your scope for the best deals. I hope not. Good Luck!