Do I 'really' need an accountant?

brantwood150

Poppy9 wrote:

And you wonder why people don't like accountants:o

I tried to put into plain English the end of year procedure in a form a lay person will understand. You are just nit picking:mad: . For a lay person its easier for them to understand that Accruals are accounting for payments/income from a future trading year in the accounting trading period which has just ended. They are familiar with the term Creditors/Debtors there is no need to confuse them. A small business book keeper just needs to keep to basics and not get too technical.

As an accountant with over 20 years experience I know that some people suffer number blindness and panic and others can grasp the concept if you keep it simple. Completing a Self Assessment form is not rocket science but it terrifies some people and they will never understand the concept. IMO the OP has been given some sound advice. None of us know his level of competence in book keeping/accounting. My brother is a bag keeper who likes to deal in cash, my sister an excellent book keeper via bank transactions etc . My bro is happy to pay the accountant whatever he wants for sorting out his smelly, grubby bag (as I'm not touching it :rotfl: )

The OP has to make the decision which is best for him.

Sorry if that seemed like a bit of a rant but I get fed up of the "bar-room" accountants who seem to think that accountancy is money for old rope. I've had conversations with people who claim that they know it all and that could do the job and then go on to show how they actually don't know what they are talking about.

Anyway, back to the point in hand. I agree with what you say in the main and, for most people, completing a SA tax return shouldn't be complicated. The difficulties come with the stuff that goes behind the self employment section. I've heard all sorts of rubbish about what people think they can claim deductions for. :mad:

With regard to the bookkeeping and accounts preparation side of things, I think that if more people were given a little more knowledge about some of these terms then they would be better placed to understand whether they need an accountant or not.

However, I just don't think that confusing them with the wrong terminology will help. We don't teach kids in school about WWII when we mean the Vietnam war just because they will understand the words "WWII" better. They are different things.

If someone knows what their accountant is talking about when he/she mentions accruals/prepayments and tries to blind them with science (=baffle them with bullsh** in some cases) then they can probably make a better decision about whether they need an accountant or not. Alternatively, they could help to bring the fees down if they understand more about what the accountant has to do and can do some of that work before handing their stuff over to him/her.

Educate people but do it properly. Dumb it down (not said in a condescending way) but use the right words.

For the record, I've been doing this for over 20 years as well and I have always done my best to educate clients to help themselves as far as possible (using the right terms of course .

ninky_2

i've heard that if you have an accountant and they make a mistake, you are still financially responsible for the mistake. you can sue them for negligence but this won't necessarily help - especially if they go bust or disappear. does anyone know if this correct?

also, if you do your own tax, it makes you take more responsiblity for your finances. most people can learn to do most things. that's not to discredit accountants. but as they say - self-assessment doesn't have to be taxing

brantwood150

ninky wrote:

i've heard that if you have an accountant and they make a mistake, you are still financially responsible for the mistake. you can sue them for negligence but this won't necessarily help - especially if they go bust or disappear. does anyone know if this correct?

Unfortunately, correct. The tax is your personal liability and you sign off the tax return to say that it is correct. If you have appointed someone to advise you about what to put in the return, and they advise you incorrectly, than you have still submitted an incorrect return and the liability for any tax and/or penalties is primarily yours.

If your advisor has been negligent in advising you then you can sue them for any loss arising from their negligence. However, proving negligence is notoriously difficult to do. (Generally, cases of professional negligence rarely end up in the courts - their insurance companies nearly always settle out of court)

ninky wrote:

also, if you do your own tax, it makes you take more responsiblity for your finances. most people can learn to do most things. that's not to discredit accountants. but as they say - self-assessment doesn't have to be taxing

I'm all for people taking more responsibility for understanding their own affairs. Whenever I've been to see solicitors or financial advisors and they advise me on a course of action, I am always a pain in the @ss and want to understand the reasoning behind them coming to that advice. I think it's important to take a level of ownership instead of devolving everything to someone who may, or may not, be giving good advice.

Debt_Free_Chick

But there is no requirement for the self-employed to account on an accruals basis, is there? I thought accounts could simply be drawn up on a receipts & payments basis i.e. you include in your accounts what you've actually received (fees for services) and what you've actually paid out (expenses incurred).

You still depreciate, but there is no requirement to accrue for work done, but not invoiced; invoices issued, but not paid; and expenses incurred, but not settled. You just need to remember to add back the depreciation to calculate taxable profit and claim capital allowances instead.

With a bit of research, it can be done IMHO. The most crucial thing is to the books as you go along i.e. every week (or day, preferably!). Do a bank reconciliation monthly, when you get the statement and the year-end takes no time at all.

Cook_County

Barristers are permitted to use a cash basis for the first 7 years of their business. There is a current debate about whether or not professionals (such as accountants) need to accrue for work in progress (related to accounting principles).

Those on income of less than £15,000 by concession can use the cash basis.

Everyone else? Hands up!! Accruals is mandatory...

Professionals with qualifications have to hold mandatory indemnity insurance (and it sure is expensive!). If you choose a qualified person they are paying for you to be covered.

Debt_Free_Chick

But there is no requirement for the self employed to prepare accounts at all - except in certain professions. A plumber is not required to prepare accounts, although there may well be reasons why it might be a good idea to do so e.g. to raise finance.

All a plumber needs to do is to declare the right numbers to complete the self assessment tax form. And that is just profit, derived from income to the business (fees for work done) less those expenses allowed as a deduction for income tax. A simple statement of income & expenditure is all that's required.

WHA

Debt_Free_Chick wrote:

But there is no requirement for the self-employed to account on an accruals basis, is there? I thought accounts could simply be drawn up on a receipts & payments basis i.e. you include in your accounts what you've actually received (fees for services) and what you've actually paid out (expenses incurred).

I'm afraid that is not correct - Extract from Inland Revenue Help Sheet IR222 - http://www.hmrc.gov.uk/helpsheets/ir222.pdf Perhaps you are getting confused with the "cash basis" for VAT which does allow VAT returns to be completed based on actual income and expenses.

"HOW BUSINESS PROFITS ARE TAXED
Profits which arise from carrying on trades, professions and
vocations cannot usually be worked out by simply adding together
the cash receipts of the business and deducting expenses paid out.
This would show the business's cash flow, but it would not
normally be a proper measure of its profits. To arrive at the profits
it is necessary to draw up accounts using the methods which
accountants have developed for dealing with income which has
been earned but not received, expenses which have been incurred
but not paid or paid but not fully used, and so on. And the profits
arrived at using these methods - the commercial profits - have to
be adjusted for tax purposes. This is because in arriving at the
commercial profits some items of income or expense may be
recognised as not taxable, or tax deductible, and other special
allowances may reduce the amount of profits which are taxable."

Cook_County

Martin's Board is excellent and should not spur on controversy. However even your friendly local plumber must draw up accounts to complete his or her tax return using accounting principles. HMRC do a good job of explaining this on Help Sheet IR222 (http://www.hmrc.gov.uk/helpsheets/ir222.pdf)

Debt_Free_Chick

Nnnoooooo! IR222 tells you how to calculate your taxable profits - it's making the point that (if you have accounts) any profit shown in your accounts is NOT the figure to use when you complete your tax return. Read this bit again.

"And the profits arrived at using these methods - the commercial profits - have to be adjusted for tax purposes. This is because in arriving at the commercial profits some items of income or expense may be recognised as not taxable, or tax deductible, and other special allowances may reduce the amount of profits which are taxable."

The self-employment pages on the self assessment form actually have a section headed "If you do not have accounts".

You do not need to have accounts if you are a sole trader - but if you do, you must NOT use the profit shown on those accounts. As an example, you must add back the depreciation on any fixed assets and claim capital allowances instead.

Business Link

"If you are a sole trader or partner, you can choose not to prepare formal accounts, but you still need to keep records of income and expenditure over a set accounting period".

With respect, you seem to be looking for stuff that you think confirms that sole traders must complete accounts?

Debt_Free_Chick

WHA wrote:

I'm afraid that is not correct - Extract from Inland Revenue Help Sheet IR222 - http://www.hmrc.gov.uk/helpsheets/ir222.pdf Perhaps you are getting confused with the "cash basis" for VAT which does allow VAT returns to be completed based on actual income and expenses.

"HOW BUSINESS PROFITS ARE TAXED
Profits which arise from carrying on trades, professions and
vocations cannot usually be worked out by simply adding together
the cash receipts of the business and deducting expenses paid out."

I agree - as not all the expenses are allowable as tax deductions ... so you work through IR 222 and it tells you how to treat your expenses. For example, if you buy a piece of equipment e.g. a computer, you cannot claim that as an expense. Instead, you ignore that expense when calculating your taxable profit and claim Capital Allowances instead.

All of this enables our plumber (and me!) to complete our tax return and pay the right amount of tax.

As an addition, we may choose, should we so wish, to have "proper accounts" drawn up using conventional accounting methods. This would show a different figure for profit - might be of interest and might be necessary if we wanted to raise finance - but there is no obligation for us to do this.

Please ... if you are going to post a link, can you post one that states that a sole trader must prepare Trading Accounts?