Do I 'really' need an accountant?

WHA

Back to "Bar Room" accountancy I'm afraid.

I've never said that formal accounts have to be prepared if you look at my posts.

What I have said, and what is the correct legal position is that the taxable profit cannot be simply based on "money in and money out" as you claim.

You will note that other posters have also referred to the necessity to deal with accruals, debtors, creditors, prepayments.

You have appeared to completely ignore the first part of my extract from the Inland Revenue instructions which I am repeating below:-

"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.

A further link is as follows:-
http://www.hmrc.gov.uk/manuals/bimmanual/BIM74001.htm from which I quote:-

"the ‘earnings’ or ‘accruals’ basis which traders and companies must adopt. "

So to summarise, you don't need "formal accounts" but the figures you enter on your tax return must be calculated using the "earnings or accruals" basis.

brantwood150

Debt_Free_Chick wrote:

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?

Agreed, you do not have to prepare accounts as a sole trader, but that wasn't the point that this thread started over. What we are looking at is whether our plumber needs an accountant to help him deal with his tax obligations.

Q. Does he need to prepare accounts?
A. No.

Q. Does he need to complete the self employment pages of his SA tax return.
A. Yes.

Q. On which basis must he complete the information requested on the Self employment pages if he doesn't prepare accounts?
A. An accruals basis!

The following is taken from the Self Employment help pages:

"If you do not have accounts

You should work out your taxable profit using generally accepted
accountancy principles. These Notes (particularly the glossary on
page SEN12) will help. For further advice on how your profits are
taxable, what to include in your turnover and what expenses are
allowable for tax, ask the Orderline for Help Sheet IR222: How to
calculate your taxable profits."


This specifically states that you must use GAAP to work out your taxable profit. UK GAAP does not operate on an Income and Expenditure basis. It operates on the accruals basis.

Even if you do not prepare accounts, you are referred to IR222 with regard to calculating your taxable profits.

If you look at SEN 12 as referred to in the extract above it discounts the cash basis as an acceptable method (with a minor exception for Barristers). It also specifically defines Turnover (also referred to in the extract above) as being on the earned basis, not on a cash basis.

SEN 8 covers the expenses you can deduct. You are required to adjust for stock - on an Income & Expenditure basis you would not do so.

Etc….

Poppy9

Now now children stop squabbling be nice to one another :grouphug:

For any sole trader you need to keep clear records which can be audited by the IR to demonstrate how you arrived at the figures you input on your tax return. The easiest way is via a basic set of accounts. Accountants are lazy so and so's:eek: (well time is money) which is why we have developed a simple, standard method to draw up accounts. If you are a disciplined book keeper with an aptitude for numbers the system is quite straight forward and it will ensure that year on year you are consistent with your end of year adjustments.

As mentioned it is better if the trader does regular bank recs and book keeping as its easier to sort out problems (like bounced cheques, DD mistakes) when they occur rather than 6 or 12 months later.

If you are paying an accountant to draw up your accounts and have kept your books uptodate it may not necessarily be cheaper as they will still have to satisfy themselves that your bank rec etc are correct. A few years ago a friend who was treasurer of a local branch of a charity asked me to help him balance his books to complete his annual returns to the main body. Oh boy - took me so many evenings. He had 3 bank accounts going for different things but he was just using them randomly, ticking off his bank statements but they were not in his books, transposing numbers, deposit slips & cheque stubs that did not match bank statements etc. He was absolutely clueless and slap dash in his record keeping. Anyway he completed his returns and the charity came and did a small audit. They were so pleased with the accuracy of the accounts - after I had been at them that they asked him to continue.:eek: I made sure I was on holiday the following year - He's not treasurer now.

Debt_Free_Chick

Folks - I think I am at cross purposes here. Apologies.

I thought we were discussing whether or not a sole trader needed to have formal trading accounts. I think we're agreed not (are we?). But that the sole trader must have full records of all the "ins & outs" (staetment of income & expenditure) and then follow the self employment pages and IR222.

I couldn't see any reference to GAAP or "the accruals basis" in either document. But my "bar-room" understanding is that you get to that answer by following the IR guidance

Cook_County

I agree 100% that the plumber must keep books and records (there is a £3,000 fine for not doing this).

We have nothing approaching joined up government which is why for VAT purposes (only) a cash basis can be used.

For income tax purposes (or at least so the government thinks) using generally accepted accounting principles is mandatory. What this does is stop the plumber from saying to a major customer "please don't pay me until the first day of the next tax year" so deferring tax payable by 12 months.

You do not have to agree but these are the rules. Canvass Gordon Brown please as we'd all like them simpler!

brantwood150

Poppy9 wrote:

A few years ago a friend who was treasurer of a local branch of a charity asked me to help him balance his books to complete his annual returns to the main body. Oh boy - took me so many evenings. He had 3 bank accounts going for different things but he was just using them randomly, ticking off his bank statements but they were not in his books, transposing numbers, deposit slips & cheque stubs that did not match bank statements etc. He was absolutely clueless and slap dash in his record keeping. Anyway he completed his returns and the charity came and did a small audit. They were so pleased with the accuracy of the accounts - after I had been at them that they asked him to continue.:eek: I made sure I was on holiday the following year - He's not treasurer now.

I think we've all been there. It took me a week to sort out the accounts of a small non-profit organisation. Entries made twice, entries not made at all, entries made that were also made in the previous year, entries that did not agree to the invoice or the cheque amounts!

:eek:

brantwood150

Poppy9 wrote:

Now now children stop squabbling be nice to one another :grouphug:

Sorry Mum

Lawbag_2

500 cost of accountants, on an 18k salary is a lot!

Poppy9

Lawbag wrote:

500 cost of accountants, on an 18k salary is a lot!

Don't wish to upset you but a qualified accountant earns quite a bit more than 18k:dance:

Poppy9

brantwood150 wrote:

Sorry Mum

Now there's a good boy - go and get a treat out of the sweetie jar!