If you’re self-employed
Many UK freelancers/contractors start out handling their own finances, but quickly find that it can be very demanding and time-consuming. To manage your cash inflow and outflow, you must ensure that you’re keeping track of how much money you’re making and how much you’re spending. If you don’t have a proper system in place and regularly make time to keep your records updated, you could end up negatively affecting your business.
In addition to this, there are tax issues and changes to tax laws that you need to keep up to date on. Are you paying the right amount of tax? Could you be paying too much or too little tax? An advantage of hiring an accountant is that they can structure your business in such a way that you can make the most of great tax benefits.
An experienced contractor accountant will be able to suggest tax mitigation strategies that will evolve as your business grows. For example, once you start earning above a certain amount, it becomes more cost-effective to run your business through a limited company. Limited company owners pay Corporation Tax instead of income tax. If you run your freelancing work through a limited company, you’ll be taxed at 19% instead of at the income tax rate of 20% or at the higher rate of 40% if you earn more.
Another option attracting many contractors in the UK is working through an umbrella company. Your umbrella company takes care of all your admin, such as ensuring you’re tax compliant, invoicing your client/recruitment agency, calculating payroll, assisting with workplace insurance, deducting PAYE and National Insurance, ensuring you receive holiday, sick, maternity/paternity pay and dealing with HMRC. All you need to do is submit your timesheet and they’ll process everything for you, notifying you when you’ll receive your pay. What’s more, you don’t have to worry about being caught by the IR35 legislation.
Your company has less than 10 employees
When you’re starting out with just a few employees, managing your staff and finances may seem simple and straight forward at first, but taking on a new client or big project can quickly complicate things.
Your accountant can take care of payroll, utility payments and other tax management issues, leaving you free to do what you love and focus on growing your business. A good accountant can help with more than just filing your tax returns. They can also take care of:
- Keeping your company up to date with the latest tax laws
- Annual statements of accounts
- Keeping your company’s status updated in the government’s company register
- Maintaining records of directors and other administrative personnel
- Share/stock allocation, such as when the business is formed, when a business partner leaves or a new partner joins
- Your payroll and ensuring that all employees’ tax codes and payments are recorded correctly
An accountant who has a good understanding of tax laws and legislation can suggest ways you can free up cash flow, save money and raise capital for expansion.
You own an SME with a staff of 200+
Your main focus with a business of this size is to ensure it is running as effectively as possible. You understand that your business will be more profitable at certain times of the year, and less so during other times. A specialised SME accountant is able to analyse your management accounts regularly and place you in a better position to identify these variations. They will also be able to identify key issues such as whether a product or service is not performing well at all, or only during certain times in the year.
With this information, you’ll easily be able to identify trends and see what’s contributing to your business’s successes and/or losses and any problems that could have a negative impact.
Having good management accounting in place will give your company that edge and put you in an excellent position to take advantage of opportunities that will allow your business to flourish.