How is your Accountant helping you?
4th November, 20140 Comments
Written by: Hoffman & Cohen
When taking over a new client, one of the first questions accountants usually ask is, the reason for them leaving the previous accountant. More often than not, the answer is usually that they are paying more in taxes than they should.
This answer always amazes me, considering, majority of small business owners does not understand taxes. Funny enough, upon checking their previous work, we sometimes find out that correct taxes were paid if the work is done by a competent accountant.
So, what is the real reason of leaving the accountant?
There may be many legitimate reasons, such as the accountant was not proactive or not returning their calls/emails or may be not maximising the client's tax savings etc. What is not a legitimate reason is the client being unaware of the amount in taxes/penalties the previous accountant may have already saved them.
What does that mean?
Any accountant, who is competent and experienced and understands your business would save you the similar amount in taxes as their fellow colleagues. On top of this, an accountant will make sure that you do not pay any late filing penalties and will keep you informed on the interest that may be due on late payments.
So why would the client leave the accountant?
The client is not leaving the accountant because the accountant failed to do his/her job. The client is leaving because the accountant failed to explain to the client on the amounts he/she has already saved for them. The accountant has failed to explain to the client on the amount of taxes they would have paid if the work was done by someone not so competent or experienced. The accountant has failed to explain to the client the potential savings in interest and penalties that would have incurred if the work was not done on time.
So what is your accountant actually saving you?
Let’s keep the tax savings apart and take an example of a business with a turnover of £600,000 per year, paying an average quarterly VAT of £25,000 per quarter to HMRC and has 15 employees.
Let’s say you want to save money in accountancy fees and chose do your VAT’s yourself. Now as a business owner, you are already busy trying to make more money, which could result in you filing and paying your VAT late (We have seen this many times). The potential surcharges you would have incurred and what your accountant may be saving you is:
- First default – No surcharge.
- Second default – 2% of £25,000 i.e. £500.
- Third Default - 5% of £25,000 i.e. £1200.
- Fourth Default - 10% of £25,000 i.e. £2500.
- Fifth Default - 15% of £25,000 i.e. £3750.
I will keep it simple here and will not get into penalties on inaccuracies or interest charged on late payments. This means that your accountant may have already saved you between £500 - £3750.
Let’s discuss payroll. You may be processing the payroll yourself, which is in itself a not so simple task. The potential penalties you will incur if you fail to file the payroll at the year end or return your RIT late are:
- £100 per 50 employees and accrue for each month that the return remains outstanding after 19th of May. We have seen businesses filing payroll yearend two to six months late incurring a penalty of £200 - £600.
- In addition, HMRC will start charging penalties on late RTI returns, which for 15 employees could be £200 per month (£2200 per year on 11 months basis). There may also be additional penalties on returns that are over three months late.
In summary, your accountant may have already saved you £600 in penalties that you would have incurred on late filing of payroll year end and would potentially save you in £2200 or more in the upcoming months.
Do you think the savings are worth enough to have a professional help you in your business?
We believe that the majority of small businesses usually have an accountant to process the year end financial statements and corporation tax - preventing them from getting the late filing penalties on overdue accounts.
Do you think it is fair to say that your accountant is already saving you between £700 - £6550 in penalties that you may have paid if you chose to do it all by yourself or instructed a not so competent accountant to do it on your behalf?
Do you realise that we have not even looked into the other savings like not overpaying in taxes or other tax savings that an experienced accountant will be able to help you with? We haven't even discussed the peace of mind of having a professional at your side.
Do you still think that you are overpaying your accountant or not paying the correct amount in taxes?
More importantly, should you be changing your accountant when he/she is working hard to save you as much as possible?
I will leave it on you to decide.
Please note that this article is aimed at business owners who are not very organised with their business financials. There are of course business owners who could genuinely run the business while maintaining and filing their business taxes on time. However, organised business owners tend to understand the importance of their accountants and most of them would choose to delegate the tedious task of tax savings to their accountants so they are able to do what they do best.
Accountant Directory is not responsible for the articles published by members. The views expressed are those of the member who wrote the article.