When it comes to accounts and book-keeping, there are some mighty impressive apps around like FreeAgent and HMRC’s own online tools which might tempt some contractors into thinking that they could save themselves a few quid by DIY-ing their accounts. In true “turkeys not voting Christmas” fashion, I disagree. It is possible, but is it wise? Here’s 5 reasons why I think it’s a mistake:
1.) Do you know enough?
Accounts and tax is complicated, and ever-changing, and while the online solutions and applications are helpful, they can only do so much and if you do not input the correct information ultimately you’re going to get the wrong results.
2.) Is it really economical?
Maybe, maybe not. I reckon that a contractor who DIYs the accounts likely spends the following time on the accounts:
VAT returns 4 X 1 hour
Payroll 12 X 30 minutes
Payroll year end 1 X 1 hour
Personal tax return 1 X 2 hours
Company year end 1 x 5 hours
That adds up to eighteen hours and I think I’m being generous here. Eighteen hours is 2.25 professional days. If your day rate is £400, the “opportunity cost” of this time is £900. Factor in software costs of c£300 per year and you’ll find the the DIY cost is £1,200 which is comparable to many accountants.
3.) Can you be bothered?
We are all constantly bombarded with articles about quality of life, the work/life balance and what have you. Maybe you should consider this when you are deciding whether or not to appoint an accountant. Instead of spending Sunday afternoon catching up on your accounts, why not fly a kite with the kids, take in a film, or simply sit and do nothing for a while. You work hard, you make a good living, you owe it to yourself and your family to take some time off.
(I call this the “can I be @rsed factor”: Yes, I could paint my house, and yes, I could clean my own windows. I could probably lay tiles in my bathroom if I really put my mind to it. But can I be @rsed? Nope. I’d rather be doing something I enjoy)
4.) What happens if you get a tax investigation?
It’s well known that a tax or VAT investigation is a scary thing. And, like dogs, HMRC can smell fear. If HMRC know that you do not have representation, they will exploit this. They’ll ask you questions you don’t know how to answer, they’ll quote legislation to you that you’re unfamiliar with, they’ll generally make your life a misery. If you have an accountant, they’ll take the strain for you. And if you have tax enquiry insurance it won’t cost you a bean.
5.) Do you really appreciate the value that the accountant adds?
This is the real question. Yes, we do do the boring crap like filing your accounts and managing your payroll, but we also add value. If you don’t know this, it’s probably no surprise – look at most “What We Do” sections of a contractor accountants website, and it’ll list a load of compliance tasks that they look after for their clients. Which is great but it doesn’t truly reflect how we operate: a good contractor accountant will be constantly reviewing your financial position to ensure optimal tax efficiency. We can see things you won’t necessarily know about. Fifteen minutes discussing your drawings strategy with your accountant might save a few thousand in tax. I had a conversation with a new contractor yesterday who was considering the DIY route. I mentioned to him that he should make his wife a shareholder in the company to utilise her £5,000 dividend allowance and instantly saved £1,625 for the client.
Incidentally, if you look at our “what we do” section you’ll see we focus on the added value, not the compliance. As an industry, we’re poor at communicating the benefits of dealing with us. We’re trying to change that. You don’t see Audi marketing a new model with “it’s got four wheels, some seats and engine”.