Started your business recently but not sure whether you need a bookkeeper or an accountant? This blog post tells you what you need to know, including the differences between the two and which services you may require depending on how your business has been set up.
In order to establish whether you need a bookkeeper or an accountant (or both!), it is firstly important to distinguish between what a bookkeeper and an accountant does.
What does a bookkeeper do?
A bookkeeper organises and records the day-to-day incoming and outgoing transactions of a business. Transactions include customer sales, purchases from suppliers and incoming/outgoing payments such as expenses. A bookkeeper will categorise these transactions into different ledger accounts and prepare closing balances at year-end.
They may also provide other ancillary services such as monthly reconciliation of business bank statements (against transactions posted in accounting software, for example), management of staff payroll, and preparation and submission of regular VAT returns.
If you’ve recently set up your own business, it’s entirely possible that you’re doing a lot of this yourself. In the early days there aren’t many transactions to manage and it seems simple enough. However, as you get busier and your records get more complicated, it can get ever more difficult to keep on top of and you can begin to ask yourself why you’re spending more time on your books than building your business. It’s around this time many firms hire their first bookkeeper.
Bookkeepers provide an extremely valuable service to businesses. A qualified bookkeeper can also prepare basic self-assessment tax returns and financial accounts for sole traders and partnerships. However, they do not prepare or submit financial accounts to Companies House for limited companies or produce or submit Corporation Tax returns to HMRC, therefore an accountant is required for these additional services.
What does an accountant do?
A professional accountant can provide a much broader range of services than a bookkeeper; in particular, they can prepare annual financial accounts based on the closing year-end ledger account balances a bookkeeper has prepared.
In addition, they prepare and submit self-assessment and Corporation Tax returns to HMRC, and perform other services including management accounting, such as budgeting and forecasting.
Professional accountants can also perform the same services as a bookkeeper. However, some may outsource the bookkeeping part to focus on the other service areas they provide or treat this as a secondary service.
If your business is a Limited Company or Limited Liability Partnership (LLP)
In a nutshell, you will definitely need to employ the services of an accountant. One of the legal obligations incumbent on limited companies and LLPs is that they must produce and file a confirmation statement and financial accounts to Companies House on an annual basis by the due date, usually within nine months following the business’s accounting reference date.
A set of financial accounts must be produced in a prescribed format and consists of four separate documents; the Statement of Profit or Loss, the Statement of Financial Position, the Statement of Changes in Equity and the Cashflow Statement. All of these documents need to be prepared with precision and accuracy. Depending on the size of your firm, some of them must also be submitted to Companies House.
In addition to filing accounts, businesses must also complete and file a Corporation Tax return to HMRC, usually within twelve months of the accounting reference date. Rather oddly, payment of Corporation Tax to HMRC is usually due before the actual tax return needs to be filed.
In order to keep the financial side of your business organised and accurate from the outset, or as early as possible, it is recommended that you hire both a bookkeeper and an accountant, or a firm who performs both services together, at the earliest opportunity.
If you’ve found yourself wondering what a ‘confirmation statement’ is, or even what your ‘accounting reference date’ is, then don’t worry: one of the advantages of hiring a bookkeeper or accountant is that they can keep on top of this so you don’t have to. Your valuable time should be spent running and building your business.
If you are a sole trader or an unlimited partnership
Unlike limited companies and LLPs, the same legal requirements to file financial accounts to Companies House do not apply to sole traders and unlimited partnerships (i.e. non-LLPs). Therefore, you may only require the services of a bookkeeper; unless you have the patience to manage the recording of daily financial transactions yourself and complete your own tax returns.
However, it is still extremely good practice to produce annual financial accounts for your own purposes if nothing else, as they provide a vital snapshot of the current financial position of the business, and how the business has performed financially over the last tax year. If financial accounts are produced each year in the same format, direct comparisons can then be made against previous years to track performance.
Diligent Accounting can help
It is vitally important that businesses get the financial side right from day one, or as early as possible, to provide the best chance of being compliant with the relevant authorities and, in turn, avoid the potential for fines and penalties.
At Diligent Accounting, we support sole traders, partnerships and small limited companies and can provide you with bookkeeping services only, or both bookkeeping and accountancy services, taking the burden off your hands so you can focus on your business.
We offer a warm, friendly, personalised and dedicated service at competitive prices and we are truly passionate about bookkeeping and accounting. We apply the highest professional and ethical standards to our work at all times and treat your business like it’s our own, supporting you every step of the way.
If you haven’t hired a bookkeeper or accountant yet, then we’d love to hear from you. If you would like to make an enquiry regarding our services, or would like to book a free, no obligation consultation, then please contact James on 07775 513097 or email [email protected].