Accountancy Help

[User2468]

So, DH has a company. We're not happy with the service from our accountant and are looking for a new one but... they all seem to want to charge a monthly fee for management accounts but our record keeping and software are so good I don't think it's needed, I'm a qualified bookkeeper but inexperienced (in my opinion).

Is it possible or sensible just to use an accountant for payroll and then just at year end for tax planning and tax calculation? I'm happy doing VAT, checking transactions and basic management accounts. Currently we have insurance in case of tax investigations, can we get this if they don't do our management accounts?

Am I missing anything?

With "making tax digital" coming in next April (2018), most accountants are looking forward and trying to set up their clients for the new reporting requirements. Most are working towards online/cloud book-keeping so that the quarterly reporting required by MTD can be met.

If you don't know what it's about, it's basically HMRC requiring quarterly reporting of sales, expenses and profits instead of yearly, and they want that reporting done online using book-keeping software. So you're looking at 5 submissions to HMRC instead of just the annual accounts/tax return (1 submission for each quarter and then a final submission to cover year end adjustments). Unfortunately, HMRC are swaying in the wind about exactly what they want and from whom. So there's a lot of doubt as to who falls under the new regime and from when. There's also doubt as to what information HMRC require - at first they said all transactions, so basically a dump of every single payment/receipt submitted electronically. Then they changed their mind and currently are saying they need totals of each income/expense category. But it's still unsure whether they want cash or accruals basis and whether they want quarterly adjustments for estimated debtors/creditors, stock, reversals etc. The last I heard, it was VAT registered businesses first from April 2018, but somewhere else I saw that limited companies were being given an extension to maybe 2020, and non VAT registered businesses maybe 2019. They're not even sure what records you have to keep or in what format. Initially they said spreadsheets weren't acceptable, now they say that some totals from spreadsheets may be. They've said that software will be needed and that they won't be providing it nor providing any "portal" via their website like the existing VAT submission system.

But basically, within 2/3/4 years you'll have to start reporting quarterly. The killer is that whereas currently you get 9/10 months to prepare and submit your yearly accounts/tax return, under MTD, you're going to get a month at best, some suggesting even less than that, so there's simply no time for book-keepers/accountants etc to do all the number crunching for every client every 3 months.

Hence why there's a big movement towards improving client book-keeping and working on cloud/online systems to benefit from time saving functions such as live bank feeds etc. The cloud systems will be able to make the submissions to HMRC at the touch of a button.

So, there's the background as to why you may find accountants are looking more towards management accounting these days and away from the old "norm" of clients giving them all the relevant "books" once a year a few months after the year end. The whole playing field is changing and unfortunately, due to HMRC not having a clue what they're doing, no-one knows what the new field will look like!

Thank you, helpful and confusing!

Have spoken to accountant and management accounts differ to what is on our accounting system mostly due to depreciation, they are done to give a more accurate estimation of corporation tax and if we can take dividends, but I fail to believe that every business using Xero has to pull it all off into a spreadsheet.

It doesn't surprise me one bit that HMRC don't know arse from elbow, it might therefore be realistic for us to drop management accounts until 2018 at least.

I do have a basic idea of management accounts but I am NOT a tax accountant. I think DH would rather pay me an extra £200 a month for an almost accurate view than the accountant, but I don't want to underestimate tax. Not that we're a fly by the seat of your pants company who may run out of money, we just like to be prepared!)

If it's for working out how much dividend can be paid, then management accounts under the proper basis could be essential as you do need to know corporation tax provisions and deal with depreciation, reversals, stock values, etc., to be able to work out the maximum dividend you can pay. So in theory, you could need up to date management accounts every time a dividend is taken.

It matters most if you're always taking out the maximum dividend you can, i.e. if you have personal needs that require as much as possible, leaving as little in the company as possible.

However, if the company has relatively large reserves, then it's not so important as you can more easily maintain a big enough buffer between reserves and dividends so you don't risk going too close. You would also not need them if, say, last years final account showed reserves of £50k and you only needed to draw £40k in dividends throughout the current year - as they'd all be covered by the £50k "proved" in the last full accounts.

So, it's really down to your circumstances, how complicated the accounts are (i.e. whether you have varying stock levels) average company reserves, etc., whether you need management accounts to "prove" the amount of available reserves for dividends.

If it turns out you've paid excessive dividends, (i.e. more than post-tax reserves), the dividend is actually illegal under company law and has repercussions as regards your personal tax, company tax returns, etc., which may ultimately lead to paying more tax than you needed to and possibly penalties etc.

You may like to trial Freeagent which does a very good job at automatically posting depreciation and estimating tax liabilities, so as to give you an automatic "post tax profit"/"available for dividend" figure straight on the screen, updated with every transaction you enter. From memory, price is similar to Xero. I don't know Xero too well, but don't think it includes a live corporation tax calculation/provision.

I second free agent - it's does all the tax estimates for you

I work for a SME and I do all the finance and we just use an accountant for payroll and year end.

I don't understand why we pay the accountant to do payroll to be honest as I did it all in my previous role but it was already in place when I started here so they just continued.

We use free agent and I can see some people recommend but personally I hate how basic it is. If you have a small company then I guess it's ideal as it gives you all basic information. My brother has his own small business and he uses Xero as recommended buy his accountant but I believe his accountant deals with all VAT returns.

Yeh it's best for companies that are pretty small with a handful of employees - maybe not for the larger SMEs