5 Things you need to get your accountant doing for you!

5 Things You Need to Get Your Accountant Doing for You!

This is going to be about as “beginners guide” as I can make it.  The thing with most accountants is they only really have one client ~ HMRC. You just get to pay for their skiing holiday.  That being said, you do need one so I’m aiming here to give you enough accountancy advice and information to squeeze every last drop of value out of your fee. 

Step one: Choose the right Accountant: 

With this in mind, accountants are concerned with Corporation Tax, Dividend Tax, PAYE, VAT and National Insurance so you don’t have to be.  The last thing you want is cheap accounting.  As with all things in life you want good value accounting, so choose someone who knows you and can work through the stuff I outline below in a way you understand. 

Most Contractors work through a Limited Company.  Even if you own that company, the money isn’t yours when it first lands into your business account.  You must do some stuff before it becomes yours.  Let’s call this extraction.  It’s less painful than the type you get at a dentist, unless you get it wrong! 

Step two: Sort out your VAT: 

Before I get to paying yourself, a quick word on VAT.  If the money that comes into the company isn’t yours, the VAT money REALLY isn’t yours.  Think of this as your civil duty, congratulations you are now an unpaid tax collector for HMRC.  You collect VAT if you either have to or want to.  You then deduct any VAT you’ve paid on bills and you pay the rest every three months to HMRC.  There’s a thing called Making Tax Digital which makes this even more painful for some, for now the VAT money isn’t yours. 

Now there’s a turnover above which you MUST register for VAT.  Sometimes it is worth doing so even if you don’t have to.  If you buy loads of stuff and sell to other businesses, it’s probably a yes.  If you sell to the public and take most of the money out of the business to pay staff, it’s probably a no.  Here’s item number 2 to ask your accountant ~ a VAT assessment.  It isn’t just, sell less that 85k and you don’t have to…. you might save yourself a lot of money if you choose to, so ask the question. 

There’s software that can automate a lot of this for you a bit, buy it and use it.  Make sure your accountant is doing the same thing. 

Step three: make the most out of your allowances: 

Once you have got rid of the pesky VAT you probably need to pay yourself a salary.  Everyone gets a personal allowance, so the trick is to make the most of it. Generally, the salary is set to the limit at which you start to pay National insurance, at the moment about £8k a year.  You must enter this into a system that tells HMRC you are paying a salary before its paid.  It’s called Real Time Information (RTI) and alongside Making Tax Digital (MTD) can be thought of as ‘Big Brother’.  Get this wrong and you get a fine.  Item number three on your accountant agenda – how much salary should I pay myself and are you doing the payroll? 

If your Mrs/Mr agreed to marry/civilly partner you and is happy to do some work in the company, give them a job if they don’t earn elsewhere. Even if they do, ask your accountant where the sweet spot is to use both of your allowances.  Possibly also give them some shares to max out on your dividend allowance.  Talk to an accountant. Question number 3. 

Step four: Pay your expenses properly: 

Now pay your expenses.  In an ideal world everything you spend will go straight onto your business debit card and pop up on your software. A little bit of magic and it’s taken care of.  It can get a bit harder though, if you drive a lot (there’s an app for that that measures your mileage and swipe right for business, left for personal) for example.  But there is a number that we will call expenses that you can draw normally tax free from your business.  OK may be a thing called P11D or Benefits in Kind, but this is only a beginner’s guide! 

Deduct your salary and your expenses from the amount of cash you took in, ignore the VAT as that isn’t yours, deduct 19% and that’s your profit. Again, the software will give you an idea of how much this should be and so will your accountant.  Basically, though and although I don’t like this concept sales-expenses=profit. 

That’s why you are here, profit. 

Step five: Stretch those allowances: 

Now when that profit lands in your pocket as dividends you get taxed.  How much this tax is depending on how much you make.  Minimising the tax, you pay is kind of part of the job, and I don’t mean anything illegal.  So, there is stuff you can do like having Mrs or Mr Right working for you and owning some shares works.  Pensions can work for some and you can use life insurances as well.  This bit is called tax planning and is item number 5 on your accountant agenda.  

Happy hunting, my friends and if you would like the full version of this document rather than the Janet and John article get in touch and we will send you our report. 

Contact our talented and friendly Warrington accounting team if you would like to find out more.