There are more than five million limited companies currently registered in the UK, with another 500,000+ registered every year, according to data from Companies House. That means there are many millions of small-company directors likely looking for an answer to that critical question: Do limited companies need an accountant, or can the company’s accounts be done DIY?
As experts in the field of small business accountancy, the team at UWM has put together this no-nonsense guide to accounting for limited companies.
By following our guide, you’ll learn what the legal duties of a limited company director are, what tax responsibilities small businesses have, what percentage of UK-based SMEs currently use an accountant, what an accountant can do for your business, and whether there are risks to doing your accounts DIY.
Contents:
- Do limited companies need an accountant?
- Beyond tax returns: The 8 key roles of a company accountant
- 1) Helping with setup and company registration
- 2) PAYE and payroll management
- 3) Bookkeeping to help you improve cashflow
- 4) Filing your company’s annual accounts
- 5) Providing business insights through Cloud accounting software
- 6) VAT registration and filing your annual VAT return
- 7) Filing your annual tax return
- 8) Helping you navigate HMRC’s Making Tax Digital (MTD) scheme
- Weighing the pros and cons: Better to hire an accountant or do your company taxes DIY?
- Knowing when it’s time to hire an accountant for your limited company
- Considering UWM Accountants as your local experts
Do limited companies need an accountant?
Under UK law, limited companies do not legally have to hire an accountant or outsource their bookkeeping to an accountancy firm. As the director of a limited company, you have many different accounting responsibilities, which you are legally obligated to fulfil, but you can technically fulfil them yourself.
However, this answer doesn’t do a great job of answering the question, Do I need an accountant as a limited company? Because the truth is that the vast majority of limited companies in the UK choose to hire an accountant all the same. In fact, 91% of small businesses and 81% of micro businesses in the UK report using an external accountant within the last 12 months. Moreover, 76% of all MSMEs agree that having an accountant on board adds significant value to their business.
What this tells us is that, whilst it may not be a legal obligation to hire an accountant, most limited companies do still need one if they want to succeed and/or grow.
Exploring the responsibilities of limited company directors
As the director(s) of a limited company, it is your sole responsibility to:
- Keep your company records up-to-date
- Report any changes to those records to Companies House/HMRC
- File your company accounts annually
- File your Company Tax return annually
- Calculate and pay any Corporation Tax you owe, and
- Follow all company rules as established in your ‘Articles of Association.’
That’s a lot for just one or two people (typically) to deal with, especially when you consider that a director’s primary job is to manage their company, their employees, and the company’s profitability. This is precisely why the majority of limited company directors choose instead to outsource one or more of these tasks to a trusted accountant.
Beyond tax returns: The 8 key roles of a company accountant
Let’s take a look now at the eight key tasks an accountant can complete for you and your business, whether it’s micro, small, medium or large; just starting out or many years into trading. Whilst you’ll probably recognise some of these roles as the natural domain of an accountant, others may surprise you…
1) Helping with setup and company registration
One of the lesser known, but highly important bits of company admin that accountants can assist with is the incorporation of a new limited company. All companies must be legally registered with Companies House before they can begin trading, requiring a decent amount of paperwork and legalese, including:
- Selecting the right type of limited company setup for you
- Registering shareholders and guarantors
- Identifying PSC (people with significant control)
- Registering a name for your company
- Establish your Articles of Association
- Make note of what records to keep, and how.
Not only can an accountant take care of the registration paperwork for you, but they may also be equipped to offer tailored, expert advice at each of the steps listed above, ensuring your company gets off to the best start possible.
Moreover, accountants are able to help you to further establish the financial framework of your new business during the registration process; including, for example, registering for PAYE.
2) PAYE and payroll management
And speaking of PAYE… If your limited company will be employing other people besides your directors, you’ll need to register a method of paying your employees.
Payroll management is one of the fundamental processes in almost every company the world over. Not only is payroll management how you ensure your employees are paid for their work in a timely, reliable manner, but it is also how you meet the legal requirements of a UK employer to withhold and contribute to Income Tax and Pensions.
Typically, limited companies register for ‘Pay As You Earn’ (PAYE) with HMRC. PAYE is the nationally recognised system for withholding employees’ Income Tax and Pension contributions, and passing these on to the relevant bodies.
An accountant can not only help you register for PAYE in the first place, but can also manage the entire payroll process for you: ensuring your employees’ wages are calculated and paid on time, every time, according to their individual tax codes.
3) Bookkeeping to help you improve cashflow
As a company director, it is your duty to keep detailed, accurate, up-to-date records of all money coming into and leaving your business. In a word, bookkeeping. Typically, however, company directors are more inclined toward cultivating new ideas, managing people, and generating income than they are au fait with the company accounts.
By hiring an accountant for your company or outsourcing bookkeeping to external accountants, you can be sure of two things. Firstly, that you will have a really useful store of information to refer to when making financial decisions for your business. Secondly, that your accounting obligations to HMRC and Companies House will be legally met. These include keeping records of:
- All money received and spent (including all corresponding documents, such as invoices, receipts, petty cash books, purchase orders, delivery notes, bank statements, etc.)
- Assets owned by the company
- Debts owed by or to the company
- Stock owned by the company (including records of each stocktake)
- Goods bought and sold by the company (and who they were bought and sold to, unless your business is in retail)
4) Filing your company’s annual accounts
Every year, you must file your company accounts with Companies House. These accounts include records of any changes to the people within the company, their details, or the company’s details. This is something that some limited companies prefer to complete themselves, as it is less labour intensive and jargony than other administrative tasks on this list. Nevertheless, it’s worth remembering that filing of company accounts can also be competently handled by an accountant.
5) Provide you with business insights through Cloud accounting software
Cloud accounting software is becoming increasingly popular across every industry of business, both in the UK and globally. By hosting accounting software in the Cloud, it becomes instantly and securely accessible wherever you or your accountant has internet connection.
This new level of accessibility allows for real-time accounting like never before, giving you highly accurate, neatly-packaged insights into the performance of your business now, in the past, and for the future.
By employing an accountant who provides Cloud accounting, you get expert business insights and advice without having to pay for the software subscriptions yourself.
6) VAT registration and filing your annual VAT return
Depending on the size or nature of your business, you may well have to register for VAT (or may choose to register for it voluntarily). Take it from a company with 40+ years of experience in the field: VAT is a minefield of complicated jargon, form-filling and record keeping. To ensure you avoid penalties, comply with all legal VAT obligations, and make the most of your yearly VAT bill, it is highly recommended that you get an accountant involved.
7) Filing your annual tax return
Filing your limited company’s annual tax return is probably the most obvious role an accountant can play. Using all those receipts and invoices, accounts, and records of income and expenditure maintained throughout the tax year, an accountant makes the hair-pullingly stressful endeavour of preparing and filing your annual tax return a breeze.
All you need to do is give them the records you’ve kept, and they’ll make sense of all those numbers, file the return before the deadline, and ensure you pay whatever Corporation Tax you’re due on profits made. Combine this accounting service with bookkeeping and payroll management in one small business tax accounting package, and you hardly need worry about crunching numbers all year round!
8) Helping you to navigate HMRC’s Making Tax Digital (MTD) scheme
Last but not least, it is absolutely essential that we mention the ongoing rollout of HMRC’s Making Tax Digital (MTD) scheme—designed to modernise the UK’s tax system.
Under MTD, it will soon be a legal obligation for all small businesses to conduct their bookkeeping electronically, using HMRC-approved software (something which all good accountancy firms will already be using for client bookkeeping). The same software will be required for submitting company tax returns and paying Corporation Tax owed.
In short, partnering with an accountant who uses MTD software will invariably save you both the hassle and subscription costs of becoming MTD-compliant yourself.
Weighing the pros and cons: Better to hire an accountant or do your company taxes DIY?
Naturally, hiring an accountant for your limited company—or outsourcing to an accounting firm—costs money. It is therefore entirely understandable for small business owners to question whether they could instead save cash by doing their accounting themselves: DIY.
Whilst we may be biased, our bias is built on decades of first-hand experience and local, trusted expertise. We say that, unless you are well-versed (if not professionally trained) in accountancy, and have the capacity to devote yourself to all the necessary bookkeeping, record keeping, payroll management etc.—on top of your other directorial duties—it would be risky to go down the DIY route.
Trying to juggle the many different roles of an accountant alongside the day-to-day running of your business will invariably result in slip-ups from time to time. At best, those errors might result in you overpaying tax to HMRC. At worst, you could end up losing employees who become dissatisfied with your payroll management, be hit with hefty fines for late filing (worth hundreds to thousands of pounds), or even face legal action.
To prove this point, it’s worth noting that in the financial year 2023/24, a record number of companies were fined for late filings.
Knowing when it’s time to hire an accountant for your limited company
The best time to hire an accountant for your limited company is as soon as possible. Whether you’re just setting up and are looking for financial advice as well as company incorporation services, or you’ve been trading for a while without one, an accountant will help you stay fully compliant, tax efficient, and ahead of the game financially.
Considering UWM Accountants as your local experts
Accountants are much more than just bookkeepers. These days, with access to the very best, most advanced accounting technology, we can both keep your company legally compliant and offer cutting-edge insights to help you grow and stay financially healthy, no matter what the world throws at you.
UWM Accountants have over 40 years of experience in providing proper, reliable, valuable advice and accountancy services to businesses small and large, across the UK. Based in Yorkshire but with a nationwide perspective, we understand the challenges limited companies face in today’s economy, and we know how to overcome them.
Book a consultation with a member of our small and friendly team today, and discover how we can help take the stress out of your business—leaving you to innovate, explore and grow.
