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Useful Information

Why do you need an accountant?

Keeping on top of your small business finances can be complicated, so hiring an accountant can be the solution. According to Steve Ash, marketing communications writer at Xero Accounting Software, highlights 10 points when taking on an accountant is the right thing for your business.

This article is part of a series on small business accounts and finance issues published in association with accounting system. When you’re running your own small business you end up juggling a lot of different roles. But hiring an accountant is one investment that can really make a difference to your company’s growth. The expertise and knowledge of an accountant is invaluable, whether you’re writing a business plan, dealing with tax compliance or enduring a tax audit.

So, here are 10 reasons why taking on an accountant will help your business

You need advice to write a business plan: If you’re writing your business plan an accountant can give you invaluable help. They can use accounting software to add financial projections and other reports to get a better handle on the numbers. This helps you create a business plan that’s realistic, professional and more likely to succeed.
 
You need advice about your company’s legal structure: Businesses have many different types of legal structure. You could be a sole trader, limited company or even a limited liability partnership. An accountant will explain the business legal structures and will help you choose the right one.
 
You need help with your finances: If you’re doing the accounting on your own, things can soon become complex. You might feel that you’re losing control of your debtors and creditors, or that your own financial understanding is too limited. Hiring an accountant can get you back on track.
 
You’re ready to delegate: One of the best things about running your own business is the ability to be in control of every part of the operation. But as you grow and focus more on leading the business forward, the time will come to delegate more financial responsibility. Hiring an accountant to run some of the financial elements gives you more time at the helm of the business.
 
You have to deal with the government: There is plenty of tax and regulatory paperwork that you need to fill out as your business expands. Dealing with government issues can be quite technical aspects of the running of the business can be daunting. Accountants can help you with more than just tax returns, though. They can help you keep on top of all your regulatory and compliance requirements.
 
In case you’re audited: Once your business gets to a certain size or turnover, you may need to be audited. An audit can be a stressful, time-consuming and expensive experience. If you haven’t already hired an accountant, this is the perfect time to get someone on board. They’ll give you advice on the auditing process and make sure you comply with tax and audit compliance laws.
 
When you’re applying for a business loan or overdraft: When banks lend money they like to know they’ll get it back. Lending to small businesses has dropped in most countries since the recession. An accountant can present numbers and projections to convince the bank you can repay the loan.
 
When your company is growing: Sometimes your business grows at an unexpected rate. Having an accountant can help you deal with these growth transitions – things like taking on bigger office space or hiring employees etc. This leaves you free to look at the bigger growth picture.
 
Before you take on a franchise: Buying a franchise can be an effective way to start up in business. You get to be the boss but with the franchise company supporting you with brand, marketing and sales. An accountant can help you check whether a franchise opportunity is worthwhile and what the potential fees, charges and income will be.
 
Before you buy or sell a business: You don’t have to start a new company to go into business; you can buy one that’s already up and running. But before buying an existing business, you should talk to an accountant. They’ll look at the company’s accounts to make sure everything looks shipshape.

If you’ve been running your business for years, it’s unlikely you won’t have an accountant in place when you come to sell the business on. But if you don’t already have one running your books, an accountant will help put your financial records in order and produce statements of accounts to show prospective buyers. Hiring an accountant will help your company’s development
Accountants can help you out during every stage of your company’s development. Even when it’s business as usual, an accountant provides key insights into your company’s financial situation. They can help you grow your business and provide you with peace of mind so you can focus on what you truly love doing.
To learn more about the advantages of working with a financial expert. Please give us a call on 07872308125

How CIGMA ACCOUNTING LTD can help to get a mortgage if you are a small business owner or self-employed?

The financial crisis has taken a heavy toll on business owners and the self-employed looking for a mortgage, however, while times may be tougher it is still possible to secure a home loan.
We lay out the options available to the self-employed and small business owners, and the tricks and traps to watch out for to help you to secure your dream property.
Remember, while this guide can give you useful information, every lender will have its own criteria and will assess each borrower individually. Some will have more flexibility or discretion that others and factors such as your credit score and your deposit will be taken into account.

The problems faced by business owners and the self-employed

Gone are the days of self-certification mortgages, which required little or no proof of income and allowed the self-employed to get a loan relatively easily.

They were designed with the self-employed in mind but were abused by some in the lead-up to the financial crisis, leading to them being dubbed ‘Liar Loans’, and are no longer available.

But, with no replacement, many small business owners feel left out in the cold by lenders.

Nowadays, although it is not impossible for someone who is self-employed to secure a mortgage, it can certainly be a difficult process because lenders are far less willing to take what they see as a risk on those with a ‘non-standard’ income.

This can be frustrating because, despite having the savings and income needed to pay a deposit and keep up repayments, you may be refused a mortgage simply because your income does not fall into a ‘standard’ bracket.

Don’t despair though. It is still possible to get a mortgage, but it is more important than ever that you know what you are doing.

Self-employed

A lender will typically class you as self-employed if you own more than a particular percentage of a business – usually 20 per cent or 25 per cent. 

If you are classed as self-employed then you will need to prove the income that you are declaring.  This can be done by supplying the accounts of your business or an accountant’s reference, which usually need to be prepared by a qualified accountant.

The standard requirement from a lender is to see two or three years’ proof of income, although a few may accept as little as one year in certain circumstances.

You will be assessed on profits and lenders may want proof that you’ll earn similar sums in the years ahead by asking about your business and what contracts or clients you have lined up.

If you do your taxes by self-assessment and get the Revenue to calculate it for you, you may get a form called an SA302, which shows the total income received and total tax due. 

Remember, even if you are permanently employed with tax deducted by your employer, if you have additional income, this may be classed as self-employed income. If so, it is likely to be treated in the same way as income from someone who is 100 per cent self employed.

Partnerships

Most lenders will treat partners in a business in much the same way as self-employed borrowers. They will typically look at your share of net profit when calculating how much you can borrow.

Directors of limited companies

If you’re a director of a limited company then your total income may be made up of a combination of basic salary and dividend payments. Lenders will usually consider both these elements of your income, although exactly how they treat it can depend on your share of ownership.


Mortgage lenders usually calculate how much they are willing to lend using a combination of your credit score and salary records.

Clearly, if you are not an employee with a regular paycheck it is going to be more difficult to work out your income using standard calculations.

In addition, lenders now typically use complicated affordability calculators to work out how much you can borrow, as opposed to the more traditional method of lending a basic multiple of your annual income.

If you are self-employed, or maybe a partner or director in a small business, your overall income may be more complicated – you may receive it in other ways than just a standard basic salary or from different sources.

You may also have good and bad months or years, some of your equity may be kept in the business, or your accountant may be using, perfectly legal, tax loopholes – all of which will affect how your personal accounts appear to a lender.

Therefore, often the main issue is not proving your income, rather it is establishing a figure for the purposes of assessing how much you could borrow on a mortgage. 

After all, while you may want to maximise the amount you can borrow, neither you nor the lender will want you taking on a mortgage you can’t afford.

As Cotton explains: ‘If you’re self-employed, your income may fluctuate quite considerably from one month to the next or from year to year so estimating a typical monthly budget may be difficult.

‘Perhaps your business is experiencing fast growth at the moment which means recent earnings are a lot higher than previous years. If this is the case then lenders will often take the average of the last three years’ income rather than just the latest year.

‘However, if your latest year’s income is lower than previous years, this may be the figure that a lender will base affordability on.

‘If you’re a director of a limited company, you’re likely to have profits that you choose to retain in the business, rather than take out as salary or dividends and again, you may want these to be assessed for mortgage purposes as well as the profit you take out. Some lenders may be able to consider some retained profits, depending on your accounts.

Recruitment agency has asked me to set up a limited company

If you’ve recently started contracting, either by choice or through circumstance, you may have been advised to set up your own limited company in order to get paid. But this is no light decision as you need to take on a certain amount of financial and legal responsibility.  So what are the benefits and when is the right time to take the plunge?

You get to take home more pay

It’s widely known that contractors who get paid via their own limited company tend to take home a higher percentage of their invoice or contract rate.  In other words, it’s a highly tax efficient way to get paid when compared to being paid via PAYE by your client or recruitment agency or by anumbrella company.

Depending on your circumstances, you could take home as much as 85% of your contract value but more typically, the figure is around 75%.  If you’re in permanent employment, take a look at your last payslip to see just how much more attractive that percentage is!

The things that will affect the figure are whether you are a higher rate tax payer, the amount of business expenses you can legitimately claim, whether you can have a second shareholder (usually a partner or spouse) who is a lower rate tax payer and who is actively involved in the running of the business and how you structure your company.  Most contractors take a small salary and the rest of the money as a dividend, which is not subject to National Insurance contributions, thus making it more tax efficient.  Don’t forget that limited companies do have to pay corporation tax though.  In order to make contracting a viable choice, there are also tax breaks on things like training, pension contributions, childcare vouchers and  insurances.

Credibility and control

Of course, not everyone is motivated by money and there are other benefits to running your own limited company:

Clients often tell us that they prefer limited company contractors as it tells them that the person is credible and committed.  Indeed, HMRC actively discourages agencies from working with sole traders.
You will have more control over the terms of your employment, for instance how many days holiday you decide to take (within reason if you’re mid contract of course) or the number of hours you will work.
We defy you not to feel a little bit of pride when you tell people that you run your own company.
It starts to shape your plans for the future.  Could you end up growing your business, taking people on or handing something valuable on to your children?

There must be some downsides?

Given the benefits, you’d assume that all contractors would run their own limited company.  So why do 12% of the contracting workforce use an umbrella company and still more let their client pay them directly or sometimes become self employed?

Commitment

Limited company only really works if you’ve decided to commit to the contracting lifestyle for at least 12 months.  This is because the costs involved in setting up your company and submitting your annual accounts aren’t justified if you only trade for 6 months.  So if you are treating this as a stopgap between permanent jobs, an umbrella company might be a better bet.

Paperwork

It is true that as a limited company director, you become responsible for a certain amount of paperwork such as submitting annual accounts to Companies House, corporation tax returns, VAT returns if you are registered for VAT and paying any income tax and National Insurance liabilities you have.  However, most contractors we speak to at KDR say that over time, they work out efficient systems for their financial record keeping and let their accountant take most of the strain.  This means that they may only spend 2 or 3 hours per month on their accounts which doesn’t sound too onerous to us.

IR35

IR35 is a dreaded word in the contracting industry but it generates more fear than it deserves in our view.  IR35 is a piece of legislation introduced in 2000 that was intended to stop what the Government viewed as ‘disguised employment’ ie the practice of a person leaving full time employment and starting back again the following Monday as a contractor doing exactly the same job but with additional tax incentives.  The legislation doesn’t stop you from doing this, but you just won’t be able to benefit from the same tax advantages.  Investigations, fines and litigation around IR35 are relatively rare but no-one wants to be the exception that proves the rule.  If you suspect that your contract could fall foul of IR35, seek specialist tax advice.  Contractors employed by umbrella companies don’t fall within the remit of IR35 so they offer a compliant solution.

Expensive to run a limited company?

You might feel that you don’t want to incur any costs when it comes to getting yourself paid.  In that case, running a limited company might not work for you as you will have to pay to form and incorporate your company, and unless you are pretty financially savvy, pay for the services of an accountant.  However, accountancy fees can be offset against tax and because it’s such a competitive industry, can be very reasonable depending on the level of service you want.  Your choices are to invest in a DIY online service, use your local high street accountant or appoint a specialist contractor accountant.  You can expect to pay between £80 per month at the cheapest end to £180 per month to have everything taken off your hands.

So if you’re thinking about starting contracting or are at the point where it’s going to become a long term career choice, we hope that this article has shown you the benefits of setting up a limited company and been fair about pointing out the drawbacks.  There are lots of useful calculators out there which will show you just how much better off you could be financially (we like this oneparticularly) but if you want to ask any questions, please fire away below.

You might feel that you don’t want to incur any costs when it comes to getting yourself paid.  In that case, running a limited company might not work for you as you will have to pay to form and incorporate your company, and unless you are pretty financially savvy, pay for the services of an accountant.  However, accountancy fees can be offset against tax and because it’s such a competitive industry, can be very reasonable depending on the level of service you want.  Use an accountant or appoint a specialist contractor accountant.  You can expect to pay between £80 per month at the cheapest end to £180 per month to have everything taken off your hands.

So if you’re thinking about starting contracting or are at the point where it’s going to become a long term career choice, we hope that this article has shown you the benefits of setting up a limited company and been fair about pointing out the drawbacks.  There are lots of useful calculators out there which will show you just how much better off you could be financially (we like this oneparticularly) but if you want to ask any questions, please fire away below.