Is it worth hiring an accountant as a small business?

Here, we weigh up the benefits of taking on help with your numbers and acquiring the services of an accountant.

As a business owner, there are plenty of things demanding your time and money. If it’s not one thing, it’s the other. Choosing where to invest your often-limited resources is a never-ending problem.

One such area is the accounts. Should you hire an accountant, or are you perfectly capable of doing them yourself? Is an accountant worth the expense?

Read on for our take.

Sole traders

If you’re registered as a sole trader, your expenses should be reasonably straightforward. It’s usually a simple case of tracking your money earned versus your money spent on business.

HMRC provides a long list of expenses you can claim as a sole trader, which includes anything that is a legitimate cost of running your business. For example, you might rent an office, pay staff, travel for business meetings, buy stock – the list is endless.

This gets slightly more complicated when applied to costs that can be both personal and business related. For instance, if you work from home then your house is effectively ‘doubling up’ as a home and an office. If you drive one car, your fuel costs are split between personal and business use.

In these instances, the costs are apportioned. If you use your car 70 per cent of the time for business, for example, you can only claim 70 per cent  of your total fuel costs as a business expense.

You can work this out on a case-by-case basis, or you can accept the government’s fixed rate without working anything out. This means you might not be benefiting from the full exemption you’re entitled to, but it is a low-hassle way to do your accounts.

So should you hire an accountant as a sole trader? You probably don’t need to, in that doing your own accounts is not inherently complex. However, just because you could do your accounts yourself doesn’t mean you should.

Not hiring an accountant could be a false economy

Not hiring an accountant certainly saves you money at the outset, but in the long term you could be losing money that you overspend on tax. In fact, a damning YouGov survey found that 10 per cent of small businesses claim almost no expenses, while more than 20 per cent claimed under half the entitled amount. Almost a third admitted losing receipts – a familiar story for many of us.

These statistics make it clear that many sole traders aren’t maximising the expenses system. Only you know if you fall into that camp but if you do, hiring an accountant could be a positive step forwards.

Limited companies

Once you start generating over a certain amount of revenue, even if you’re still only a company of one, it’s considered beneficial for tax purposes to register as a limited company. The rules are very different if you’re registered as a sole trader versus a limited company.

As a limited company, you are no longer personally liable for your business. Your company is a distinct legal entity, which introduces complexity into the tax equation.

The main difference is that you are separating yourself from the company; you’re an individual and the business is a business. Movement of resource from one to the other has to be tracked and is subject to tax law.

Your limited company now pays corporation tax on taxable profits. You pay yourself dividends as a shareholder of the company, and pay income tax on this after a £5,000 tax-deductible allowance. You claim expenses differently too.

Chris Parkes from Network Telecom, specialists in business network telephones, says, ‘Your purchased assets, renovation costs and patents are called ‘plant and machinery’ and are claimed as capital allowances.

‘There are many items that can be included in this list. However, the time it would take to research which items is probably better off spent paying an accountant for their knowledge.’

This is sound advice. If you thought the tax landscape was tricky as a sole trader, it’s a lot more so as a limited company. If these things come naturally to you, then you might enjoy doing your books yourself. For most of us, though, you’ll do better to invest in an accountant.

Tax is trickier as a limited company

Not only will an accountant likely save you money by navigating the tax regulations effectively; they’ll save you money by freeing up your own time. Don’t forget, your time is worth money too – and most likely it could be more profitably spent doing something other than the accounts.

This doesn’t mean you should wash your hands of the process completely. Far from it. It might seem like a good accountant is a magician, but they really can’t work miracles.

If you don’t track your costs properly, no accountant can be much help to you. Whether a sole trader or a limited company, you still have a responsibility to stay on top of your costs and keep receipts.

The better-organised you are, the more an accountant can help you. There’s no point paying someone if you’re going to cuff their hands behind their back before they start!

To return to the initial question, then, is it worth hiring an accountant? It depends. Would you take your car to a mechanic, or tinker about with it in your own garage? If you enjoy doing the accounts and are confident you’re doing it accurately (or don’t really care if you’re not), then you might choose not to hire an accountant.

However, you do need to think seriously about where your own time is best spent as a business owner.

It’s likely that you have many, many other things to worry about and anything that saves you time also saves you money. And hassle. And more money, when an accountant applies little-understood tax exemptions to your accounts. That’s a difficult equation to argue with.

Further reading on accounts

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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