Xero and other similar software vendors spend millions on trying to convince business owners their software is super simple. This new online way of doing accounts is meant to be so much easier compared to the old clunky accounting software of the past.
But does this mean you can do away with real human and professional support completely, and not have to pay for an accountant if you have the Xero software?
The truth is, bookkeeping is simple, but it is not easy.
Do you need an accountant if you have Xero? Most small businesses will benefit from having an accountant even if they use Xero. Working with an accountant has many benefits as they bring years of experience and knowledge to your business allowing you time to concentrate on what you do best.
Given that the average small business is said to spend 15 hours per week doing bookkeeping, even with Xero, is that really how you want to spend your time?
Do you still need an accountant with Xero?
Whilst you do not legally need an accountant a time may come when you do need to think about the expertise and knowledge, they will bring with to your small business. Getting this wrong could prove costly from a financial and time point of view.
Running a business can be a stressful time for you, even with the support of software as advanced as Xero.
But do you need to compound any stress by trying to learn the rules and nuances of being an accountant to save a few pounds? You’ve also got the learning curve of how to use Xero, and then how to apply accounting practices to it.
We believe it’s a false economy in the long run. Xero or any other bookkeeping software to the best of my knowledge cannot replicate this. Even if it could how could you trust and rely on something you may not understand completely – like a modern accountant would?
We are pretty sure you did not set up a business to become a part time bookkeeper or accountant which can very quickly become a reality. The average micro-business spends 15 hours per week or 19% of their time doing financial admin tasks.
You should consider hiring an accountant if you need help with your statutory accounts, corporation tax, VAT, payroll, and self-assessment.
There are several things to consider, all of which we’ve outlined for you below.
Do I need an accountant for my small business?
Whilst there is no legal requirement for a small business to have an accountant, we think you have enough on your hands dealing with sales, marketing, distribution, staff, customers to name a few.
The requirements for your small business will vary depending on the type of business you own. This will largely fall into two main categories being limited company and sole trader. We have approached the reasons why you need an accountant for your small business for these types of entities below.
Do I need an accountant as a sole trader?
No, you do not need an accountant as a sole trader. You may want one to help you prepare your year-end accounts and tax filings. Depending on the size of your sole trader business you will likely have to:
- produce accounts
- calculate capital allowances
- complete self-assessment tax return
- payroll
- bookkeeping
- VAT returns
These are all time consuming and complex tasks. Bookkeeping alone covers raising sales invoices, processing purchases, paying suppliers, recording expenses and mileage claims, reconciling the bank accounts, VAT returns etc
These are just the things to keep you on the straight and narrow. An accountant can also serve as business advisor and support for your business to help you grow your business.
You should consider hiring a professional (for example an accountant) if you need help with your tax return.
Do I need an accountant for limited company?
Legally you do not need an accountant for a limited company.
However, there are many benefits to having an accountant for a limited company when you consider the thousands of pages of tax and accounting rules that need to be adhered to. Your time as a business owner will be put to much better use doing what you do best.
You should consider hiring a professional (for example an accountant) if you need help with your statutory accounts, corporation tax, VAT, payroll, and self-assessment.
Here is a list (keep you compliant) as a starting point of what a small, limited company needs:
- Statutory accounts
- Corporation tax
- Payroll
- P11D
- VAT returns
- Confirmation statement
- Registered office
- Self-assessment (Directors)
Do I need an accountant if I use QuickBooks?
If you are using a piece of cloud accounting software such as Xero or QuickBooks, you could be fooled into thinking that submitting a VAT return is as simple as clicking a button.
Well, you would be right. Any fool can click a button on software solutions and submit a VAT return to HMRC. That is where the real fun can begin.
With over 11,500 pages of tax legislation governing the UK tax system and the Companies Act split into 47 Parts with the Contents page alone running to 59 pages that is why you need an accountant.
Accountants spend years learning their trade and become qualified professionals. In order to retain their professional qualification, they must also complete a number of hours Continued Professional Development (CPD) each year to ensure they are keeping up with the changing business and tax legislation.
Do you have time to do that on top of running a small business? Even if you did, you wouldn’t want to. If you are still not convinced, we have listed some of the top reasons why you need an accountant:
- Saves you time
- Save you money
- Accountability
- Support and advice
- Improve cash flow
- Remove worry
- Reliable management information
- Tax estimates
- Planning, forecasting and budgeting
- Best practice
How much is an accountant for a small business?
Depending on the size of your small business you will likely have to:
- produce accounts
- calculate capital allowances
- complete self-assessment tax return
- payroll
- bookkeeping
- VAT returns
You may want one to help you prepare your year-end accounts and tax filings.
These are all time consuming and complex tasks. Bookkeeping alone covers raising sales invoices, processing purchases, paying suppliers, recording expenses and mileage claims, reconciling the bank accounts, VAT returns etc
These are just the things to keep you on the straight and narrow. An accountant can also serve as business advisor and support for your business to help you grow your business.
You should consider hiring a professional (for example an accountant) if you need help with your tax return.
For a small business owner such as a sole trader for the above services we would expect the cost to start from £800.
There are several tasks that need to be completed when running a small business. Asking ‘how much is an accountant for a small business?’ is a bit like asking how long a piece of string is. It depends.
Factors to take into consideration will be how much work you are prepared to complete and more importantly the quality of what you do. Some of the fee you pay to an accountant goes into correcting your work rather than the advice, support, and guidance you think you are paying for and what your accountant ultimately would like to be delivering.
If you have Googled this question, you will get a whole host of solutions costing as little as £30 per month offering everything a small business needs. That’s just 10 medium Latte’s from Starbucks. Really?
Getting the accounts and tax of your business wrong can have disastrous consequences. The cheapest option might not be the best route.
You must weigh up the size of your business, potential tax, and complexity of your business affairs to see what a good fit would be.
We would recommend getting at least three quotes and make sure they are on a like for like basis. Don’t get suckered into thinking that all quotes cover the same services. Make sure you get a full breakdown of the services provided so you can ensure they all meet the same requirements. Here is a list (keep you compliant) as a starting point of what a small, limited company needs:
- Statutory accounts
- Corporation tax
- Payroll
- P11D
- VAT returns
- Confirmation statement
- Registered office
- Self-assessment (Directors)
If you are paying any less than £1,200+vat per year for the above, then you will be doing well. Not to say that anyone charging less than that is not going to do a great job but as with any purchase do your homework.
Check out our guide on how much does an accountant cost for small business.
Do I need an accountant with FreeAgent?
To answer the question of whether you still need an accountant if you use FreeAgent, we need to unpick what it is that an accountant does for a small business.
We have listed some of the top reasons why you need an accountant:
- Saves you time
- Save you money
- Accountability
- Support and advice
- Improve cash flow
- Remove worry
- Reliable management information
- Tax estimates
- Planning, forecasting, and budgeting
- Best practice
Can FreeAgent do that? Whilst we are not knocking FreeAgent or any other accounting software provider for that matter, we need to recognise that they are simply a repository for your accounting records. FreeAgent does not replace the work an accountant does or what they can bring to your business.
Using FreeAgent may hinder your accountant as much as help them. We have all heard the adage of rubbish in, rubbish out, well that is never truer than someone let loose on their own bookkeeping.
FAQ on do you need an accountant if you have Xero
Does Xero do bookkeeping?
Xero is an accounting/bookkeeping software solution built to help small business owners keep on top of their business finances. It has all the tools you require to do your bookkeeping for your small business and make this as efficient as possible.
Xero does not do your bookkeeping for you despite what the marketing department will have you believe. It is not as simple as clicking a button to submit a vat return.
Even with using the latest tech solutions out their the average micro-business spends 15 hours per week or 19% of their time doing financial admin tasks.
You should consider hiring an accountant if you need help with your statutory accounts, corporation tax, VAT, payroll, and self-assessment.
Do I need an accountant to file my company accounts?
There is no legal requirement for you to have an accountant file your company accounts.
With over 11,500 pages of tax legislation governing the UK tax system and the Companies Act split into 47 Parts with the Contents page alone running to 59 pages that is why you should have an accountant file your company accounts.
Accountants spend years learning their trade and become qualified professionals. To retain their professional qualification, they must also complete a number of hours Continued Professional Development (CPD) each year to ensure they are keeping up with the changing business and tax legislation.
Getting this wrong could trigger an HMRC investigation.
Can my accountant access my Xero account?
Yes, your accountant can access your Xero account and we 100% recommend that you do this. It will alleviate the pain of you having to export reports and data to share with your accountant, they will be able to login and assist when you get stuck (Xero is cloud based so you are both working of the same dataset) and they will be able to support you throughout the year not just 9 months after year-end.
There are two ways for your accountant to access your Xero account.
- They own the subscription relationship with Xero i.e. they invite you in, they pay for the Xero licence and recharge it to you.
- You set up Xero for your small business and you can send them an invite so they can login and access your data. It is your subscription, and you pay Xero direct. Follow these instructions to invite your accountant as a user to Xero
What happens if I don’t have an accountant?
As there is no legal requirement to have an accountant then nothing will happen to you if you don’t have an accountant.
Not having an accountant working with your business could mean you make mistakes which could cost you time and money which could have been avoided. There is a tendency when running a small business that you want to do things yourself and save the cost but what is the costs in the long run to your business of making mistakes.
It is not unheard of to see small business owners lose their business after making simple mistakes. No one is expecting you to know everything about running a small business. Accounting and tax legislation is complex, but the rules and regulations are there to protect all of us.
If you do not know the VAT rules for example and do not register, you could be held liable to pay HMRC any sale VAT from the point you should have registered. This could be enough to finish off a small business before it gets going.
Conclusion
With over 11,500 pages of tax legislation governing the UK tax system and the Companies Act split into 47 Parts with the Contents page alone running to 59 pages that is why you need an accountant.
Xero or any other bookkeeping software for that matter has not yet been able to interpret and build that into their product.
Not to mention that is not the job of Xero in the first place which is:
“Xero online accounting software for your business connects you to your bank, accountant, bookkeeper, and other business apps.”
Note that Xero’s main strapline is to connect you with your accountant and bookkeeper. They work very hard at building a community of accounting partners with over 100,000 worldwide to ensure you get the best of both worlds. A robust bookkeeping solution that helps you be efficient with the day to day and expert professional help and support through the partner network.
Accountants spend years learning their trade and become qualified professionals. To retain their professional qualification, they must also complete several hours Continued Professional Development (CPD) each year to ensure they are keeping up with the changing business and tax legislation.
Do you need an accountant if you use Xero?
No.
No.
Not having an accountant working with your business could mean you make mistakes which could cost you time and money which could have been avoided.
There is a tendency when running a small business that you want to do things yourself and save the cost but what is the costs in the long run to your business of making mistakes?
A good accountant should be viewed as an investment to the business not a cost. Any good accountant should save you more money than they cost even if that just equates to the time, they save you from doing things yourself.
You might also like…
- Your legal responsibilities as the director of a limited company
- The rules on giving your partner a company car
- How to keep books for a small business or sole trader
Jon has been in business since 1999, and in that time worked with more than 300 small business clients. As well as being an accountant, he is also an early adopter of tech, and has helped small businesses to leverage the power of their computer systems by creating software to automate and simplify accounting tasks.
