Running My UK Business Without An Accountant

In April 2015 my business partner and I started a new company. That in itself isn’t anything special. Whenever a new project starts to make some money I like to create a company for it. But what was special was that we decided to ignore all the common advice and run the business without an accountant.

We would do all the bookkeeping and tax returns ourselves. Relying only on Google and some cool software.

Was it a stupid thing to do? Perhaps. It certainly added a lot of admin to my life, and I hate admin. But it also saved about £1,200 and most importantly, taught me a lot that should make my other businesses run smoother.

For years I have been using the software Xero to do all my businesses record keeping. It is a pretty powerful piece of kit. At the end of each year, my accountant would log on, send me a few questions and then “do the tax return”. We’d get a £1,000 + VAT bill, and that would pretty much be it. I wouldn’t hear from them again for another year. What exactly is it that they do and is it worth the cost? This was my chance to find out.

Before we start I need to make clear that I am not a qualified accountant. I have no training and until this year I have never shown any interest in accountancy. I expect I have made some mistakes and you probably shouldn’t follow my example.

Also, I’m sorry if this is like the most boring blog post you can imagine. It was pretty dull writing it…

Incorporating A Company

The UK government makes it ridiculously easy to start a company. Up to this point, I had always paid my accountant £150 to set up companies for me. Turns out, you can do it all yourself, online, in a few minutes and it only costs £12.

I went to the companies house website and filled in the details.

incorporate-your-company-online

We chose the name of our company, Eastfield Sporting Goods, and selected one of our home addresses as the business address. I think there can be some issues with doing that depending on what your business is, but after some Googling we decided we could safely ignore them.

If it does become an issue we could pay an outside company for a ‘virtual office’ and use their address. But there didn’t really seem to be much point.

There are two of us equal partners in the business so we gave each of us 1 share worth £1 each. That meant that we each owned 50% of the company and each had 1 vote on any company decision. In other words, we needed to agree to make any decision.

We used the standard ‘memorandum of association’ that the website auto-generated and went through all the authentication.

The one thing that took a bit of research was defining the ‘nature of the business’, also called the SIC code. You can find all the possible options here. We chose:

47640 – Retail sale of sports goods, fishing gear, camping goods, boats and bicycles

Within a few hours, the company registration certificate had been emailed to us.

company-incorporation-without-accountant

Now we had our company. It really was that straightforward.

The company was worth £2. It was owed £1 from each of the directors, the price we paid for that 1 share each.

Setting Up A Bank Account

My current favourite bank account for business banking is Santander. Their start-up account is free for the first year and then £7.5 a month (yes, unlike personal accounts you need to pay for business accounts). The price does go up if you deposit a lot of cash, but as our business was going to be completely online that shouldn’t be a problem.

I’ve have had accounts with a few different banks and Santander is the only one I’ve found that had a set monthly fee and no extra charges. It also works with most bookkeeping software and sends text confirmations for verification rather than needing you to carry around one of those little computers with you.

Once again we were able set up the account completely online. I had to scan in and send proof of my ID, but apart from that, it was very straightforward.

Bookkeeping

I signed up for a new account with Xero. It costs either £22 or £27.5 a month depending on whether you need multi-currency. We did because we planned to sell in the USA and Europe as well as the UK.

xero-cost

I can’t recommend Xero enough. Whether you’re trying to run a business without an accountant or not I think it is a really great tool and will make your bookkeeping so much easier.

There is also a US version of Xero, although I don’t have any experience with it.

For the coffee shop, our till system links up directly, for my e-commerce businesses Shopify syncs in nicely and I use a service called A2X for Amazon integration (you can get a 10% discount at A2X using code: ARBNOV2016).

That all might sound like a bunch of buzzwords, but it’s actually pretty simple.

Xero takes a feed from your bank account and then you simply match up each transaction to what is going on in your business. Here is a snapshot from the coffee shop.

coffee-shop-xero-snapshot

You can see that Xero has automatically linked the transactions from the till software to the credit from the bank statement. It just needs me now to confirm the transaction and define what the expenses are.

For each expense, you can either input it quickly on that screen or upload a more complete invoice.

Once all the bank transactions are reconciled you can generate all sorts of reports.

Here is the profit and loss page from my Amazon FBA business:

amazon-fba-xero-business-without-accountant

I’ve split out the different countries we sell in to make it even more useful.

There are loads of different reports, including all those needed to create your tax returns.

For this company that just means the annual returns, but for my other businesses I have also used it to do all my VAT returns. Not only does it generate the relevant information but you can also get Xero to file it for you as well.

vat-return

Xero really seems to be making it their goal to put accountants out of business. Making it easier and easier to run a business without an accountant.

For the next 18 months, we simply filled in Xero as we went along and waited for the filing deadlines to arrive.

The Yearly Requirements

Ok, this is when things get complicated. Whew, hold your breath. It took me a long time to get my head around.

First of all, it is perfectly legal to run your business without an accountant and most companies are exempt from needing an audit (I think the threshold is around £10m a year turnover). That makes things a lot easier.

There are two government bodies that care about our company: Companies House and HMRC. And they both require certain information from us each year.

Companies House want:

  • One confirmation statement – a simple submission that required us to tick a load of boxes saying nothing has changed with the company. No new directors or changes to the shareholdings.
  • One annual accounts – details on how our company did in the year, including profit/loss and a balance sheet. The smaller the company is the less information they need.

HMRC want:

  • One company tax return – basically the same as the annual accounts but with a focus on how much tax is owed. You can file them both at the same time on the HMRC website.
  • Four quarterly VAT returns – due every three months if you’re registered for VAT and you only need to register if your turnover is more than £83,000 in sales to Europe from the UK. Our company hasn’t hit the threshold so we can safely ignore it.
  • 12 monthly PAYE submissions – saying how much each employee has been paid and what tax is owed. We aren’t employing anyone so can ignore it.
  • One P11d per employee – a form outlining what expenses or benefits each employee got and how much extra tax is owed. We aren’t employing anyone so can ignore it.
  • The VAT bill paid every three months – our company isn’t VAT registered so can be ignored.
  • The corporation tax bill paid once a year.
  • The payroll taxes paid every month – our company has no employees so can be ignored.

Here’s a terrible not-to-scale diagram I created to try and make sense of it all. Red represents reference points. Green are the year one deadlines. Blue is the year two deadlines.

uk-annual-requirements-for-an-llc-1

I wouldn’t blame you if you stopped reading now and just hired an accountant. Also, the above is just my understanding and I might have missed something! If you want any more information on any of the above then check out the gov.uk website. It’s actually really good.

Even though all the dates can be confusing, HMRC and Companies House do send out a lot of reminders and you can also log on to their websites to find out the dates:

companies-house-website-own-company

The Confirmation Statement, Annual Accounts And Tax Return

The confirmation statement was due first, just over a year after we founded the company. It cost £13 to file and involved simply ticking a bunch of boxes saying nothing had changed with our company. There’s not really much more to say about them than that… it was literally just a confirmation.

The confirmation statement might have been easy, but the annual accounts certainly weren’t. They are due 9 months after the end of the year, so 21 months from formation. But I decided to try and file them early to give me plenty of time to make and fix any mistakes.

If you’re trying to run a business without an accountant I definitely recommend trying to do your filings well before the deadline. There were quite a few occasions where we started the process only to find we needed to request and activation code or password reset that would take an extra week or two to arrive.

We signed in to the HMRC portal and were offered the choice to submit both HMRC’s company tax accounts and Companies House’s annual accounts at the same time.

hmrc-companies-house-file

And then the first confusing part hit. Because we formed the company in the middle of the month our ‘first year’ actually covered slightly more than a year.

file-company-accounts-well-thats-encouraging

Which was fine for companies house, but apparently the HMRC company tax return can only cover a maximum of a 12 months period. It turns out we’d need to do two returns, one for the 13th April 2015 to 31 March 2016 and then another one for the final month, 1st April 2016 to 30 April 2016.

What a stupid system. But OK.company-accounts-too-long

Then was the next choice. I was given a bunch of tick boxes on the size of the company and it confirmed that we were small enough to be classed as a ‘micro-entity’. From the gov.uk website:

Micro-entities are very small companies. Your company will be a micro-entity if it has any 2 of the following: a turnover of £632,000 or less. £316,000 or less on its balance sheet. 10 employees or less.

Great! That means we could submit even less information than previously expected.

Sure enough, next page gave us that option:

what-type-of-accounts

I did some Googling to try and see if there was any advantage to filing full or abbreviated accounts instead of the micro ones, and couldn’t find anything. On a side note, why aren’t there more resources helping non-accountants manage their businesses? Everything I googled led me to horrendous, unreadable discussions between accountancy geeks.

I was very impressed by the next few pages. Everything was displayed in a straightforward manner with descriptions of what everything meant.

I flew through the first few sections until I arrived at the ‘Profit and Loss’ and ‘Balance Sheet’.

For profit and loss, I compared what we had on the Xero page and then input it into the correct boxes on HMRC.

business without an accountant

Tax refers to corporation tax, which is set at 20% of the companies profits. I believe there is a way to show that in Xero but I didn’t look into it and just entered the figure manually.

Then I got to the balance sheet and realised I’d made a mistake. I had nowhere in Xero accounted for the amount of stock we had at the end of the year.

After a bit of Googling I worked out the easiest way to account for stock was it was to create a journal entry taking the value from ‘direct expenses’ and putting it into a category called ‘finished goods’. ‘Direct expenses’ is what I paid for the product so considering the stock hasn’t been sold it makes sense to deduct it.

b

That change raised my profit so I had to go back and amend the profit and loss page I had entered.

I started filling in the balance sheet:

xero-to-hmrc

The ‘called up share capital not paid’ represents the £2 we owe for the purchase of the original shares during the formation of the company.

The rest looked correct but I was sure something to do with corporation tax was missing. The most obvious place for it to go was the ‘creditors: amounts falling due within one year’. A bit of googling showed that was correct. It can be recorded in Xero through a journal entry.

I few pages later and my annual accounts had been submitted to Companies House.

then I had to do it all again for the HMRC CT600 (company tax account) details. The information was slightly diferent this time as I had to remove the figures from the final month. Remember HMRC can only take a maximun of 12 months.

I finished it off. Sent the draft documents to my business partner to approve, and then we hit submit.

hmrc-tax-submission-business-no-accountant

We are now filed at companies house up to the 30 April and with HMRC up to 31 March. Time to do it all again for that final month with HMRC: 1st April to 30 April.

This is all quite a bit of hassle, but I think it will be much easier next year.

I started clicking through the steps and then hit this:

abridged-accounts-only

Huh. That’s weird. So I can’t submit my micro-entity account for that final month? Very strange.

I decided to leave it and will try again in a month. I still have plenty of time.

And that’s it. Hopefully, I haven’t made too many errors and we can mark down our first year of running the business without an accountant as a success.

So, Would I Recommend Operating A Business Without An Accountant?

Umm, probably not.

I imagine you didn’t expect that end to this post?

The company we started is super simple. There are no employees or payroll issues (and the extra submissions needed for that). There aren’t many transactions and there wasn’t anything complicated I was trying to expense. Everything syncs in nicely with Xero and our turnover is low enough we qualified for only having to do the simplest submission – that for micro-entities.

But even so, it took me ages to work out what I needed to do. I have probably spent about 20 hours on this. For a saving of £1,200, most people would say it’s well worth it. Especially as it should be quicker next year. But the thing is, I’m not even sure I’ve got it right! I might have made a massive blunder that will cost me money or time in the future.

All that being said, I think that good bookkeeping and knowing the basics is incredibly important. I was also very impressed by how easy and straightforward all the government websites were to use. I could do everything from my computer and it was all pretty intuitive.

I’m going to continue running this business without an accountant. Now I’ve put the work in it should be a lot easier next time and there is still a lot more I want to learn. But if you are going to follow suit please be super, super careful.

Also, if you notice any massive mistakes in the above, please tell me!

Do you have any experience running a business without an accountant? I’d love to hear how you got on.

FAQ

Why Would You Want To Start A company In The First Place?

There’s probably a bunch of reasons, but for me there were two motivations:

  • I pay less tax by running my businesses through a company. I will probably end up paying about half the amount of total tax I would have if I was just self-employed. Even with the extra admin and accountancy fees it’s still worth it.
  • If my business gets sued or has to default on a large loan, the company can declare bankruptcy without putting my personal assets at risk.

Why Did You Not Start A Payroll And Employ Yourself?

I think that the most tax efficient way to pay yourself as a director is to set up a payroll and pay a salary of up to the maximum allowed that is tax-free, currently £11,000. Then pay any extra income as dividends.

I already have a company that pays me that salary so did not need to set it up for this company. You don’t need to go on the payroll to pay yourself dividends. I also thought I should try and keep it as simple as possible for my first business without an accountant.

How Do You Find An Accountant?

The two I use are David Howard and Raffingers Stuart. The first was recommended by a friend and the second by my lawyer. Raffingers was a lot more expensive, but they were also a lot more hands on. If you decide to hire one of them. Please don’t tell them I’m running this business without an accountant and putting them out of a job!

What Can You Expense Without Having to Declare It And Pay Tax?

I’m not entirely sure… As far as I can see you can expense everything that is necessary for the running of the business, plus a few special exceptions. I think that the complicated handling of expenses is one of the best reasons for not trying to run a business without an accountant.

Because of that, I’ve only put through this company expenses that are paid for on the company card and that are obviously necessary. For the more grey stuff, like my iPhone, Airbnb’s, flights, office spaces etc, I’ve put them through one of my companies with an accountant so he can pick up if I do anything naughty by accident.

Why Have You Not Included Details On Filing Your Personal Tax Return?

Because you need to do that whether you are operating a business without an accountant or not. I also don’t file my personal tax return myself, an accountant does it. (what a hypocrite I am…)

  • Sam

    Great post Sam! This is well executed, despite being a boring subject as mentioned – albeit an important one; paying the tax man. How is the digital nomad experience so far? Also will the tax implications from other countries impact you in terms of residing within other countries for a certain period of time.

    P.S: Just found your blog site recently, loving the clean content and hope the Jujitsu is going strong (being inspired by the recent UFC events).

    • Thanks, appreciate it! Yeah, I am having a great time, although am finding it difficult to be productive and get in as much jui jitsu as I’d like. I’m currently in Gran Canaria and have found a pretty good gym and workspace which is making a huge difference.

      International tax stuff is pretty complicated so I think it depends where you are. I think as the company is UK based and I am not staying in any country more than a month or two I can safely ignore it (touch wood).

  • Joe

    Hi Sam, thanks for publishing this article.

    We’ve just come to the first year of having a LTD company. Me and my partner work as a freelancers through the company. We’ve used an accountant and been paying £1200 a year and wondering if it’s worth paying them that much.

    After reading your article, I think it probably is worth paying them the money!

    I’ve been trying to work out how the accounts will be reported and tax calculated and its quite tricky.

    I think how they will do it is pay both of us a salary as directors of £11,000, then what’s left in the business will be paid as a dividend, split between us.

    However, I’m not sure how the tax would work in our scenario.

    If 40k was earned in total, would 20% tax be paid on that £40k (£8k) pay the company Then after the salaries have been paid, we the directors would pay tax on the remaining £18k we get as a dividend.

    Or would the company only pay tax on the £18k (£40k minus the £22k salaries) which would be 20% of £18k = £3,600. Then how much tax would be paid by the two directors when we receive the dividend?

    It’s all a bit of a minefield so I am glad we’re paying for professional services! Will be interesting to see how they do it.

    Then there’s expenses to think of…

    • The salaries come out first as an expense.

      So from the 40k total you would take the £22k salaries (plus whatever national insurance is owed, I assume there will be some?). Leaving about £18k. That would then be taxed at 20%. So you’d be left with about £14.4k to split. £7.2k each.

      You have £5k tax free dividends each. So from the final £2.2k each you will be taxed at 7.5%.

      Does that make sense? Disclaimer – I’m not an accountant, that’s just my understanding!

      As you say – all a bit of a minefield!

      • Joe

        I think I replied to this but it got caught in spam as it had a link to HMRC in!

        Yes, that makes sense so thanks.

  • Deepak Shukla

    Sam – really enjoying your content mate – cleanly written and you managed to tackle a subject that many (inc. me) don’t particularly enjoy – will be referring to this when it comes to submission time haha!

  • Paul

    Thanks for writing this. I have been wanting to ditch my accountant for some time but not had the time to deal with the unexpected issues. I have been following HMRC and their ‘Making Tax Digital’ plan. I think a Beta version starts in 2017 and will be rolled out over the following years. This will make Corporate Tax returns more like VAT returns with quarterly filings. As Xero and others make VAT filings very simple i hope they all update their software to allow small companies to file Corp Tax returns simply to. I am certain that the only reason that Xero and others do not file Corp Tax returns now is to keep accountants in a job. I have nothing against accountants only the money they charge for the simple job they do.

    • That’s interesting, I haven’t heard of that but it sounds like it could be great. Xero makes VAT fillings so simple and if they could do that for corp tax it would be awesome.

      I agree, it’s always baffled me why Xero doesn’t do more and file your corp tax. It has all the information and if it can do it for tax and payroll then why not the annual tax return?

  • Alex Spuggie

    I thought you said you weren’t doing fba?

  • Ash

    Great post Sam! I got lost by the end but still an eye-opener! What screenshot software do you use? They look very clean and seems easy to block stuff out. I use Evernote but I find it a bit clunky

    • Thanks! I don’t use anything fancy. Just a mixture of paint and a chrome plugin called Capture Page.

  • Joe

    Also, does anyone use FreeAgent instead of Xero? I use Freshbooks as my invoicing and accounting software but it doesn’t connect up with UK bank accounts and seems to lack some of the tax-related features of Xero.

    My accountant recommends FreeAgent so I am thinking of switching away from Freshbooks but Xero sounds the best?

    Any thoughts? Thanks.

    • Hi Joe, good to hear from you. I’ve never heard of FreeAgent I’m afraid so can’t really comment. I’ve only used Xero as that was the one recommended to me by both my accountants independently.

      To be honest, if your accountant uses and recommends FreeAgent and doesn’t use Xero I’d probably take their advice. Whatever software you use you want them to be familiar with it.

      One thing to be aware of: accountants receive kickbacks from software they sign you up to. So if they’re particularly unscrupulous they might just refer you to the one that offers the biggest commission. I doubt that is what is happening here, but it’s something worth knowing.

      • Michael Vogiatzis

        FreeAgent is an awesome tool @disqus_uJH83fLQcJ:disqus . It automatically syncs with my business Santander account and I can explain everything, upload receipts, P&L, VAT returns etc.

        The only feature I am not sure it supports is the automatic filing to HMRC. Maybe my accountant has the access rights to this and I am not aware.

        • Michael Vogiatzis

          Oh and thanks for the awesome post Sam. I totally get it, and I am one of the geeks that want to know each part of the process. However the main reason I keep an accountant is not to perform the quarterly/yearly tasks, but to inform me on any tax changes so I don’t have to read the tax news as well as notify me on things I’ve missed.

        • Joe

          Thanks @michaelvogiatzis:disqus I am doing the 30 day FreeAgent trial now. The bank and PayPal importing sync looks interesting.

          Freshbooks has a slicker interface but no UK banking feed feature.

          I will probably switch to FreeAgent. Got a few queries to ask the support guys about but it seems like a good choice for me.

          • Nice! Let us know how you get on with it.

          • Joe

            FreeAgent isn’t ideal user interface/experience wise, but it seems to have some good features.

            Still trying to set up the PayPal feed but it seems to be syncing with my Natwest business account OK.

            FreeAgent doesn’t have a good timer like Freshbooks has. I don’t charge by the hour but I like tracking my time for my own records so I can see my hourly equivalent rate.

            On the hunt for a similar time tracking app – giving Toggl a go but it’s not as good as the Freshbooks timer.

            Cheers.

  • James

    Great post Sam, and this is specifically applicable to me!

    I am just launching another limited Company and I have decided to do this one myself. I will let you know how I get on! Everything so far with setting it up has been relatively simple.

    One thing that might be worth adding somewhere is that a lot of Banks, Building Societies and Mortgage Companies require Ltd Companies to have accountants otherwise you won’t be able to get a mortgage with them. One of my many roles is as a Mortgage & Commercial Mortgage Broker and I have come across this a number of times. Some do accept Ltd companies without accountants but it does limit your options.

    I am not telling you how to write an article, but might be worth mentioning.

  • Rachidbch

    Hi,

    Amazing post and really helpfull,
    As a french national, I run a business in France and the UX was really … toxic. I can’t find another word to describe the feeling that the french administration make you feel as an adversary.

    Well for my next business (IT concultancy) I’m thinking to incorporate it in UK so your blog is really eye opening.

    For me doing it without accountant is due to me:
    – beeing a geek loving to understand what lies beneath,
    – wanting to do it as low cost as possible

    – not wanting to reproduce really really bad experience I Ihad with 3
    different accountants in Paris that were a joke (for a cost north of
    2000E/year)

    I have a few questions though:
    – Do you think it’s possible to incorporate and run (without accountant) from abroad: I mean how is it practical to do it with the combo VirtualOffice/Scanned document services.
    – I guess I’ll have to visit UK to setup the bank account (right ?). Is there any else I’m missing ?

    Any other advice ?