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.
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.
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.
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.
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.
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:
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.
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.
- 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.
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:
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.
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.
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.
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:
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.
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.
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:
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.
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:
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.
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…)