When you’re starting out in business, it can be confusing to hear accounting jargon and terminology. It can cause anxiety to learn that you’ve missed an important deadline and now you need to pay a large fine to Revenue or the Companies Registration Office.
It can also be daunting to think you need to go through all this alone. But you don’t need to learn all this yourself. Having an accountant from the beginning can save you from headaches and save you money.
Accountant Online has experience with businesses that have missed important deadlines or have hefty fines they can’t repay. If these businesses contacted an accountant straight away, they could have helped them avoid mistakes.
Here are the top reasons why having an accountant from the beginning is so important.
1. Accountants help you decide if you should set up as a Sole Trader or Limited Company
If you’re about to set up in business, it can be difficult to choose a business structure if you’re not sure of the implications of choosing one. Talking to an accountant from the beginning of business can help you decide the best way to form your structure. They will talk to you about your business, the income you’re expecting to make and give you advice on whether you should start as a Sole Trader or Limited Company. There are very important implications for this decision.
By understanding your expected income, an accountant will advise you on the taxes you can expect to pay. For example, a Sole Trader generally pays income tax up to 42% on their profits whereas an Irish Limited Company only pays 12.5% Corporation Tax on their profits. Your accountant can explain each scenario to you in more detail if you seek their advice from the moment you decide to set up.
“A client who is a HR consultant earned fees of over €175,000 last year. By the time she approached us, it was too late to form a Limited Company and save on her tax bill. She paid almost half her income in tax as a Sole Trader. This could have been a huge saving for her if she had formed a Limited Company”.
2. An accountant knows the implications of your decisions early
If your accountant understands your attitude to risk, they can help you narrow down the choice of structure. This helps you decide how to start a business because a Sole Trader is personally liable for any debts of the business. This means if there are outstanding debts to creditors, your personal assets (such as your car) could be used as a method of repaying this debt.
On the other hand, if you set up a Limited Company, you are setting up a separate legal entity which means that the Limited Company is liable to any debts to outstanding creditors, not you personally. Talking to an accountant will prompt you to think about the formalities of each structure which you may not have thought about before.
“A Sole Trader needs to save around half her income to make sure she has enough to pay her year-end taxes PLUS she needs to pay preliminary tax for the following year! This is a huge shock for many of our clients when it is already too late to save for this.”
3. Accountants tell you what you need to do for peace of mind
Once you’ve decided what business structure to set up, it’s time to start thinking about how to keep track of all your receipts, expenses, invoices and bank statements. Having an accountant from the beginning means that you’ll know exactly what books and records you need to keep so you’re organised straight away.
“We often help clients who come to us at the end of their first year in business to discover they have not been keeping track of invoices and receipts.”
4. Accountants make sure you’re registered for the appropriate taxes
When you open a business, one of the first things your accountant will help you with is your tax registration. Having an accountant means that they know exactly what taxes you should register for and what taxes you shouldn’t register for yet. For example, VAT registration is generally only registered for if you reach a turnover of €37,500 for the sale of services or €75,000 for the sale of goods over the course of 12 months.
Your accountant will be able to spot if you’re getting close to the threshold and recommend that you start the application to register for VAT. Accountants have expert knowledge on tax registration so they will know that the VAT application can sometimes take up to 28 working days, so it’s important to get it done as soon as you’re close to the threshold.
5. Accountants give you advice on online software and apps that can help your business run smoothly
As a busy Startup, your accountant wouldn’t expect you to sit down and write all your expenses out on a spreadsheet. They’ll recommend good online accounting software so you can keep track of all your expenditures, invoices, and bank statements in easy-to-use, cloud-based software.
Your accountant will also have access to this software at any time, so you don’t need to keep a box of receipts in your office. Using online accounting software regularly usually also means that your accountant has a good amount of time to prepare your financial statements because you’ve kept up-to-date with your records.
Every October we get many calls about missing deadlines. If they contact us at the start of the year, we could have shown them how to save all their receipts in the cloud. There would be no surprise or anxiety for them.
6. Accountants help you avoid fines and penalties
All businesses need to file tax returns to Revenue and Limited Companies also have to file Annual Returns to the Companies Registration Office. Missing deadlines or making mistakes in your returns can be costly to rectify. For example, missing an Annual Return by one day incurs a fine of €100 and an additional €3 every day until the Annual Return is filed, up to a maximum of €1,200.
A Limited Company may also lose its audit exemption which means the company will need to outsource audits on its financial statements for the next two years.
Accountants are professionally trained to help you file these returns so you can avoid unnecessary costs that will hurt your bottom line.
7. Accountants make sure you don’t have any surprises
As above (it is worth repeating!) one surprise an accountant can warn you about is Preliminary Tax. Preliminary tax is an estimate of the tax that’s due for your next financial year and it needs to be paid with your first return. Sole Traders file income tax returns on the 31st of October each year and Limited Companies file their Corporation Tax return 11 months 23 days after their financial year-end. Keeping track of key dates and taxes like this will make sure you’re on top of compliance.
“We find that Sole Traders are especially affected by Preliminary Tax because they forget that they’re required to pay additional tax on money that’s coming straight into their bank account.”
8. Accountants help you extract cash from the business in the most tax-efficient way
Deciding to set up your own business can carry a lot of risk and responsibility and your accountant can help you make sure you’re being paid for your work in the most tax-efficient way. Even if your company isn’t making any money yet, your accountant can help you make sure that you’re reimbursed for any expenses you paid out of your own pocket. You can also check out our guide on how much to pay yourself to help you plan how you will take money from your business.
9. Accountants help you build for the future
You may not know what you want to do with your business 3, 5 or 10 years down the line but your accountant can help you make sure you have money in the future by giving you information about pensions. Contributing to your pension is a tax-efficient way of extracting money from your company and adds to your future.
10. Accountants offer support if you’re juggling a full-time job and a business
If you have a full-time or part-time job whilst running your own business, your accountant can help you split your tax credits in the most tax-efficient way. They’ll help you with your tax planning and help you retain as much of your earnings as possible.
“Many of our clients start their own business as a project alongside their full-time job. They need help with their tax bills as a PAYE employee and as self-employed.”
11. Accountants tell you what expenses, tax reliefs and schemes you can or can’t claim
When you’re starting out in business, you may not know what expenses you can claim against your tax bill or what government tax reliefs are available to Startups.
Having an accountant from the beginning means that you can query any expenses and give details about your life and you accountant can advise if it’ll help reduce your tax bill at the end of the year. For example, any business-related expenses incurred before you officially set up your business can be deducted against your tax bill.
Another way to reduce your tax bill is if you carry out any research and development in your company, you’re entitled to a 25% tax credit on any expenditure incurred whilst carrying out that research and development. Your accountant can help you determine any qualifying expenditure which will help reduce your tax bill.
The great thing about having an accountant from the beginning is that they’ll help you with compliance regulations that you don’t know about. They’ll help you make running a business a lot smoother because they’ll remind you of your financial obligations to Revenue and the Companies Registration Office. An accountant can also give you great tips for running a successful business and help make accounting easier for you. For example, what online accounting software is best suited to your business.
Looking after the accounts for your business is a big responsibility and it’s not a huge cost if you think about the fines involved with missing a deadline.
We work with businesses in all stages of their Startup journey. If you’re still struggling to decide between a Sole Trader or Limited Company or you’ve realised you’ve missed your Annual Return filing date, you can get in touch with Accountant Online through phone +353 1 905 9364 or email firstname.lastname@example.org or webchat.
Rose is the Director of Sales and Marketing at Accountant Online. Rose has worked in senior leadership roles for over 20 years in both US corporates and Irish SME’s. Areas of expertise: Leadership, Strategic Planning, Executive Coaching, Mentorship, Online Business Management