5 Reasons Why DIY Accounting Is The Most Dangerous Thing You Can Do... - Make Sense
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5 Reasons Why DIY Accounting Is The Most Dangerous Thing You Can Do…

5 Reasons Why DIY Accounting Is The Most Dangerous Thing You Can Do…

The minimum level of qualification you need to be an accountant in the UK is an AAT, however, many choose to study through a degree or take ACCA, ACA or CIMA qualifications to become chartered too. Studying for your AAT qualification takes between 9 and 18 months whilst going for chartered status will take an additional 3-10 years of study paired with practical experience. Certified Public Accountants must also have completed a 4-year degree and passed the CPA exam.  

In short, it takes a long time to become an accountant; and no wonder since one little mistake could cost companies thousands of pounds or even shut them down entirely! And, despite all of the hoops that you must jump through in order to become a competent accountant, some people still seem to believe that DIY accounting will work perfectly for them. 

So, what is likely to happen if you do decide to handle your accounts yourself? 

1) Mixing personal and business finance records. To understand why this is a problem we need to understand the liability that small business directors have. Directors of a Limited Company have limited liability over the company if it gets in to trouble. This is good because the company is treated as a separate entity to the person (unlike sole traders) but bad because there are a lot more rules about how you withdraw money from the company. Mixing the personal and business finances can lead to the tax payer accidentally claiming personal expenses on their business taxes. The result; a tax investigation. 

An accountant can help you make sure that you are claiming the correct business expenses and keeping your business and personal affairs separate, thus keeping HMRC happy. 

2) Accounting that is a chore. For many business owners (unless their company is in accounting) the idea of sifting through mounds of paperwork, organising spreadsheets and dealing with the seemingly endless number of forms that must be completed is not a fun task. Instead, it feels like a chore and, just like a chore, it is left until the very last minute. There are several problems with rushing your accounts at the last minute; 

  • Missing deadlines which will result in penalties such as fines which increase with the longer the time since the missed deadline. 
  • Mistakes. Ever remember in school when you forgot about a piece of homework and rushed it at the last minute? The chances are it had mistakes in it, however, mistakes in your tax return won’t get you bad grades but they could land you with an investigation or penalties. 

The moral of the story; don’t leave your accounts to the last minute. This is where a competent accountant can help you to keep to your deadlines and dodge those penalty fines. 

3) Communication with the Tax Man. No one likes to come home from work to find that dreaded brown envelope waiting for them, but it is inevitably going to happen when you are the director of a company. Now, not all letters from HMRC are bad, and your accountant will help you understand what they want. Even better than this, you can assign an accounting company permission to act on your behalf and communicate with HMRC to give you one less thing to worry about. 

4) Wasting your time. As the director of the company, you will have a lot of different responsibilities and accounting definitely doesn’t need to be one of them. If you have set up a business, it means that you have a passion for what you are creating; and no one else can do this bit for you. Instead of spending hours on accounts, focus on the tasks that must be done by you and outsource anything else to an expert. 

5) Not filing your taxes correctly. The last (and worst) problem that stems from DIY accounting is messing up your taxes. There are two ways which this can go: underpaying and overpaying. 

Overpaying your taxes. Overpaying your taxes by accident will lead to a narrower profit margin. Whilst you may think that HMRC has a duty to pay back any overpaid tax (they do!) they are very busy and tax overpayments often slip under their radar. You can apply for a tax refund (if it is not automatically returned) but this is more paperwork and hassle, wouldn’t it just be easier to pay the right amount in the first place? 

Underpaying your taxes; this is where the tax man gets angry. Whether it was deliberate fraud or an accident, HMRC will want to get their money back. Small errors and mistakes usually lead to an investigation resulting in repayment of the owed tax along with penalties whilst large scale fraud and deliberate avoidance can land you in prison. The most serious investigations can look back up to 20 years into your business history, land you huge fines, a prison sentence and even get your name onto a national list of deliberate tax defaulters. Don’t believe us? Click here to see the current list. 

So, what’s the best solution to avoid the headache that these problems will undoubtably cause? Go with an accountant who will look after your business, go with an accountant that makes sense. 

If you would like any information about how we can help you with your company accounts and tax affairs, You Know It Makes Sense to get in touch with us today! 

  

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