Qualified or unqualified?

Most people are unaware that the word ‘accountant’ can be used to describe a range of different people. It’s not like ‘dentist’ which always means someone who is qualified to check your teeth.

Anyone can call themselves an accountant or bookkeeper even if they have no professional qualifications. But if any laws are broken, it will be you, not your accountant, who pays the penalty.

If you are serious about making money in your business the chances are that you will want to engage a professionally qualified accountant. That means someone who has passed tough exams and belongs to one of the professional accounting or tax institutes. This will also ensure that your accountant has to abide by a strict code of professional ethics which should mean they are more reliable and that they carry professional indemnity insurance to compensate you if things go wrong. Finally, if it all goes wrong you will be able to complain to the professional institute if you don’t get the service that was promised.

The most common qualifications and designatory letters that are likely to be relevant are:

Chartered Accountant - ACA or FCA – Member or Fellow of the ICAEW (Institute of Chartered Accountants in England & Wales).

Chartered Accountant - CA – Member of ICAS (Institute of Chartered Accountants in Scotland)

Chartered Certified Accountant - ACCA or FCCA – Member or Fellow of the ACCA (Association of Chartered Certified Accountants)

Chartered Management Accountant – ACMA or FCMA – Member of CIMA (Chartered Institute of Management Accountants)

Chartered Tax Advisor - CTA or ATII – Member of the Chartered Institute of Taxation

Less relevant qualifications because they imply a more junior level of experience include:

AAT – Member of the Association of Accounting Technicians

ATT – Member of the Association of Tax Technicians

It’s invariably safer to rely on professional advice than the ‘advice’ of a friend who’s always bragging as to how he’s got one over on the taxman. Using a professional adviser gives you a degree of credibility. The taxman knows the adviser is not going to be “cooking the books” and so you should be at less risk of tax enquiries and investigations. Having said that the taxman (HMRC) is changing the way it works and asking questions by reference to a range of factors so having a professional adviser will not be enough to ensure the taxman leaves you alone.

Does your business need a company?

Lots of people describe their ‘business’ as a ‘company’ even though the two words do not mean the same thing.

This is not the place to explain all of the differences or the obligations that you take on if you form a limited company. Too many people make a quick choice because they have heard that one approach or another will mean they will pay less tax on their profits. That doesn’t mean it’s the right choice for them. Are there any non-tax reasons why you may need to operate your business through a company? It depends on a number of factors and your accountant should be able to help you decide. Certainly a company will generally find it easier to raise finance and your bank may also prefer it because of the greater regulation that applies to companies.

For the moment let me just stress that many people find it difficult to grasp the idea that their company is a distinct legal entity. If you set up a company you need to remember that the company bank account and other assets are not yours so you cannot just take money out of the company’s bank account when you feel like it.

You will need to decide whether you want an accountant who just skirts around these issues and undertakes to sort out everything for you. Or would you prefer an accountant who tries to help you understand the issues and lets you decide whether you will be able to cope with the administration – even with your accountant’s expert help? And what will it all cost? How do the extra charges for running a limited company compare with the tax savings you hope to achieve? Do YOU think it’s worth it? Many people do. Equally many people don’t get to find out that they have a choice and that the hoped for tax savings get swallowed up by additional accountancy fees.

Ultimately you need to determine whether or not you should launch your business as a limited company, as a sole trader or as a partnership. Ask your accountant to help you understand the options but do not accept their advice until you understand whether or not it is right for you.