Do I need to hire an accountant for my limited company?

There is no legal obligation to hire an accountant if you’re setting up a limited company. However, there are some very good reasons to do so.

What matters is this: even if you do everything yourself, you (as a director) remain responsible for making sure your company meets its filing deadlines and maintains proper records.

If you want an authoritative overview from Companies House itself, this is worth reading: Do you need an accountant for your business?

What’s in this guide?

• No legal obligation to hire an accountant
• What does an accountant do for a limited company?
• Example monthly accountancy fees
• Could you manage your own company’s accounts?
• 7 reasons to appoint an accountant
• What happens if you don’t use an accountant?
• Is it worth it for you?

No legal obligation to hire an accountant

In most cases, if your new company is defined as a micro-entity (‘small’), you are not required to have your accounts professionally audited.

If you have set up a new company, you can prepare and submit its accounts yourself.

But, do you have the knowledge, patience and time to do this?

Before we look at the compelling reasons why you should consider hiring one, let’s look at what an accountant does in practice.

What your limited company must normally do each year

Many directors appoint an accountant to ensure that statutory filings and tax deadlines are met accurately and on time.

Related reading: what a confirmation statement is, limited company tax and accounting deadlines, and how long you need to keep accounting records.

What does an accountant do for a limited company?

We have covered the typical roles and responsibilities of an accountant here.

In essence, you can break down the tasks into three sections:

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• Start-up tasks – setting up your company and advising you on the best share structure. Registering the company for VAT and Corporation Tax. Setting up your payroll, etc.
• Ongoing tasks – looking after your monthly and yearly accounts needs. Running your payroll, submitting VAT returns, bookkeeping (sometimes optional), creating annual accounts and dealing with HMRC and Companies House.
• Additional tasks – add-ons such as providing specific tax advice, IR35 reviews, providing references, etc.

As you will see, there are many things to do when managing a company’s accounts.

If you do appoint an accountant, one practical step many directors miss is authorising them properly with HMRC. See: how to authorise your accountant to deal with HMRC.

Example monthly accountancy fees

If you want a broader view of what you get for the money (and what tends to cost extra), see our main comparison page: contractor accountants.

Could you manage your own company’s accounts?

The omnipresence of seriously good online accounting software, such as FreeAgent and Xero, has been a game changer for accountants and their clients.

It has never been easier for both parties to fulfil their end of the bargain: clients can invoice directly via accounting software and reconcile transactions directly with their bank accounts.

Accountants can easily see the state of affairs and advise clients accordingly if weekly/monthly tasks haven’t been completed.

So, if you are considering doing your own accounts, this type of software is a massive help.

But, in reality, there are some strong reasons why using an accountant makes more sense.

7 reasons you should appoint an accountant as a contractor

1. Your time is valuable

Do you have the time to do your accounts and build your contracting business?

As a client, you need to devote an hour or so each month to keeping your accounts up to date. If you have to look after your accounts, you should add a fair few additional hours to this tally.

For an accountant, managing a company’s monthly and annual tasks is simple. For non-accountants, this may not be the case.

2. Accountancy costs are not high

Given the benefits they provide, contractor specialist accountants are inexpensive. As you’ll see from our popular comparison table, you can choose a comprehensive service for as little as £80-120 per month.

3. Specialist knowledge

Accountants specialising in the contracting industry will be up-to-date with the latest changes to tax and legislation, including the MSC legislation, plus the omnipresent IR35.

If you want to handle your own accounts, are you willing and able to understand and comply with complex and ambiguous tax rules as well?

4. Tax-saving advice

From advising you on the best share structure for your company upon formation to providing tax-planning advice, a wise accountant could save you money.

If you’re paying yourself via salary and dividends, having someone who understands the paperwork side matters too, for example dividend vouchers and board minutes, and what to do if you overpay dividends.

5. Dealing with HMRC

From our experience, dealing with HMRC (and possibly Companies House too) on relatively trivial matters can be nail-biting.

Accountants are familiar with how HMRC operates and the best way to solve problems, particularly if you are faced with an investigation into your company’s affairs. Do you want to deal with this on your own?

6. Providing professional references

An accountant is the perfect person to ask if you need a reference for a mortgage application or rental. Contractor specialists do this every day for their clients.

7. Seamless help when starting up

Most contractors new to the industry have not previously been company directors. A seasoned accountant will guide you through the entire incorporation process.

This includes everything from choosing a company name to providing a registered address, if required.

The accountant will also set up your VAT registration and register you as an employer with HMRC. They’ll guide you through other steps in the startup process, such as opening a bank account.

These tasks will often be included for no extra charge should you become a client.

What happens if you don’t use an accountant?

As we’ve explained, there’s no legal obligation for you to appoint an accountant. However, if you manage your company accounts yourself, the risk of making a mistake is high – especially if you don’t have a proficient understanding of accounting.

Late filings, incorrect Corporation Tax returns, or failure to generate dividend paperwork can all result in fines, penalties, or even overpayment of tax.

Even experienced contractors can fall foul of HMRC’s expectations if they miss updates to legislation or file in the wrong format.

And if you’re being investigated, having a qualified accountant on your side can make the process much easier to handle.

DIY accounting might save money in the short term, but even a small mistake can be costly.

A good accountant will help to minimise the chances of anything going wrong.

Examples of penalties (to make this more real)

• Companies House late accounts filing penalties can range from £150 to £1,500 for a private company, depending on how late the accounts are. These can double if you file late in two successive financial years. More here: Companies House guidance on avoiding late filing penalties.
• HMRC late Company Tax Return penalties start at £100, then another £100 at 3 months, with additional penalties if the return is still outstanding at 6 and 12 months. See: penalties for late filing a Company Tax Return.

Some mistakes are also just messy and time-consuming to unwind later, for example if you accidentally build up an overdrawn director’s loan. See: director’s loans explained and what potential problems you should be aware of.

Is it worth it for you?

You are a professional contractor. Your job is to provide highly skilled technical advice to end clients.

There is some overlap in the typical skill sets of accountants and contractors. Many contractors are undoubtedly capable of handling their own company accounts.

But do you have the time, expertise, and patience to take this on?

Or would you rather pay a Corporation Tax-deductible £100 per month to have a specialist do this for you?

If you want another external perspective from a professional accountancy body, this ICAEW piece is also useful: Do I need an accountant for a limited company?