Over the years, we’ve heard our share of myths and misconceptions about the accountancy profession.
What bothers us about those is not just that they’re wrong. It’s that some of these misunderstandings could lead business owners to make less-than-ideal decisions when it comes to their strategy – or worse, land themselves in trouble with HMRC and pay the price through penalties.
To set the record straight once and for all, we’ve set out the top five common myths we hear about accounting.
Myth 1: All accountants have to be qualified
The job of an accountant is an important one – our work can make all the difference to a business’s success, and ultimately, to your livelihood.
So you might assume that if someone’s going around calling themselves an accountant, they have a minimum level of qualifications to prove their competence.
That’s not actually the case. Unlike some other professional titles in the UK, like ‘architect’, ‘solicitor’ or ‘surgeon’, the title of ‘accountant’ is not legally protected. In other words, anyone can legally say they are an accountant.
To guarantee a certain level of training and experience, what you can look for is confirmation that your accountant is ‘chartered’, and that they’re associated with a professional accounting body.
The main ones to look out for include the Association of Chartered Certified Accountants (ACCA) and the Institute of Chartered Accountants in England and Wales (ICAEW).
Both organisations require their chartered members to have a certain level of qualifications and professional experience, to adhere to a code of ethical standards, and to commit to continued professional development.
Myth 2: If there’s a mistake in your accounts, your accountant is liable
On a related note, it’s important to be aware that if you do entrust your accounts to someone who turns out to be less qualified than you thought they were, you’re still liable for any mistakes.
Your accountant may act on your behalf in the eyes of HMRC, but you still have the final responsibility for meeting your obligations and remaining compliant.
That means if your accountant misses a tax return deadline, or if there are errors in your accounts, you’ll be liable to pay any penalties.
If your accountant has seriously failed in their duties and you’ve suffered a financial loss as a result, you might be able to take legal action – but this can often be expensive, difficult and time-consuming.
To avoid having to go down that route, it’s better to go with a chartered accountant whose qualifications you can rely on. Then, if any issues do come up, you have the option of raising them with the accountant’s professional body.
Myth 3: Forming a company will mean you can pay no tax
Incorporating your business makes it into an entity of its own – one that’s separate from your personal finances.
In certain cases, this structure can be tax-efficient compared to operating as a sole trader. Many new business owners make the mistake, however, of thinking this means they won’t need to worry about tax at all.
In reality, various types of tax can be due when you run a limited company. Your company’s profits will be liable for corporation tax, at 19%, and if you want to pay yourself in income and dividends, you’ll also need to pay tax on those.
Income tax applies to any salary you pay yourself from your company which exceeds the annual personal allowance at the usual rates of 20%, 40% or 45%, while dividend tax rates stand at 7.5%, 32.5% or 38.1% in 2021/22.
Bear in mind that all dividend tax rates and National Insurance rates are going up by 1.25% from the 2022/23 tax year.
Myth 4: You need to keep all your records on paper
Gone are the days when you’d be expected to turn up at our office in January with a box full of receipts. Nowadays, most modern accountancy firms work in the cloud, using online accounting software.
With secure, digital copies of all your important documents, that means you have no reason to keep all the paperwork and clutter.
Accounting tools like Xero and FreeAgent are also great for streamlining the accounting process and giving you clear and useful information whenever you need it.
They can hook up with other apps for expenses or document sharing, taking a huge amount of manual work out of your hands – and out of our hands, too.
Myth 5: Accounting software can do everything for you
That leads us to our fifth and final point. Given the recent advancements in cloud accounting software, and its impressive potential to automate repetitive tasks, you might start to wonder – can’t you just let the software handle your accounts for you?
For now, at least, software can’t do everything. To ensure your accounts are completed accurately, you still need an experienced professional to check everything’s in order, and to summarise your data in a way that’s useful to you and your stakeholders.
While accounting apps can help to analyse your cashflow and inform your business planning, there’s no replacing the critical thinking and in-depth knowledge a good accountant like us will be able to apply to that information, to turn it into practical steps for your business.
Talk to us for tech-led accountancy advice with a human touch.