Poorly managed accounting

At TaxOne, we often rescue companies from the mess created by unreliable accountants. In this article, I will describe a few mistakes that can indicate poorly managed accounting.

You see your business thriving, but your accounts are clearly struggling, even though you're doing your best to ensure everything is buttoned up. Could your problem be poorly managed accounting?

How to spot a bad accountant? 

Below, you'll find a description of several circumstances that usually indicate an amateur accountant.

You receive information about tax settlements at the last minute  

For LTD company filings, we have 9 months from the end of the company's financial year. So, if your company's accounts are being filed by accountants in the last, ninth month, something is wrong. Well-managed, month-to-month bookkeeping allows for the company's accounts to be prepared within the first month after the financial year-end. This doesn't mean your accountants have to bring you "Final Accounts" for signing within the first 30 days after the financial year-end, but a good accounting firm will inform you about your company's financial situation and the approximate tax amount you need to prepare for already in the first quarter.

Example.

ABC Ltd was founded in May 2018. The financial year will therefore end in May 2019 (exactly 12 months later). From the end of May 2019, we have 9 months to submit the tax return (i.e., Final Accounts) to Companies House and HMRC, meaning the deadline falls in February 2021. During this time, the company must also pay Corporation Tax.

Let's assume the company has £10,000 in Corporation Tax to pay – it would be good to know about such a large expense earlier than in the last month before the payment deadline, right?

Late submission of documents to Companies House

Companies House and HMRC send information to company owners and their agents regarding deadlines for submitting filings such as Confirmation Statements or Final Accounts. Are you receiving letters with penalties for delays? That's another symptom.

Companies House imposes the following penalties for delays:

Up to 1 month – £150

1 to 3 months – £375

3 to 6 months – £750

Over 6 months – £1,500

Penalties imposed by Companies House are doubled when they occur for 2 consecutive years.

Given that a company has up to 9 months to file documentation, it is difficult to appeal a penalty. Of course, it's not impossible, but it is a long and exhausting process. To appeal a penalty, the company director must prove that the infringement occurred due to reasons beyond their control. However, the negligence of accountants cannot be such a reason. According to the Companies Act 2006, it is the director who is responsible for filing documentation and annual accounts - not the accountants.

Excuses like:
‍“it's my accountants' fault”
“my company was dormant”
“this is my first return”
“the company is struggling financially”
"directors live abroad"
"I didn't know I had to file a tax return"
...rather won't help.

Your accountants work without an assistant

This is also a bad sign. One person is unlikely to be able to run their own business well and at the same time properly manage the documentation for someone else's business. This takes a lot of time. Look at your own company – how much time do you dedicate to it? Accountants are in the exact same position, and on top of that, they have to do similar work for their clients.

The second reason why accountants shouldn't work alone is that if something happens to them, your company will miss all HMRC deadlines.

And another point – the team should be sufficiently qualified to complete work started by someone else.

Invoices issued to clients do not meet legal requirements

It's incredible how many Polish businesses struggle to issue a correct VAT invoice. I wrote about this in an article What should a VAT invoice include?

Even a regular receipt should show the VAT number – if your company is VAT registered. So, check if the invoices you give your clients contain the necessary information. Remember that upon a client's request you must issue a correct invoice. If your accountants can't spot such trivial errors, that's another symptom.

Accountants don't monitor your monthly revenue

Did you start a business in the last 12 months? Are you monitoring your "VAT Threshold" – the limit after which you should register for VAT?

In the last year, we've served several businesses that came to us from other accountants, and their owners didn't even know how much revenue they had. When running a business that sells a large quantity of goods at low prices, it's very easy to overlook exceeding the threshold amount – a daily average sale of just £233 is enough.

If your accountants aren't regularly informing you of your revenue, it's high time you looked into it. Check out my article, titled: Are you sure you haven't become VAT registered?

Accountants are urging you to commit fraud

Unfortunately, this does happen. Interestingly, some clients actually prefer such accountants. They don't realize that ultimately, company directors, not accountants, are responsible for fraud.

So, if accountants sign financial statements on your behalf (by the way... have you ever signed your own Final Accounts?) and urge you to apply for grants you know you don't qualify for, then it's probably time to move on from them.

Remember - in case of trouble with HMRC, YOU are always responsible.

If it also turns out that you were aware your accountants were committing fraud against the Treasury – penalties will be much higher, including criminal liability.

Unqualified Accountants

This happens all the time! To be clear: anyone can call themselves an accountant in the UK. The British government does not require that accounting services be provided exclusively by individuals with appropriate education, courses, and training.

If you notice that your information, even if sourced from the internet, often differs significantly from what your accountant claims, ask them to cite the specific tax law. They should know it, or at least know where to find it.

It's always better to check if an accountant can demonstrate appropriate qualifications.

They should also be a member of one of the professional accounting bodies, such as:

ACCA, CIMA, ICAEW, ICAS, IFA, ATT/CIOT

There is also AAT, which brings together accountants with lower qualifications. Such accountants are usually unable to serve large companies; they can handle accounting for self-employed individuals or small limited companies with modest incomes.

Qualifications AAT (not to be confused with ATT) are comparable to the first year of university studies (you can find an article on this topic here).

Many people advertise themselves as HMRC agents – anyone can do this, even without any accounting qualifications. Anyone can register with HMRC as an agent, which de facto means nothing.

Additionally, we also have bookkeepers – these individuals should be registered with organizations:

ICB or IAB

This is the lowest level of qualification (more accounting-focused than bookkeeping-focused), however, their basic accounting knowledge should not be dismissed.
However, remember - once your company exceeds the annual threshold requiring VAT registration, find someone with higher qualifications or a bookkeeper who collaborates with other accountants who can authorize their work.

It's a good idea to check what professional designations your accountants list after their name - this should reflect their qualification level. If they don't, just ask. It's also a good idea to check their LinkedIn profile, search the internet, and read reviews.  

Incompetence from an accounting firm can cost you a lot of stress, time, and money, so thoroughly vet the people you entrust your business to. If you choose wisely, you'll be able to focus solely on its growth and making money, without worrying about tax matters.

Entrust your problems to specialists - we'll solve them.