Business tax – what business owners should expect of their accountant
Most business owners will tell you what they think their accountants do: they prepare the accounts and do the tax return. They probably think of this as pretty much a process. There are two misunderstandings implicit in that sort of thinking; the first is there is a sort of sausage machine at work and that you put in the figures and get a certain result, and the second is that there is no room for manoeuvre.
Most SMEs, by which I mean the larger ones within the official definition down to much smaller almost micro-businesses, are owned by families or family members. Sometimes there is one family involved, and sometimes there are several. I have come across one company with three generations of three different families actively involved and working in the business.
What business owners should expect from their accountants is not just the “doing”. Business owners should expect from their accountants some thinking in terms of the tax side of things. Most accountants will deliver this. Those that fail to do the thinking may be the larger firms who will use their junior staff to cut their teeth on “smaller” companies and who do not have the experience to think. Sometimes the very small firms are rushed off their feet to do all the accountancy work and are not able to think properly about the tax process beyond doing basic tax calculations.
Business owners do need to ask their accountants the right questions of course and also prompt their accountants sometimes. There is basic stuff such as looking at the best methods of extracting profit. Is the company making best use of dividend payment options to its shareholders as opposed to salary because provided there is a profit reserve this is one of the simplest ways of saving tax? However, there is a lot more to think about than that. A few items for consideration might be:
- Paying dividends as opposed to all salary to the shareholders working in the business
- Paying dividends to shareholder-spouses not liable to higher rate tax (this needs careful management).
- Claiming capital allowances correctly including Annual Investment Allowance and talking to the business owners about timing for investment in new plant, machinery and factory or workshop fittings. Timing the claims to gain maximum tax relief.
- If the company has losses, setting of these against profits of earlier periods in the most tax-efficient way.
There are of course some fancy tax schemes advertised as saving pots of money. I will not say they do not work, but an MD needs a strong stomach and an ability to sleep well at night, given that these always draw from HMRC an enquiry into the company tax affairs. My advice would be to stick to the tax basics but make sure the accountant does them.
SME owners do need to engage with their accountants and keep them informed. If a business needs a new JCB or a new truck or several within the next few years, talk to the accountant about timing. These decisions depend on cash-flow of course, but in terms of tax allowances, timing is everything especially for large items. Ask before purchase, not afterwards when it is too late.
Your relationship with your company’s external accountants should be about both sides asking questions. The relationship should be a partnership and you will get the best and most profitable results by talking.