London is the home of many large businesses to budding startups. But, one thing in common is the high business operation costs. Luckily, there are several accountants to help entrepreneurs deal with business costs.
But what is the cost of hiring an accountant? There is a misconception among small business owners that hiring an accountant is a luxury, and they can’t afford to hire one. However, accounting services cost depends on several factors, and you can find an accountant at a low cost.
We’ll cover the following points in this blog:
● Why do you need an accountant?
● What are the factors involved in Accounting service cost?
● What is the price of hiring an accountant?
● What are the two methods of formulating an accounting fee?
● How can you reduce the accounting costs?
Why do you need an accountant?
Small business owners often wonder whether they require an accountant or can learn to do basic accounting themselves. However, it is not necessarily the right option.
An accountant can help you with the following:
● Improving cash flow and invoicing
● Keeps your book clean and up to date
● Helps in business planning
● Does your taxes correctly and on time
● Makes better financial decisions
● Boost your profitability
● Improves business performance over time
● Reconciling bank accounts
● Eliminates unnecessary expenses
● Helps in profit maximisation
● Avoids penalties, interests, and audits
● Ensures a business complies with ever-changing government rules and regulations.
Accountants help business owners during the growth of a small business. They advise you on a business plan, inform you about the company’s legal structure, and help you with the finance.
Additionally, they help you deal with the government during audits while applying for business loans or investments and taking on a franchise.
What are the factors involved in Accounting service cost?
The cost of accounting services depends on several factors, such as,
● Size of the business
● Business type
● Number of employees
● Number of directors
● Business turnover
● Number of transactions
● Business location
● Status of business VAT registration
● Complexity of taxation
● Service requirements
An accountant can give you a cost estimation during the hiring process after considering all the required factors. The payment options can be either a fixed fee or an hourly rate.
Credit: Firm of the Future
What is the cost of hiring an accountant?
There is no consistent pricing system for accountants. In addition to the factors highlighted above, accountant experience, niche, urgency, etc., also affect the pricing.
Every business has a few standard accounting service requirements, like:
● Annual accounts
● Monthly and yearly payroll returns
● Quarterly VAT returns
● Corporation tax returns
● Director’s tax return
● Advice on tax avoidance legislation
● Advice on daily financial activities.
The monthly cost of these services for a small business can be as low as £60 to a maximum of £250. If you are looking for an accounting firm, ask them the price for a standard core package and additional charges for extra services.
Self-assessment and tax return
An accountant may charge you between £150 to £250 or more for an annual self-assessment tax return. However, it depends on the complexity of the tax and the scope of your business finance.
That means the higher your business turnover or income, the more significant will be the accountant fees.
Special services like tax planning and business planning may cost you £125 to £150 per hour. Companies with an annual turnover of £0 – £100,000 must pay £100 to an accountant for VAT returns.
Whereas a company having turnover between £100,000 and £200,000 will pay a monthly charge of circa £150, and £200 for turnover between £200,000 to £400,000.
Contractor and freelancer accounting
If you are a freelancer or a contractor, an accountant can charge you £50 – £150 monthly for services like:
● Managing accounts
● Filing VAT return forms
● Filing self-assessment forms
● End-of-year submissions
● Filing with companies house, in case of working as a limited company
Sole-trader or partnerships accounting
If you are the sole trader or an individual in a Business partnership, accounting fees can be between £30 and £130 monthly for general accounting services.
Limited company accounting
· Sales between £50k – £85k annually
You own a limited non-VAT registered company, have one director or another staff helping you, and can expect an accountant to provide necessary services at £120 per month.
The services may cover filing annual accounts, corporation tax returns, payroll processing with HMRC, and personal tax returns.
· Sales around £250k annually
You own a VAT-registered limited company with a director, at least five staff, and some enrolled in the company’s pension scheme and may expect essential services from an accountant at around £360 + VAT per month.
They will prepare quarterly financial reports, manage your accounts, file corporation tax/ VAT returns, deal with staff payroll issues, and use bookkeeping software.
· Sales around £1m annually
If you are a VAT-registered business with ten weekly paid staff, willing to expand the company, you can expect accounting services at around £600 + VAT monthly.
Some services they provide are payroll processing, tax or VAT return filings with HMRC and companies house, cash flow forecasting, managing accounts, and using bookkeeping software.
· Sales around £5m annually
You run a VAT-registered limited company working with 20 staff and need to pay around £1,100 + VAT to an accountant to help manage every financial activity within the business. The services include managing accounts, maintaining business-client relationships, cash flow management, monitoring the company’s performance, invoicing, weekly bookkeeping, and handling accounting software.
What are the two methods of formulating an accounting fee?
Traditionally, an accountant uses two methods to calculate fees: charge-out rate and fixed rate.
Charge out rate
The accountants calculate the cost of practice and a profit margin and apply this to an hourly rate. Clients can estimate accounting service prices, but predicting the cost of practice and what profit margin to add is difficult.
The accountant quotes a fixed fee to cover primary services under a package. Here, clients have a crystal clear view of prices and can compare the prices with other accounting firms to select the right one.
How can you reduce the accounting costs?
Accounting services have become an indispensable part of large to small-scale businesses. However, hiring them in London costs more than in other parts of the UK. Therefore, small business owners can outsource these tasks to accounting firms, or hire part-time employees and freelancers, to reduce accounting costs.
These individuals are responsible for specific services and charge you according to that service per hour or a fixed fee. You don’t need to provide employee benefits and pay them unnecessarily when not required.
The accounting service cost in London can be pretty expensive for small businesses or organisations with low annual turnover. However, these services can help your company grow and increase turnover, solving tax complications and other financial issues in the company.
You need to ask for referrals and meet the accountants for a face-to-face interview where you ask them a set of questions. One among them must be the service charge and the payment method. We must remember that an accountant handles essential financial documents of a company; therefore, we must select them tactfully and cautiously.