Hiring an accountant for a small business
A good accountant saves a small business owner time, keeps them on the right side of the tax authority, and can spot allowances and mistakes you would miss. A poor one leaves you with late filings and surprise bills. This guide explains what a small business accountant typically does, how your business structure changes what you need, which qualifications mean something in the UK, US, Canada and Australia, and what to agree before you start. It is general information, not tax or financial advice.
What a small business accountant usually does
The exact list depends on the size and type of business, but common services include:
- Year-end accounts, turning your records into a profit and loss account and, for companies, a balance sheet.
- Tax returns for the business and often for the owners personally.
- Sales tax returns: VAT in the UK, GST or HST in Canada, GST through the business activity statement (BAS) in Australia, and state sales tax filings in the US.
- Payroll, if you have employees or pay yourself a salary through a company.
- Bookkeeping, either done in-house or passed to a bookkeeper. See bookkeeper vs accountant for how the roles divide.
- Advice on business structure, how to pay yourself, what expenses are allowable, cash flow and planning for tax bills.
- Dealing with the tax authority on your behalf, including letters, enquiries and audits, once you have authorised them as your agent.
Sole trader vs company: why it matters
Sole traders and sole proprietors
If you trade on your own without forming a company, the business income is usually reported on your personal tax return. In the UK that is Self Assessment; in the US, typically a schedule attached to your personal federal return, plus state returns where they apply; in Canada and Australia, your individual return. The work is simpler, so many sole traders use an accountant only once a year, or manage with software and get help when things become complicated. Our guide to getting help with a tax return covers this.
Limited companies, corporations and LLCs
A company is a separate legal entity with its own filing duties. In the UK, a limited company files annual accounts and a confirmation statement with Companies House and a corporation tax return with HMRC, and directors often file personal Self Assessment returns as well. In Canada and Australia, companies file their own returns and have their own record-keeping obligations.
In the US, an LLC is a state law structure, and how it is taxed depends on how many owners it has and which tax elections it makes. A single-owner LLC is often taxed much like a sole proprietorship by default, while others are taxed as partnerships or corporations. This is a good area to get professional advice early, because the choice affects how you pay yourself and what you file.
Companies generally need more help: payroll for directors, dividends or distributions, separate business bank accounts, and stricter deadlines with penalties for lateness.
Qualifications to look for
Credentials tell you someone has passed exams, is bound by a code of ethics and, usually, must keep up professional training and hold insurance.
United Kingdom
"Accountant" is not a protected title in the UK, so anyone can use it. Look for membership of a recognised body: ICAEW or ICAS (chartered accountants), ACCA (chartered certified accountants), or CIMA. AAT members are qualified accounting technicians and many run practices serving sole traders and small companies. For complex tax matters, Chartered Institute of Taxation membership (CTA) is a strong tax qualification. Accountancy practices must also be supervised for anti-money laundering purposes, by a professional body or by HMRC, so ask who supervises them.
United States
A Certified Public Accountant (CPA) is licensed by a state board of accountancy; you can verify a licence through the state board. An enrolled agent (EA) is licensed by the IRS, specialises in tax and can represent taxpayers before the IRS. Any paid tax preparer must have a Preparer Tax Identification Number (PTIN), but a PTIN alone is not a qualification.
Canada
The Chartered Professional Accountant (CPA) designation is granted through the provincial and territorial CPA bodies, coordinated nationally by CPA Canada. Check the provincial body's directory to confirm membership.
Australia
Anyone who charges to prepare tax returns or give tax advice must be a registered tax agent with the Tax Practitioners Board (TPB). Those who only provide BAS services for a fee must be registered BAS agents. Check the TPB public register. Many accountants also belong to CPA Australia, Chartered Accountants Australia and New Zealand, or the Institute of Public Accountants.
Software and how you will work together
Most small business accountants now work with cloud accounting software such as Xero, QuickBooks, FreeAgent, Sage or, in Australia, MYOB. Ask early:
- Which software they support, and whether they can get you a discounted subscription.
- Whether you keep ownership and access to your data if you leave.
- Whether they expect you to do the day-to-day bookkeeping, or include it.
- How you will send receipts and documents, and how often they want them.
- Whether your software meets digital record-keeping rules, such as HMRC's Making Tax Digital requirements for VAT in the UK.
The engagement letter
A professional accountant should send you an engagement letter before starting. It is your contract and the best protection against disputes later. Check that it covers:
- The exact services included, return by return.
- Services that are not included and how they would be charged.
- The fee, how often it is billed and how it may change.
- What you must provide, and by when, for them to meet filing deadlines.
- Who is responsible for accuracy of the information you supply.
- Authority to act as your agent with the tax authority.
- How either side can end the arrangement, and how your records will be handed over.
Questions to ask before you hire
- Which professional body are you a member of, and can I check your membership or licence?
- Do you work with many businesses of my type and size?
- Who will actually do my work, and who do I contact with questions?
- How quickly do you usually reply?
- Do you carry professional indemnity insurance?
- Will you remind me of deadlines and what you need from me?
- What will you need from my previous accountant, if I have one?
For how fees are usually structured and how to compare proposals, see how accountants charge.