Apart from accountants, few freelancers enjoy this part of the job.
Even if you end up outsourcing your bookkeeping and accounting, you need to be familiar with what’s involved, so let’s get into it.
Bookkeeping & Accounting #
Aren’t these the same? No.
Bookkeeping is the process of recording sales, invoices, expenses, receipts, etc. Accounting is where this data is pulled together and analysed for reporting (e.g. tax).
Knowing the difference between these things isn’t essential. But it’s useful to know they are different, especially if you’re looking to hire someone to do one or both of these jobs.
For instance, many bookkeepers are qualified to submit self-assessment/company returns, but not all. Worth knowing and checking.
Anecdotally, I would say that most freelancers I know have an accountant, but few have a bookkeeper.
That doesn’t mean you shouldn’t have one. A bookkeeper might be handy if your business has a lot of small transactions to keep on top of.
As a sole trader, there’s no requirement to have an accountant. I submitted my own accounts as a sole trader until I formed a limited company: it’s perfectly legit.
However, I was seriously au fait with expenses and had picked up lots of tax tidbits in my days as a musician. The benefits of hiring an accountant can be roughly summarised as:
- Saving you learning about all of this stuff
- Stops you making potentially costly rookie accounting errors
- Piece of mind
- Access to advice
Many accountants offer low-cost annual tax return services, too. This is where you do the bookkeeping – perhaps through accounting software – then they prepare and submit your tax return.
This is a good halfway house: you’re not tied into a monthly retainer, but you benefit from having an accountant.
Speaking of accountants, huge thanks for Martin from Gold Stag Accounts for casting a brief eye over this section. He’s highly recommended!
Limited company accounts #
As for limited companies: doing your own accounts is generally a poor life decision.
Company accounts are much more complicated as there are more things to consider. For instance:
- PAYE / NI / Corporation Tax
- Registering the company
Avoid doing these yourself at all costs.