I’m aware that many accountants provide bookkeeping services for their clients. In some smaller firms this is all part of the service. In others it’s done more as a necessity when a client’s recordkeeping is based on the practice of ‘we throw all the papers into a bag or box and let the accountants sort it all out for us.”
I think it’s fair to say that many people are confused as they are unaware that anyone can call themselves an accountant (or indeed a bookkeeper). So small business owners do not know whether they need a bookkeeper as well as an accountant. And of course some accountants provide bookkeeping services as part and parcel of their accountancy service. It can be helpful therefore to clarify with clients which approach to bookkeeping will best suit them (and you).
Some accountants are more than capable of writing up a client’s annual accounts and preparing their tax return from a bag or box of what we used to call ‘incomplete records’ when I was training (many years ago!) Other accountants get stuck doing bookkeeping for their clients simply because it’s one of the services offered when the practice began. Is it the most effective solution for the clients? Is it satisfying for the qualified accountant whose expertise stretches way beyond that of a ’simple’ bookkeeper? I mean no offence to bookkeepers here – I simply mean that their training, knowledge and expertise is, by definition less extensive than that of a qualified accountant.
So what are the options for small business owners when it comes to bookkeeping these days? I think there are six alternatives.
- DIY – best only attempted after recieving guidance from an experienced accountant or bookkeeper;
- DIY using an online bookkeeping package such as kashflow;
- DIY using a bookkeeping package on their computer – eg: sage;
- Use a postal service – sending off their monthly invoices and receipts etc to a service provider who writes up their books and then returns all the paperwork by post (eg: this service);
- Engage an independent vetted bookkeeper who knows what they are doing – such as someone provided by this service; or
- Let their accountant write up their books when they produce the annual accounts and tax returns.
Some accountants employ bookkeepers to do the work for clients. Again this probably makes more commercial sense than the accountant undertaking all the bookkeeping themselves – unless they have the time and inclination to do so. Bookkeeping service provided by employed or sub contracted staff made available by the accountant may be the ideal solution – especially once the practice has grown such that the qualified accountant can focus on more rewarding activities themselves.
Historically it was quite common to ignore bookkeeping during the year and to simply produce annual accounts from the papers and records collated by the business owner. This is no longer a sensible course of action – as I explained in a posting on the TaxBuzz blog last year: The end of the old paper bag jobs?
Continuing such an approach may deny the business owner the facility to claim they took ‘reasonable care’ in the event that HMRC identify any careless errors. The new penalties regime became law in 2007 but only really comes into effect as regards tax returns for periods ending on or after 31 March 2009. It’s now the case that where the taxpayer can show they took reasonable care to avoid errors HMRC are no longer allowed to charge penalties as regards consequential underpayments of tax. So effective bookkeeping throughout the year now has another benefit to commend it. And so it makes sense to think through which approach you wish to advocate to your clients. Indeed this may be the perfect opportunity to encourage clients to adopt a more efficient solution than that which they or you may have adopted through default.