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Sometimes people come to us with certain myths and misconceptions about accountancy. Usually, they are based on something that a colleague or a friend said, something that somebody read and so on. Some of those misconceptions are miscellaneous, but some of them can be really harmful. So, today we would like to address some of the most prevalent myths about accountancy and accountants. We hope it will help you make more informed decisions in the future.

Limited company will save you thousands

There is a common misconception that setting up a limited company can save you a lot of money in tax because dividends are not taxed. But the fact is that the threshold for tax-free dividend allowance is only £2,000 and any dividend income above this amount will be taxed.

Also, it is often forgotten that Corporation Tax is deducted from any income and dividends are paid to the shareholders only after that. So, the belief that dividends are tax-free is not true as the dividends are paid by the company.

An audit is a must for all companies

Some people are put off by the idea of an audit so much that they don’t even consider setting up their own company even if it benefited them. But not all companies need an audit! If you are running a ‘small’ company, you won’t need an audit.

What’s a ‘small’ company? Your company will be considered to be ‘small’, if its turnover will be less than £10.2m and a balance sheet will be total of no more than £5.1m.

Only bigger companies need an accountant

No matter the size of the company, somebody will have to do the books. It is up to the business owners to decide if they can do it themselves or if they need to look for an accountant, but it’s highly advisable to do the later. Accountants can not only manage your budget and pay taxes, but can also help you set up a business plan, stay compliant with regulations, sort out issues with HMRC and much more.

Also, some small companies fear that accountants cost a lot. But there are many different accountants offering a different level of services. Usually, the services needed by small companies are quite simple and most accountants can offer a reasonable price for taking care of it.  

You can blame your accountant if something goes wrong

The accountant should be doing their best to prepare the accounts, tax returns, and other books but at the end of the day, it is the business owner who signs the documents and is held responsible for any inaccuracies.

Therefore, it’s not wise to leave everything to the accountant. If you are not sure about something – always ask the accountant to explain it to you. If you still don’t feel comfortable signing some documents – don’t do it and look for somebody else to give you a second opinion.

HMRC doesn’t do mistakes

You got a warning from the HMRC that says that you owe money. You think it sounds odd but HMRC cannot make mistakes, right? So, you pay the bill immediately.  

Well, you shouldn’t.

There is no institution that doesn't make mistakes and HMRC is no exception. There are numerous cases when HMRC caused distress to taxpayers by wrongly demanding underpaid tax, overpaid benefits or poorly handled their affairs. 

That’s why it’s ALWAYS worth double checking if you feel that the bill that you’ve received is not correct.