What are the regulatory aspects and considerations of starting your own accountancy firm in the UK?
It is an exciting prospect for anyone to start their own business and each year many accountants decide to take the plunge and set up their own firm. However, there are a lot of considerations and a number of steps that have to be taken – and a lot of red tape too!
I have recently started an accountancy practice with a new business partner and in this series of articles I will tell you about our journey and what to look out for so that it can help you if you decide to start your own practice too.
Aims and objectives
When exploring the opportunity to start your own practice, it is important to discuss what you and each of your business partners want to achieve. There is no point in starting a firm if you have different longer term plans and it is essential that you all have similar goals and similar timescales.
It is also essential that you have similar values. These are really important when you run a business as you need to really believe in your values and build the pillars of your business around them. These may take some time and some work to finalise but these should be discussed early in the process to make sure you are on the same page.
It is also necessary to examine each of your strengths and weaknesses. Determine areas of overlap where you have significant strengths and areas where you are less strong. These weaker areas are not a reason to give up or a reason to avoid, instead these areas are where you need the input of another person or organisation to help. This may mean that you start to plan when you get another business partner, a new employee or when you will outsource the work to another company or freelancer.
Structure of the business
It is important early on to decide what structure you and your business partner(s) want for the firm. This really boils down to partnership or limited company and there is really no right or wrong answer.
In our case, we opted for the limited company approach as we have both run a limited company before and prefer this route.
If you do decide to become a limited company, you will need to agree on the directors, shareholdings and the registered office address, then the next step will be to register the company at Companies House but you have one key step to do first!
Have you got a practising certificate?
ACCA requires that any ACCA member who is a partner (principal) in an accountancy practice must hold an ACCA practising certificate. In other words, any member working in public practice must hold an ACCA practising certificate.
ACCA’s definition of public practice is:
The ACCA’s definition of public practice work extends beyond audit and other regulated work, to incorporate all types of work generally associated with an accountancy practice, but excluding book-keeping services.
Therefore, you will need a practising certificate if you are preparing annual accounts, personal or corporate tax returns but not if you are undertaking only pure book-keeping services. ACCA defines book-keeping services as including:
the preparation of accounting records to trial balance stage
maintaining clients’ records in respect of payroll and employment taxes
maintaining basic sales tax records such as VAT.
When you apply for an ACCA practising certificate for the first time, it is necessary to demonstrate that you have all the necessary experience needed. You then have to complete the practising certificate experience form and send it to the ACCA Authorisation Team for approval. Please ensure that you allow up to 28 days for approval.
Once issued, you then will need to renew your practising certificate annually.
ACCA students may not start and run an accountancy firm and they cannot hold a practising certificate. A different practising certificate is required if you plan to provide audit services.
The next step is to agree on a name for the company. This can be tricky but you need to decide the sort of name you want and what you want it to mean. Some accountancy firms have more traditional names such as XYZ & Partners; others have more quirky names and it is all down to the preference of the individuals.
Assuming you are a limited company, you will need to then check the availability of the company name at Companies House. In all cases, you also need to check if the URL is available for the company and there are lots of online websites that can do this for you.
One factor to consider before you finally agree on the name is to consider the email and website domain. Will this be easy to remember and easy to spell? Ensure it is not likely to be prone to mis-spellings as this will result in communication issues later and reduce the footfall to your website.
It is also important to have a shareholder agreement drawn up early in the process. This may seem very formal but you need to have it in place to cover all eventualities.
It does not need to be complex and you may decide that you do not need to have the input of a lawyer and, instead, use an online agreement that you can download from the internet and customise to your needs.
In the agreement, you will need to decide on a number of factors such as how the business is run, the shares of profits, what happens when a partner wants to exit. Once this is agreed, you then all need to sign the agreement and then regularly check and update the agreement as the business grows and develops.
It is a requirement that all holders of an ACCA practising certificate obtain professional indemnity insurance cover against any potential claims for professional negligence. It is also essential that the insurance is from a participating insurer who is approved by your accounting body.
It is worth getting quotes from a number of providers as I did find that these varied quite substantially in price and the level of cover. It is also worth considering the other associations of which you are a member as you can sometimes get a discount on insurance (such as through the Federation of Small Businesses).
In addition to this, business insurance is also recommended in order to protect against theft or damage to your or another’s property and also to protect against personal injury around the office. You may also want to consider taking out cyber and data insurance and, if you are employing staff, you will require employer’s liability insurance too.
If you have partners who are not all ACCA-qualified then you will have to establish the regulatory body for the firm. This is determined by establishing where the control lies.
For example, if you have three directors who each hold an equal shareholding in the business and two are ICAEW qualified and one is ACCA qualified then the firm will be regulated by the ICAEW.
If you have two directors who are equal shareholders and one is regulated by the ICAEW and the other the ACCA then this is an equal split and then HMRC will be the regulatory body.
The form provides details of the directors and also the shareholders, business continuity, AML supervisory body, insurance as well as the services you will offer. The form must be completed and submitted to the ACCA Authorisation team. Please allow 28 days for processing and, once processed, you will be issued with an ID number for your firm.
Please ensure that you submit your form to the ACCA well in advance as, until you have received the ID number, you cannot practise.
In the next article, we will look at the further steps and tasks that must be undertaken in order to set up your accountancy firm and then in article three we will look at the systems and practicalities that you need to consider when setting up your firm.