Above all, whether you hire an external accountant or have a team of accountants in-house can make a big difference on the cost side of things.

A small business is typically under 49 employees and therefore the requirements for a one-person operation and 49 employees is going to differ, but basic tax returns cost small businesses around £5,000 per year, equivalent to 95-man hours.

However, this figure can vary significantly depending on factors such as the type and size of the business, its complexity and the level of service required.

Understanding how much you should be spending on an accountant each year requires careful consideration of your specific circumstances and financial goals. Let’s take a deeper look at the factors that will influence how much your business should set aside for accountancy services.

Accountant cost numbers at a glance

• Small businesses spend around 2% to 5% of annual turnover on accounting costs
• £25 billion a year is spent by SMEs on tax compliance (FSB)
• Average tax returns for SME cost £5,000 per year, equal to 95 man hours
• Average salary for in-house accountant is £50,000 per year or £25.64 per year (Talent.com)

What determines the cost of your accounting services?

1. The nature of your business

The amount you should allocate for accounting services depends greatly on the nature of your business.

For instance, a sole trader with relatively straightforward finances may not require as much assistance as a limited company with multiple shareholders, complex tax obligations and payroll requirements.

On the other hand, if you work for yourself, you might need an accountant for people who are self employed, because you might have numerous expenses, staff members and need to be smart with your tax returns and timing.

Therefore, it is essential to consider the complexity of your business operations to determine the level of accounting support needed.

2. The size of your business

The size of your business also plays a crucial role in determining the appropriate accounting budget. A small startup with minimal transactions and revenue might opt for basic accounting services, which can be more cost-effective.

Conversely, larger organisations with higher turnover and greater financial intricacies may need more comprehensive accounting solutions, leading to a higher expenditure on professional services.

3. Complexity of your financial transactions

The complexity of your financial transactions directly impacts the cost of accounting services. If your business deals with numerous transactions, foreign currencies or complex invoicing and payment structures, you may require more extensive accounting support.

Handling intricate financial matters necessitates expertise and time, which can reflect in higher accounting fees.

4. Compliance and regulatory requirements

The regulatory landscape in the UK is continuously evolving, with stringent requirements for tax compliance, financial reporting and auditing.

Businesses operating in regulated industries or dealing with specific legal frameworks may face additional compliance burdens, leading to higher accounting costs.

Investing in a qualified accountant who stays abreast of regulatory changes can ensure your business remains compliant and avoids costly penalties.

Some businesses find it easier to locate abroad or have offices in different countries and this comes with different tax and accounting requirements.

5. Value-added services

Beyond basic bookkeeping and tax preparation, many accountants offer value-added services that can benefit your business.

These may include financial forecasting, tax planning, budgeting, self-assessment, strategic planning and advice on growth opportunities. While these services may come at an extra cost, they can provide invaluable insights and guidance to help you make informed decisions and drive business success.

6. Outsourcing vs. in-house accounting

Another factor to consider when budgeting for accounting services is whether to outsource your accounting needs or hire an in-house accountant.

Outsourcing accounting functions to a professional firm can often be more cost-effective, especially for small and medium-sized businesses that may not require a full-time accountant. Outsourced accounting services typically offer flexibility in terms of scalability, allowing you to adjust your level of service as your business grows.

On the other hand, hiring an in-house accountant provides the advantage of having someone dedicated solely to your business's financial affairs, offering real-time insights and personalised attention. However, this option may entail higher fixed costs, including salary, benefits and overheads.

Figuring out the amount to spend on an accountant each year requires a balanced approach that considers your business's unique needs, financial resources and long-term objectives.

While cost is a crucial factor, it's essential to prioritise the quality and expertise of the accounting services you receive. Investing in a knowledgeable and experienced accountant can yield significant returns by ensuring financial accuracy, regulatory compliance and strategic financial management.

Ultimately, the goal should be to find a trusted accounting partner who not only meets your budgetary constraints but also adds value to your business through proactive advice, personalised support and a deep understanding of your industry.