Do I need an accountant or bookkeeper if i use Xero?

24 Feb

If you use Xero to manage your business finances, you’ll already know how much it takes off your plate. It does a lot of the heavy lifting that once required a dedicated accountant or bookkeeper to sort out. It can handle your bank feeds, invoicing, payroll, VAT and much more, with far less hassle than having to manage it all manually.

So, why would you still need an accountant or a bookkeeper?

It’s a fair question.

Xero has changed how small business owners manage their accounts. But there’s a difference between having the right tool and knowing how to use it well.

This blog takes an honest look at both sides.

What Xero does well

For your day-to-day bookkeeping, Xero is excellent.

It connects directly to your bank and automatically pulls in your transactions. Once you’ve set up your bank rules, most of those transactions reconcile themselves.

Xero ensures your invoices go out on time and sends automated payment reminders to chase clients, so you don’t have to. It calculates VAT on every transaction automatically and lets you submit your returns directly to HMRC without downloading, uploading or second-guessing your figures.

If you employ people, Xero Payroll can handle all the tax and National Insurance calculations, file your RTI submissions and generate payslips automatically. It can even manage auto-enrolment pension contributions once everything’s set up correctly.

Your real-time cash position is visible at a glance in your Xero homepage, so you don’t have to dig through multiple folders or spreadsheets to get the information you need. You can also access your profit and loss, cash flow and aged debtors figures at the click of a button, without waiting for someone else to pull it all together.

For many small business owners, this means the days of paying someone to do basic data entry are largely behind them. And that’s a good thing, but...

Where Xero has its limits

While Xero can automate many of your financial processes and give you a wealth of information about your business, it won’t tell you what any of it means.

The software records what happens in your business. It doesn’t interpret it, flag potential problems, or advise you on what to do next. That’s still a job for a human, ideally one who knows your business and understands tax.

There’s also the setup to consider. Xero is only as accurate as the information and settings behind it. If your chart of accounts, tax rates, opening balances and payroll configuration aren’t right from the start, every report and VAT return built on top of them will be wrong, too. The software won’t tell you it’s been set up incorrectly. It’ll just keep processing whatever you put in.

Beyond setup, some areas of accounting and bookkeeping need professional knowledge. Directors’ loans, the Construction Industry Scheme, stock valuations, R&D tax credits and IR35 are all things that Xero can’t advise on.

And tax legislation changes regularly. Keeping up with what applies to your business and making sure your Xero set up reflects it requires expertise that the software doesn’t have on its own.

The COMMON mistakes people make with Xero

Most common Xero errors aren’t dramatic or obvious. They creep in quietly and cause problems later.

Wrong tax codes applied to employees from day one can throw every subsequent payroll run off. By the time you spot it, unpicking it can be a time-consuming headache.

VAT returns submitted with miscoded transactions can trigger queries from HMRC or, worse, result in underpayments that carry penalties.

Months of unreconciled bank feeds can render your reports meaningless, and catching up takes far longer than staying on top of it would have done.

Then there’s the setup issue. Moving from another system to Xero mid-year without getting the opening balances right will mean your year-end accounts don’t match your records. Your accountant will then have to spend time (and charge fees) to fix something that should never have been a problem.

None of these mistakes happen because Xero’s users aren’t capable. They happen because Xero looks straightforward, and it mostly is. Until it isn’t.

The tricky bits don’t always come to light until something goes wrong.

So, do you still need a bookkeeper or accountant?

For many small businesses using Xero, the answer is yes.

Although what that support looks like may be different with Xero than it was before.

If you’re a sole trader with straightforward finances, a small number of transactions and no employees, you’ll probably be able to manage perfectly well with occasional help and input from an expert rather than ongoing monthly support. Getting Xero set up properly at the start, having someone cast an eye over things every few months and knowing there’s a knowledgeable person to call when something doesn’t look right may be all the support you need.

If you’re a limited company, however big or small, you may need a bit more support. You have statutory filing obligations, directors’ responsibilities and more complex tax considerations. So, you may need someone who understands what’s happening in your business, not just someone who can process the numbers.

Add employees into the mix, or VAT, or any kind of growth ambition, and your need for professional support becomes greater still. It’s not necessarily about having someone to do your bookkeeping or accounts for you. It’s more about having someone who can spot the things you’d miss, keep you compliant and help you make better decisions based on your numbers. That’s actually a better use of everyone’s time.

How can Progression Accountancy help?

We’re not in the business of making clients dependent on us.

Our goal is the opposite.

We’re here to help you get your Xero set up properly from the start, with the right settings, codes and structure for your business. We can then train you to run Xero confidently day-to-day, focusing on what you need to know, rather than walking you through features that don’t apply to you and your business. And we stay close for the questions that inevitably pop up.

Scott has helped hundreds of businesses across the UK get their accounts working as they should with Xero. As a Xero Gold Partner with certifications across payroll, migration, tax and cash flow, there’s very little he hasn’t seen and fixed.

We also offer bespoke accounting and tax packages that can cover your bookkeeping, reporting and management accounts, VAT and Self-Assessment returns, year-end accounts, payroll and more, to keep your Xero accurate and your business on track.

With the right setup and a bit of know-how, Xero can save you hours every week and give you a much clearer picture of your business’s finances. But getting the most from it, and staying compliant while you do, is easier with expert support behind you.

If you’d like to know whether your Xero is set up correctly, or if you’re looking for an accountant or bookkeeper who understands the software, get in touch. We’d love to help you.