What is a tax accountant for?

Tax accounting is a type of accounting used for preparing tax returns for individuals, limited companies, partnerships, and other entities. It operates under the rules set by HM Revenue and Customs (HMRC) and focuses on tracking income and expenses that impact tax obligations. Unlike financial accounting, it only focuses on transactions that affect taxes.

Key Takeaways

1. Tax accounting is the area of accounting that focuses on preparing tax returns and tax payments.

2. It applies to individuals, businesses, companies, and other entities in the UK.

3. For individuals, tax accounting focuses on income, allowable deductions, charitable donations, and investment gains or losses.

4. For a business, tax accounting is more complex, with closer attention to expenditure and determining what is taxable or non-taxable.

Important!

While hiring a professional tax accountant is optional for individuals, it’s often essential for companies due to the complexity of business taxes. That said, our company strongly recommends that individuals also consider using a tax accountant for peace of mind and accuracy.

Tax Accounting for Individuals

For an individual taxpayer, tax accounting centres on items such as income, qualifying deductions (such as pension contributions), investment gains or losses, and other transactions affecting their tax liability.

This simplifies the process of completing a Self-Assessment tax return.

While a tax accountant can assist, it’s not a legal requirement. In contrast, general accounting tracks all money flowing in and out of an individual’s possession, including personal spending with no tax relevance.

Tax Accounting for Businesses

For UK businesses, tax accounting requires more detailed analysis. Like individuals, businesses must track income, but there’s added complexity in monitoring outgoing funds—such as business expenses or payments to shareholders. While not mandatory, many larger businesses employ tax accountants due to the intricate nature of their financial records.

Tax Accounting for Tax-Exempt Organisations

Even organisations exempt from tax in the UK, such as charities, need tax accounting. 

They must file annual returns with HMRC, detailing incoming funds (like grants or donations) and how these are spent in their operations. This ensures compliance with laws governing tax-exempt entities.

What Is the Main Purpose of Tax Accounting?

Tax accounting is used to make appropriate tax calculations and prepare tax documents in time for HMRC tax filing deadlines.

What Is the Difference Between a Tax Accountant and a Management Accountant?

A tax accountant is an external professional who assists businesses and individuals with tax compliance, while a management accountant works internally within a company, focusing on financial decision-making and strategic advice. Tax accountants help companies and individuals meet their tax obligations.

Conclusion

Tax accounting is a set of accounting methods and a useful tool that businesses use to understand their tax liabilities and prevent penalties. Tax accounting is crucial for businesses and individuals to declare correct income, pay appropriate taxes, and prevent penalties.

Our company will help you save time and avoid trouble with the law!