Should I pick a fixed fee or pay as you go accountant?

Choosing the right accountant is one of the most important early decisions any business owner makes. I have seen people spend far too long debating this question when the real issue is understanding how each pricing model works, why it exists, and how it affects you financially and practically. In my opinion the best choice depends on the stage of your business, the complexity of your finances, and how much support you genuinely need throughout the year.

This guide breaks down both fixed fee and pay as you go accounting in a clear and honest way. I explain what each model actually involves, who benefits most from each style of support, the real cost considerations, and how to avoid the common mistakes I see small business owners make. By the end you should feel confident choosing the structure that fits your working style, your budget, and your long term plans.

Understanding fixed fee accounting

Fixed fee accounting means you pay an agreed monthly or annual price for a package of services. These usually cover core essentials like bookkeeping, accounts preparation, corporation tax returns, Self Assessment, VAT returns, payroll, and general day to day support. In simple terms you pay one predictable figure and in return the accountant handles the agreed work without adding extra charges each time you ask a question or submit something new.

In my experience fixed fee accounting became popular because small business owners wanted clarity and control. Many people dislike the idea of being billed every time they pick up the phone which leads them to avoid asking questions. Fixed fees remove that worry. You pay for support and feel comfortable actually using it.

Who fixed fees are suitable for

In my opinion fixed fee accounting works best for:

• Small and medium sized businesses that need regular support

• Start ups that want peace of mind

• Limited companies handling payroll, VAT, or paying themselves a combination of salary and dividends

• Business owners who value ongoing advice

• Anyone who wants to budget accurately without unexpected costs

I find that businesses with growing turnover or frequent transactions benefit most because the accountant can keep the books accurate throughout the year rather than trying to fix everything at year end.

How a fixed fee arrangement works in practice

Under a fixed fee structure you normally sign an engagement letter outlining what is included. Common inclusions are:

• Annual accounts

• Corporation tax return

• Monthly bookkeeping

• Payroll processing

• VAT returns

• Access to advice throughout the year

• Basic tax planning

• Software subscriptions

You then pay a monthly fee by direct debit. The accountant completes the agreed tasks on an ongoing basis. If you need additional work that falls outside the package, such as director loan account clean ups, historical corrections, mortgage reference letters, or R&D tax relief claims, these are usually billed separately.

In my opinion fixed fees allow both sides to work proactively. Your accountant gets consistent information each month and you get a steady flow of support which reduces the risk of errors, missed deadlines, or tax surprises.

Advantages of fixed fees

1. Predictability
   You know exactly what you will pay every month which makes budgeting easier.

2. Encourages communication
   You do not worry about being charged for every question so you contact your accountant earlier. This usually leads to better tax outcomes.

3. Spreads the cost
   Instead of paying a large bill at year end you spread it across twelve months.

4. Better workflow
   Bookkeeping and compliance work happens regularly rather than in a rush which improves accuracy.

5. Often includes software
   Many firms include accounting software or receipt apps which saves you paying separately.

Disadvantages of fixed fees

In my opinion fixed fee accounting is not perfect for every situation. Some drawbacks include:

• You might pay for services you do not use

• Prices can appear higher for small businesses with very few transactions

• Packages sometimes restrict what is included so you still face add on costs

• Some business owners prefer to retain control and only pay when they need help

From what I have seen the main frustration happens when the package is too rigid. If you constantly need extras you may feel you are still being billed unexpectedly.

Understanding pay as you go accounting

Pay as you go accounting means you only pay when you ask your accountant to complete a task. Instead of a monthly fee you are billed each time the accountant prepares accounts, submits a VAT return, processes a payroll run, produces a letter, or carries out bookkeeping.

This model suits people who want complete control and do not mind variable bills. Not every business needs ongoing support so paying only for what you use can feel more efficient.

Who pay as you go suits best

In my opinion pay as you go works well for:

• Sole traders with simple accounts

• People who keep their own bookkeeping tidy

• Businesses with very low transaction volume

• Those who rarely need advice

• Anyone who prefers to handle most admin themselves

If you have one income stream, no VAT, and no payroll the pay as you go model can be cost effective.

How it works in real terms

Under pay as you go you ask your accountant to complete tasks as needed. You may send your bookkeeping once a year then pay a one off fee for:

• Year end accounts

• Tax return

• Basic compliance checks

If you later ask for help with payroll or VAT the accountant charges separately. Some accountants use fixed prices per task while others charge an hourly rate.

Pay as you go can feel flexible and in my opinion it is ideal for business owners comfortable managing most admin. You only involve the accountant when necessary.

Advantages of pay as you go

1. Only pay for what you use
   If you rarely need the accountant you save money.

2. No ongoing contracts
   You can walk away at any time and shop around.

3. Simple for straightforward businesses
   Sole traders and very small companies often need minimal support.

Disadvantages of pay as you go

From what I have seen the main issues include:

• Lack of ongoing support leads to mistakes

• You may avoid getting help because you do not want to be billed

• Year end corrections become expensive

• You might miss deadlines because no one is monitoring compliance

• Tax planning opportunities are often missed

Many business owners come to me after using a pay as you go accountant and finding out their bookkeeping was incorrect for years. They only discovered problems when trying to apply for a mortgage or when HMRC raised questions.

Comparing the two models realistically

In my opinion the real question is not fixed fee versus pay as you go. It is about understanding what type of business owner you are.

Do you prefer regular support, ongoing contact, and proactive advice or do you want to handle most tasks yourself?

Below I explain the key areas to consider.

Cost certainty versus flexibility

Fixed fees give you predictability. Pay as you go gives you flexibility. Most start ups value certainty because cash flow is tight. As the business grows, fixed fees often become better value because the accountant is doing more work throughout the year.

Complexity of your business

If you are VAT registered, using payroll, handling staff expenses, or juggling multiple income streams, I would always lean towards fixed fees. The more moving parts you have the more valuable it is to have an accountant involved throughout the year.

How much advice you want

If you like to check things, ask questions, or get reassurance, fixed fees give you the freedom to do this without worrying about cost. Pay as you go works best for people who rarely need advice.

Risk of mistakes

I meet many business owners who tried pay as you go, made errors in their bookkeeping, then paid large fees to fix everything. In my opinion fixed fees reduce this risk because the accountant keeps your records tidy each month.

Time commitment

Pay as you go suits people who want to do most admin themselves. If you do not have time for bookkeeping or compliance then a fixed fee package saves you hours every month.

Real world examples

Example 1: The new sole trader

Sarah is a self employed graphic designer with one main client. She sends one invoice per month. She keeps all her receipts and does her bookkeeping in Excel. In my opinion she might prefer pay as you go accounting. She only needs a tax return once a year and occasional advice. A fixed fee package could cost more than she needs.

Example 2: The growing limited company

James runs a plumbing business with two employees, monthly payroll, VAT registration, fuel claims, and subcontractors. He needs ongoing bookkeeping checks and regular VAT support. Fixed fees suit him better because he gets consistent help and avoids large annual bills.

Example 3: The e commerce start up

A new online shop processes hundreds of transactions each month. The business uses Stripe, Shopify, PayPal, and a fulfilment centre. In my opinion fixed fee accounting is essential because of the complexity of reconciling income, payment fees, and stock. Pay as you go would quickly become expensive.

Example 4: The early stage consultant

A consultant who has just incorporated might prefer fixed fees because they want to understand salary versus dividends, director loan accounts, allowable expenses, and VAT thresholds. Regular access to advice helps them make better decisions.

Legal and compliance considerations

There are no legal rules stating which model you must choose. You simply need an accountant who meets professional standards and completes work correctly. When choosing between fixed and pay as you go, consider the following compliance points.

VAT deadlines

VAT returns must be submitted quarterly. If you use pay as you go you need to remember the deadlines yourself. Fixed fee accountants usually manage these for you.

Corporation tax and Self Assessment

You must file accounts and tax returns on time. A fixed fee accountant typically monitors these deadlines which reduces the chance of penalties.

Payroll and HMRC submissions

If you employ staff you must submit Real Time Information every time you run payroll. Pay as you go can work if you process payroll yourself. If this feels overwhelming then a fixed fee arrangement with payroll included is more reliable.

Bookkeeping standards

If your records are messy you risk incorrect accounts or tax returns. Fixed fee accountants often maintain your books throughout the year which improves accuracy.

Cost considerations

Many people assume pay as you go is always cheaper but this is not necessarily true. Costs depend on:

• Transaction volume

• Frequency of support

• Whether VAT or payroll is involved

• How complete your bookkeeping is

• Whether you need ongoing advice

In my opinion pay as you go makes sense if you genuinely only need minimal work. If you regularly call your accountant or need consistent help then fixed fees can be more cost effective.

Hidden costs to be aware of

Some accountants charge extra for:

• Director loan account corrections

• Historical clean ups

• Late submissions

• Employing staff

• Extra bookkeeping

• Additional software

• Phone calls and emails

Check what is included in the package so you can compare both pricing models fairly.

Alternatives to consider

If you feel stuck between the two models there are alternatives:

Hybrid plans

Some firms allow a small monthly fee covering essentials then charge pay as you go for optional extras. This balances predictability with flexibility.

Software first approach

If you are confident handling most admin but want occasional support you could use cloud software like Xero or FreeAgent then hire an accountant once a year for review and filing.

Outsourced bookkeeper plus annual accountant

Some people pay a bookkeeper monthly and an accountant annually. This keeps costs lower and avoids messy year end work.

Practical tips when choosing between fixed or pay as you go

Know your volume of work

Estimate how many transactions you generate. High volume almost always means fixed fees are better.

Be honest about how much advice you need

If you regularly want reassurance or have lots of queries, fixed fees will give you the confidence to ask without worrying about cost.

Review what is included

Not all packages are equal. Some fixed fee firms include software, payroll, VAT returns, and unlimited support. Others include very little.

Ask for example bills

If choosing pay as you go ask the accountant to show real examples so you understand the typical cost.

Consider future growth

Even if pay as you go works today, you may outgrow it within a year. In my opinion most limited companies eventually move to fixed fees.

Choose someone you trust

The model matters but the accountant matters more. You need someone responsive, knowledgeable, and interested in your business.

Final thoughts

After working with thousands of business owners I firmly believe the choice comes down to support levels. In my opinion fixed fee accounting suits most limited companies, VAT registered businesses, and anyone who values guidance. Pay as you go works for very simple businesses or those comfortable doing most tasks themselves.

Do not choose based purely on price. Choose based on the model that gives you clarity, confidence, and the right level of partnership. A good accountant is not just a cost. They are a long term asset who helps you protect profits, avoid mistakes, and run your business with confidence.