Outsourced finance function or in-house team: which is right for a growing UK business?

By Hussein Bhaiji FCCA CTA and Mukkarram Ali FCCA. Last reviewed: October 2026.

Somewhere between £250,000 and a few million pounds of turnover, most owner-managed businesses reach the same point. The bookkeeping has outgrown the owner’s evenings, the VAT returns are going in later than they should, and someone suggests it is time to hire a finance person. Sometimes that is the right answer. Often it is the more expensive one, and it can leave the business relying on one person for every figure it uses. So how do you decide between an outsourced finance function and an in-house finance team?

This guide sets out what each option costs in practice, where the risks sit, and what HMRC expects of you whichever route you take.

What does an outsourced finance function cover?

An outsourced finance function gives you the work of a finance department without employing one. It is usually built from modules:

• bookkeeping and bank reconciliations
• payroll, including RTI submissions, auto-enrolment and P11Ds
• VAT returns under Making Tax Digital
• monthly management accounts with commentary
• cash flow forecasts
• year-end accounts and the Corporation Tax return
• directors’ Self Assessment tax returns, so company and personal tax are handled by the same team
• senior oversight from a fractional FD for budgets, funding and board reporting

You do not need every module on day one. Most businesses start with bookkeeping and management accounts, add payroll and VAT as headcount and sales grow, and bring in senior oversight when a funding round, an acquisition or a sale comes into view. You can see how the modules fit together on our outsourced finance function page, and how the monthly figures are produced through our outsourced bookkeeping and monthly management accounts services. If all you need for now is VAT returns filed on time under Making Tax Digital, our VAT returns service is charged at a fixed fee, not by the hour.

What does an in-house finance team really cost?

The salary is only the starting point. On top of it you pay employer National Insurance, pension contributions, recruitment, software and training and, less visibly, the owner’s time spent managing and covering the role.

To put the two side by side: if Acom’s outsourced bookkeeping, payroll, VAT, monthly management accounts and year-end work cost £2,500 a month, that is £30,000 a year against more than £52,000 for one employee, before recruitment and cover. The outsourced fee also covers the year-end and tax work the finance manager would not do. The figures are illustrative; the right comparison is your own quote against your own salary costs.

Salary, employer National Insurance, pension contributions and outsourced fees are all normally deductible for Corporation Tax. Tax relief therefore reduces the cost of either route at the same rate, and it does not change which one is cheaper.

What are the disadvantages of outsourcing or hiring in-house?

The weakness of a small in-house team is concentration. When one person raises the payments, reconciles the bank and posts the journals, nobody is checking their work. When that person is on holiday, off sick or leaves, the monthly figures stop, and the payroll and VAT deadlines keep coming regardless. Recruiting a replacement can take months, and a single finance employee cannot be expected to keep up with every change in payroll, VAT and Corporation Tax rules.

The weakness of outsourcing is distance. The team is not in the building, so someone in the business still has to collect invoices, approve payments and answer questions. A good provider sets that routine up at the start and agrees who does what. A poor one leaves you chasing it.

Does outsourcing hand the responsibility to someone else?

No, and this is the point most often misunderstood. The company and its directors remain responsible for keeping proper accounting records and for every return filed in the company’s name, whoever prepares them. The penalties land on the business either way:

• HMRC can fine a company up to £3,000 for failing to keep adequate accounting records, which must be kept for six years from the end of the accounting period they relate to, and longer in some cases (Schedule 18 FA 1998, paras 21 and 23).
• Companies House charges a private company between £150 and £1,500 for late accounts, depending on how late they are, and the penalty is doubled if the accounts are late two years running (section 453 Companies Act 2006 and SI 2008/497).
• A Corporation Tax return filed late attracts a £200 penalty, a further £200 at three months, and tax-geared penalties of 10% of the unpaid tax at six and twelve months (Schedule 18 FA 1998, paras 17 and 18).
• Late payroll submissions cost from £100 a month for an employer with 1 to 9 employees up to £400 a month for 250 or more, after the first late month in a tax year, which is not penalised (Schedule 55 FA 2009).
• VAT paid late attracts a penalty of 3% of what is outstanding at day 15, a further 3% of what is still outstanding at day 30, and then a daily penalty at 10% a year, with late payment interest on top (Schedule 26 FA 2021).

What does HMRC look at when it checks your records?

Our team includes professionals who have worked inside HMRC, so we know how these checks are run from the other side of the table. On a VAT compliance check, the officer will usually start with the VAT account, which regulation 32 of the VAT Regulations 1995 requires you to keep, and ask how it agrees to your returns and to your books. On payroll, the questions are whether what was reported through RTI matches what was actually paid, and whether benefits and expenses have been dealt with properly. Where the figures reconcile and each adjustment has a note explaining it, a check tends to stay narrow. Where they do not, it widens. If a check has already started, see our HMRC tax investigations service.

That is the standard an outsourced team should work to every month, not something to scramble for when a letter arrives. Because the work is spread across a team, every VAT return and set of accounts we prepare is reviewed by a second tax specialist, separate from the person who prepared it, which is a control a single in-house employee cannot give you on their own.

Which model suits your turnover?

• Up to £250,000: outsource the bookkeeping, VAT, payroll and year-end accounts. Quarterly management accounts are usually enough to build the habit.
• £250,000 to £1m: add monthly management accounts, a rolling cash flow forecast and tighter control of payments and of the money customers owe you. Outsourcing gives you the range of skills without hiring several people.
• £1m to £5m: keep the outsourced team as the spine or move to a hybrid, with an in-house administrator handling daily transactions while the outsourced team delivers the month end, reporting, VAT, payroll and senior input.
• Over £5m: many businesses of this size still run on an outsourced finance function, and some of our clients turn over more than £15 million. Some add an in-house financial controller for day-to-day leadership, with the outsourced team providing the month-end close, reporting, tax and finance director support.

Our Complete Finance Function starts from around £250,000 of turnover, with no upper limit.

When is an in-house accountant the better choice?

If you have high transaction volumes, complex stock or manufacturing costs, or cash and treasury movements every day, a finance manager on site earns their salary. Even then, it usually pays to keep year-end accounts, tax and specialist projects with an outside team, so that someone independent reviews the numbers and you are not paying a full-time salary for skills you need a few times a year.

Is it worth outsourcing payroll?

Usually, yes. Payroll is unforgiving: an RTI submission on or before every payday, auto-enrolment duties, statutory pay and year-end reporting, with penalties that start at £100 a month. It is also changing. From April 2027 company car, van, fuel and medical benefits have to be reported through payroll rather than on a P11D, with most other benefits following in April 2028. Beneficial loans and living accommodation stay outside the mandatory rules. They cannot be payrolled at present, but from April 2027 employers can choose to payroll them by registering with HMRC from November 2026; otherwise they stay on the P11D. Outsourcing gives you continuity when the person who normally runs payroll is away, and someone whose job is to keep up with changes like these. See our managed payroll and P11D processing service.

Is outsourcing a dying concept?

No. Cloud accounting, bank feeds and Making Tax Digital have made outsourced finance faster and more transparent than it used to be, because you and your accountant are looking at the same live ledger. Many UK businesses now run a hybrid, with someone in-house keeping the paperwork moving and an outsourced team providing the month end, tax and senior input.

Frequently asked questions

Is outsourcing accounting cheaper than an in-house accountant?

Usually, until the business needs daily, hands-on finance on site. A £45,000 finance manager costs about £52,160 a year in salary, employer National Insurance and minimum pension before recruitment, software, training and holiday cover. An outsourced fee is fixed for the agreed scope, but if you cannot recover VAT, the 20% on the fee is a real cost.

Can an outsourced team work with my existing bookkeeper?

Yes. Many businesses run a hybrid, with an in-house bookkeeper or administrator handling daily transactions and an outsourced financial controller reviewing the work and the wider team delivering the month end, reporting, VAT, payroll and tax.

Who is responsible to HMRC if the finance function is outsourced?

The company and its directors. Records, returns and deadlines stay the company’s responsibility whoever prepares them, and relying on your accountant is not by itself a reasonable excuse for a missed deadline.

What size of business suits an outsourced finance function?

Our Complete Finance Function starts from around £250,000 of turnover with no upper limit, and some of our clients turn over more than £15 million.

What makes Merit Accountants different?

Many firms offering an outsourced finance function stop at compliance: the returns are filed and the accounts produced, but nobody is looking at what the figures mean for you. Our Complete Finance Function is led by Hussein Bhaiji FCCA CTA and Mukkarram Ali FCCA, who review the figures and attend client review meetings together, so tax and business performance are covered in the same conversation. We are a firm of Chartered Certified Accountants and Chartered Tax Advisers, and every layer of our finance function is supervised by a Chartered Tax Adviser, so the tax consequences of what your monthly figures show are picked up as the figures are prepared. Because our team has seen these checks from HMRC’s side, we keep your records to the standard an officer would expect to see. Our partners have built their own businesses from nothing to over £1m in turnover, so advice on cash flow, hiring and growth comes from people who have faced the same decisions themselves.

Your next step

For most growing UK businesses, an outsourced finance function gives more capability for the money, stronger controls and more continuity than a single hire usually can. In-house makes sense where daily, hands-on finance is essential and the volume justifies the salaries, and for many businesses between £1m and £5m a hybrid, with an in-house administrator and an outsourced month end, is the most cost-effective arrangement.

If you would like a fixed monthly quote for the scope that fits your stage, talk to us. The first appointment is free and there is no obligation: we use it to understand your situation, tell you whether we can help and agree what it would cost. You then receive a written fee proposal setting out the scope and the price before any work starts. If you need advice on a specific tax problem rather than an ongoing service, that is a paid consultation, and we will tell you the fee before you book.