Contractor Accountants.

A complete guide using and picking an accountant if you have to

Indeed, a lot of contractors would ask ‘why should I hire an accountant at all?’ Isn’t the whole point of going freelance that you go it alone and do everything yourself? Well, yes and no. That certainly applies to your actual work and contracts, but what you don’t want is for that work and those contracts to get bogged down or delayed because you are knee deep in doing your taxes or financial admin every year! Handling your own accounts is not as simple as just setting up some accounting software and getting that to handle everything, and once you set up your own company, things get a whole lot more complicated!

In fact, an accountant will provide a contractor with far better value than any software could ever do. Why? Simply because they do so much more than work out your taxes. A good accountant will keep you within the law and up to date with any tax legislation that might affect your business, whilst making sure that you don’t pay any more than you should. But more than that, a good accountant will help you with something that software never can – tax planning. For any self-employed worker in any industry there will come a point (hopefully) when their business grows and they start to earn in excess of £30,000 – 40,000. When that point comes they will start looking into options such as setting up their own limited company as well as examining other (legal and permitted) tax avoidance strategies. This is where accountants become indispensable and where they are able to look at the best strategies for your particular industry. They can look at your personal circumstances (such as whether you are married for example) and look at ways to keep you below the higher rate threshold.

The point is that a good accountant will grow with you and your business and will be something akin to a strategic partner for your business. They will not only help with your tax on any given year but also help you plan for the future, be that up and coming legislation, growing your business or investing in a pension.

Should I Get A Specialist Accountant for my limited company?

The next question is whether a contractor should opt for a dedicated contractor accountant and the answer is an unequivocal yes, absolutely! That’s because accountants spend all their time and energy working solely with contractors and know their industries and tax legislation inside out and back to front. They will have the expertise that is needed to help and advise you on maximising the returns you get from contracts and ensure that you do so whilst staying 100% compliant with any current contracting legislation.

What Should I Look For From an Independent Contractor Accountant?

Clearly the first thing to look for is that they are a professionally qualified accountant and that they are regulated by a professional body such as the Association of Chartered Certified Accountants (ACCA) or the Institute of Chartered Accountants in England and Wales. Once you have done this you will want to make sure you find an accountant who specialises in contractor tax and has a long history of contractor expertise under their belt. This will be someone who has an in depth knowledge of IR35 legislation, Managed Service legislation and issues surrounding retained earnings. They will be used to the way that contractors operate – getting paid weekly and taking a smaller salary then later drawing out more of their income from dividends – and will be able to plan their tax accordingly. They will also be willing to advise if the limited company structure is not the best one for the contractor and to weigh up becoming a sole trader or joining an umbrella company.

A good contractor accountancy firm will provide you with your own dedicated accountant so that you can speak to the same person each time you pick up the phone. This is advantageous as they will get to know you and build a picture of your contracting business both right now and also where you want it to be in the future. They will be available for face to face meetings if you want them and they will have a good back up team if they get sick or are unavailable. They will charge fixed fees rather than a percentage of your earnings and those fees should be in line with the market, not massively above or below. They will also, hopefully, offer a service guarantee to get back to you within a certain amount of time.

If you want to get a feel for them when you are looking around, see how they answer the following questions:

  • How long have you been working as a contractor accountant?
  • What sort of clients have you handled in the contracting sector?
  • What is IR35 and how will it affect me?
  • Will Managed Service Legislation affect me?
  • Should I be worried about the Companies Act?
  • Am I best suited to my own Limited Company or to working for an umbrella company?
  • What payroll advice would you normally give to limited company contractors?
  • In what ways could you help me develop my business?

And most importantly of all, rely on word of mouth when trying to find a good company. Ask other contractors to share their experiences, both bad and good, so that you can get an idea of the best firms out there. Combine this with online research of contractor forums and you should be able to narrow your search down to some of the better accountants out there.

What Will A Contractor Accountancy Service Do For Me Then?

When comparing contractor accountants you will find that the vast majority will offer the same sorts of services in the same sort of price range. Generally they will charge somewhere between £80 and £200 per month and it will be a fixed price. You should avoid any accountants who want to charge you based on a percentage of your earnings and you should also avoid any who try to charge you either entry or exit fees for use of their services. It is essential not to get too hung up on small differences in price – if you find a competent, skilled and reliable accountant who you get on with they will be worth the price you pay and will more than make their money back for you in the long run. That being said, there are certain core tasks both (at start-up and ongoing) that your contractor will do for you. They are listed below:

Start-Up Services for Contractor Accounts

Once you decide on an accountant at the outset of your contracting career there will be certain tasks that need to be taken care of to get you up and running. Any good accountant will include these tasks in their monthly fee rather than charge extra for them. They include:

  • Incorporating your new contracting firm with Companies House. This is a very simple and easy process which is done online and which only costs a small amount if done directly via the Companies House website.
  • Setting up your separate business bank account for your new limited company. All new limited companies require that you have a separate business account.
  • Registering your company with HMRC in readiness for paying NIC’s, PAYE, Corporation Tax and VAT.
  • Getting you set up on their online accounting system so that you can monitor and update your accounts in real time within their system. (Remember to keep your own offline backups of all your financial matters in case you wish to leave their firm or there is some kind of dispute!)

Ongoing Accountancy Services for Contractors

Once you are up and running there are the regular core tasks that a contractor accountant will handle for you every month / year. These should include the following:

  • The running of the monthly payroll for a single employee (most likely the contractor in this case.) If you should take on any further employees in the course of your contracting then it is possible (and reasonable) that there would be extra annual fees for that.
  • The submitting of your payroll information to HMRC using the RTI system that has recently been implemented.
  • The handling of any correspondence from (or to) HMRC. This might include general tax related queries or issues surrounding any changes to your own personal tax code.
  • The handling of any correspondence from (or to) Companies House, including completing the Confirmation Statement for your company.
  • The completion of quarterly VAT returns for your contracting company.
  • The completion of annual accounts for your contracting company (and then sending them to Companies House and HMRC.)
  • The completion of your annual Corporation Tax return (the CT600.)
  • Ongoing planning advice related to dividends.
  • IR35 related advice.

In addition their fees will normally include any regular day to day queries relating to your tax affairs in general.

Are There Some Accountants Offering Additional Services?

As well as the core tasks mentioned above, many accountants will offer other bolt-on services. Depending on the accountant, some of these will be included in the price and some will be considered extras with an additional cost. They might include:

  • A wide ranging IR35 contract review – this would provide you with a full review of the IR35 status of a contract and may be done in house or by referring you to a professional IR35 contract reviewing service.
  • Online bookkeeping – as mentioned above, many firms will offer this as part of their regular service. There are still some firms who will see it as an ‘extra’ facility however.
  • Providing a registered address for your contracting firm – Some accountants will offer this service which then means that all official paperwork that comes from HMRC and / or Companies House will go straight to them rather than to your home address. This is especially useful if you have no permanent address and would prefer a more professional looking address to your own street at home.
  • Personal Self-Assessment completion – Many accountants will fill out your personal self-assessment for free on your behalf.
  • The provision of references – For contractors, references for either letting agencies or mortgage companies from your accountant are very useful.
  • In-house financial advice – many of the larger firms will have their own independent financial advisors that you can access for pension or mortgage advice.