Of all the professionals you are likely to encounter as a limited company contractor, your accountant is likely to be the most important. Here, James Leckie, who has provided advice for small company owners for almost 20 years, explains why trying the DIY approach to accounting won’t work for the vast majority of contractors.
No obligation to hire an accountant
Despite what you may have thought, there is no legal obligation for a limited company’s directors to hire an accountant to manage their tax affairs. In fact, your company has an audit exemption if its turnover is under £10.2 million, and you have 50 or fewer employees!
Do you possess the right skills?
However, unless you are a freelance accountant, you may find it a time-consuming and difficult task to manage all of your company’s tax and accounting affairs on your own.
What does a contractor accountant actually do?
There are a number of core tasks your accountant will do on your behalf. These include:
- Setting up an running your company’s payroll.
- Forming your limited company (assuming your are new to contracting).
- Registering your company for VAT, and filing your quarterly VAT returns.
- Completing your company’s Annual Accounts, and filing them with Companies House and HMRC.
- Filing your Confirmation Statements.
- Dealing with ongoing company-related paperwork.
- Providing tax planning advice.
- Filing your personal tax return.
- Providing professional references, e.g. if you want to apply for a mortgage.
There are also dozens of smaller tasks which are not listed here.
What if things go wrong?
Throughout your career as a contractor, there will inevitably be times when you receive an enquiry from HMRC relating to a tax return, your tax code, or they may even request a compliance visit. To a non-accountant, these situations can be potentially stressful, and are better handled by a professional who will have experience of dealing with the tax authorities.
Alongside the tax expertise offered by a qualified accountancy firm, a specialist will be aware of specific rules and regulations which affect the contracting industry, particularly IR35. This legislation on its own is a minefield, and if your contract work is caught, your take-home pay will be vastly diminished.
There are several other pieces of legislation which may affect you, including the MSC legislation, Agency Workers Regulations, and Section 660. Without a solid knowledge of these rules, as well as the ability to keep on top of your day-to-day accounting duties, you may well struggle to keep on top of your accounts.
A small price to pay
The monthly fee you pay for a contractor accountancy service is a very small annual expense for a typical contractor, and the tax-saving advice alone is likely to save you hundreds if not thousands of pounds each year. Additionally, if you decide to look after your own accounting and tax affairs, you will not be paid for the additional hours of work this involved.
I formed my first company back in 1998 when I secured my first contract, and have met dozens of accountants (and hundreds of contractors) over the years. From my experience, there is no more important an ally for a contractor than a trusted accountant.