Becoming a limited company contractor has a number of benefits, including the potential to limit your tax and National Insurance burden. However, there is a large amount of administration that goes with this choice, so should contractors hire an accountant?
Before any decisions can be made regarding the the running of your limited company and the need for any accounting advice, you must first determine if you fall inside the IR35 regulations or not.
This is a piece of legislation implemented by HM Revenue and Customs (HMRC) in an effort to ensure businesses cannot list salaried employees as directors to limit the amount of tax they pay.
While HMRC does not provide an explicit definition of what it means by self-employed, as a general rule, if you are told when, where and how to complete a contract by a client, you are likely to be deemed to be an employee and you will not be permitted to operate as a limited company contractor.
If you are comfortable that you fall outside of IR35, you are free to register with Companies House and inform HMRC that you will now be operating as a limited company contractor. You will then be provided with the details that are required of you and a Unique Taxpayer Reference for your company. It is usually at this point that you begin to realise just how much paperwork goes along with working in this manner.
When HMRC issues you with the reference number, it will explain how you can complete Company Tax Returns and pay Corporation Tax. The realisation of what is required of you is daunting, but there are a number of companies that offer help with your company admin including tax return services.
In addition to the tax returns, there are a number of obligations related to tax and the financial administration of your limited company and this is why a large number of contractors choose to enlist the services of an accountant.
HMRC requires all limited companies to keep detailed, accurate accounts for each financial year and may request to see them at any time in a five-year period, so it is important to store them for this length of time.
Unless you are a qualified accountant, it is unlikely that you will have anything but the smallest experience in bookkeeping, accounts or taxation and this is why it is a good idea to seek help.
Accountancy services providers will ensure that you are compliant with all rules and regulations, inform you of the level of salary you should withdraw to legally minimise your tax obligations and assist in the claiming of any expenses you are entitled to.
When it comes to expenses, an accountant could even end up saving you money by informing you of reimbursements that you are entitled to and may not be aware of.
In addition to the financial advantages, one of the major benefits of contracting is that it provides you with a level of freedom you can very rarely achieve as a salaried worker.
Hiring an accountant to assist with your bookkeeping will ensure that you do not need to worry about the administrative burden associated with this way of life and can instead concentrate on your life outside of work, your family, or even just completing extra contracts.