At Auditox Accountancy, we understand why so many people become self-employed contractors and freelancers rather than paid employees. You generally have better control over your hours and your work-life balance. With self-employment, you have a greater degree of flexibility and independence, potentially higher pay, and office politics isn't something you need to worry about.
But it also means that you are responsible for your accounts. Under UK law, there is no legal requirement for sole traders, partnerships, or limited companies to use an accountant, unless the limited company is big enough to need an audit. And most larger firms tend to have in house accountants anyway. However, you still need to keep an accurate record of incoming and outgoing money for tax purposes.
Does that mean you don't need a professional, dedicated accountant to prepare your accounts? Auditox Accountancy would recommend that you do. But then you would expect an accounting firm to say this, wouldn't you?
Let's take a moment to explain the benefits of hiring a contractor accountant and see exactly how Auditox Accountancy services can help you. We'll also explore some of the accountancy issues that affect contractors, sole traders, and people who run their own businesses.
Although there is no mandatory requirement for a sole trader to use an accountant, there are tasks that you will be expected to undertake. Many self-employed people perform these perfectly well, though there will be a few who struggle with them or delay dealing with any kind of office work.
This is mostly to do with time management and the fact that very few people enjoy the admin side of their business. Although basic bookkeeping is usually manageable, some people struggle with the finer details of tax laws, payroll, or the IR35 legislation. There's no shame in this, as all of these issues can be confusing and complex. There is no requirement to complete annual profit and loss accounts, but you will be expected to keep an accurate record of all expenditures and income for your self-assessment tax return. And you will also be expected to provide up-to-date and accurate information when asked by HMRC, including evidence in support of any expenses claims.
This is especially important in the early stages when you are laying the foundations of your fledgling business. Auditox Accountancy knows exactly how essential it is that these processes are undertaken accurately and efficiently, as any mistakes or omissions could spell disaster for a small business.
You are probably familiar with the fact that around 20% of all small business startups fail in the first year, and at least 60% will cease trading within three years. There are several reasons for this, including the fact that many don't lay the proper financial foundations.
Auditox Accountancy can help with company formations, helping you to establish a firm foothold in your chosen industry and survive the challenges ahead. With the right foundation, advice, and direction, your business can be one of the success stories.
The three main areas of business administration are record keeping, tax, and accounting. The accounting process includes bookkeeping, which is the recording and organising of the financial data, while accounting usually involves analysing and presenting the data for financial reports and forecasts.
While most contractors can handle bookkeeping, it can prove tricky, especially if you make a lot of transactions. The figures must be accurate and you need to keep tabs on all those receipts. The main bone of contention for most contractors is when they need to complete and submit their self-assessment tax returns. There are many pages to sort through and it's not always clear which sections apply to you.
Tax is a complex subject that can baffle even the most experienced contractors. Tax rules and regulations are always changing, which makes it difficult to keep up with. The best accountancy firms, including Auditox Accountancy, always ensure that their accountants are trained and updated to keep track of new legislation and regulations. Auditox Accountancy is no exception, taking pride in offering first-class contractor accountancy services.
A partnership is a business that is owned by more than one person or limited companies. When the business is set up, the partners agree to what percentage each of them owns, and any profit at the end of the business year is shared between them accordingly.
The partners are also responsible for handling contracts and will bear the responsibility for any debts. They will be liable if the company faces financial difficulties, regardless of who is to blame. An LLP (Limited Liability Partnership) is different, as it allows the partners to avoid responsibility for another's mistakes, misconduct, or negligence.
There are four different types of partners:
Partnerships do not have to pay corporation tax (likewise with sole traders), but they must complete a Partnership Tax Return. They also don't pay tax on any profits because these are divided between them. Each partner is also expected to complete a Self-Assessment Tax Return.
As a partnership, you will be liable for the following tax:
Each partner has to pay Class 2 National Insurance. If your profit exceeds £6,205 a year, then this will be at the flat rate of £2.95 a week. Class 4 National Insurance applies if your profits are between £8,424 and £46,350 a year, and this is set at a rate of 9%. If your profit is over £46, 350, then the rate falls to 2%.
Any company that earns over £85,000 has to register for VAT, but you may benefit by registering anyway, even if you earn less. VAT registered businesses can add VAT to any sales invoices and claim back the VAT they pay on any purchases when submitting a VAT tax return. If your company isn't VAT registered, you still have to pay VAT on your purchases, but you won't be able to reclaim it.
Enrolling for VAT could help to keep your selling prices competitive if you sell to another VAT registered business, as they can claim it back. You can also claim back VAT on your costs.
As mentioned above, partners must each complete a self-assessment form, because the company is not separate from the individuals.
Auditox Accountancy contractor accountants will guide you through all of these processes and look for ways to make tax savings where possible.
Many self-employed people choose to register as or work through a limited company because of the benefits it can bring. Also, clients and agencies often prefer to avoid using sole traders because of the employment rights risk and will insist that contractors work through a limited company. Contractors also have more flexibility as to how the business is developed, and they can even employ other contractors. Limited companies are often more tax-efficient and more flexible with regards to capital purchases and pensions.
A limited company allows you to ring-fence personal assets. If the worst happens, these assets will be protected.
Companies that have fewer than fifty employees, an annual turnover of less than £10.2 million, and assets worth no more than £5.1 million are exempt from being audited, but they still must file annual accounts with Companies House, pay Corporation Tax, and file a Company Tax Return.
There are penalties for late payment or non-payment.
Auditox Accountancy aims to make these processes as smooth as possible for you, enabling you to carry out your daily duties with the peace of mind that all your accounts issues are in good hands.
Any business that employs any workers must complete a weekly or monthly payroll, using RTI (Real Time Information) software. This has to be submitted to HMRC.
Dealing with all this can be a headache, and it's one that you can do without when you are dealing with the day-to-day challenges of running a business. All information must be accurate, and it's up to you to prove that any errors are genuine mistakes and not deliberate fraud. At best, the forms will be returned to you for correction. At worst, your file will be sent to a tax inspector who will go through your details in minute detail, looking for any indications of wrongdoing. And if any delay causes you to miss a deadline, you will be liable for any financial penalties.
Auditox Accountancy can guide you through the potential pitfalls and problems, providing you with your own dedicated accountant who will compile accurate accounts. Our specialist accountants also offer tax advisory services to improve your tax bill where possible.
What should you look for in an accountant? It may come as a surprise to learn that anyone can call themselves an accountant, even if they hold no qualifications or experience, as the title is not protected. This means that a good accountant is always in demand, and sometimes difficult to find.
The good news is that Auditox Accountancy provides specialist contractor accountants that you can rely on.
But what knowledge and expertise can they offer? When you go in search of an accountant, you should make sure that they have experience in the following areas at the very least:
Auditox Accountancy provides you with your own dedicated accountant who will be competent in all these areas and more.
As we said earlier, you don't need accountant qualifications to offer accountancy services or call yourself an accountant. Therefore, it is highly advisable to check your accountant's credentials before making any agreements!
At the very least, your accountant should have an AAT foundation certificate. This entry-level qualification means that they should have a good grasp of the basics, including bookkeeping and costing.
Ideally, to choose the best contractor accountant, you should make sure that they have one or more of the following qualifications:
They should also be affiliated with one or more of the following bodies:
These professional accountancy organisations have a requirement that all members are committed to ongoing training and development. If your accountant is a member, you can rest assured that they will be of a high standard.
Auditox Accountancy contractor accountants are always well-qualified, and they are keen to uphold the standards of integrity and professionalism expected of them.
Not all accountants are familiar with the way that contractors work and pay themselves, so it's important that you find one that understands the process. Auditox Accountancy's dedicated accountant will have prior knowledge of the system and will be able to offer advice that's tailored to your personal circumstances.
This government initiative was implemented with the aim of transforming the tax system to make it simpler for taxpayers, including those in the contracting industry. To this end, the government worked alongside software developers to create the Making Tax Digital system.
One of the key aims, as the name implies, is to encourage contractors and freelancers to complete their tax returns via the online portal.
While this might save paper, and the risk of items 'lost in the post', not all contractors are au fait with the online world. Auditox contractor accountancy services will be on hand to guide you through this process seamlessly.
IR35 caused a storm when news broke in 2020 that it was being reformed and enforced. Thousands of contractors feared that they would be affected, and this has proved to be the case, whether you are a self-employed sole trader, work via an umbrella company, or you own a limited company that employ contractors.
It isn't new by any means, but the current government announced that they were tightening up legislation regarding self-employment in 2020, and IR35 in particular.
You may well have been affected, and still dealing with the outcome. But it's an ongoing issue and many contractors rely on expert advice from accountants to guide them.
The idea behind this legislation is to clamp down on tax avoidance and make sure that contractors working in the same way as permanent full or part-time workers pay the same rate of tax and National Insurance. You must familiarise yourself with the rules to keep HMRC happy!
Known officially as intermediaries legislation, IR35 covers what HMRC calls off-payroll working. It takes its name from the original press release in 1999 by the Inland Revenue (which was absorbed by HMRC in 2005) when then Prime Minister Gordon Brown announced the programme. This 'new' legislation aims to identify businesses and individual contractors that are hiding their true employment status to avoid paying the correct amount of tax.
In the past, it was fairly easy for contractors and the limited companies they work for to avoid NIC (National Insurance Contributions) and to claim business costs against their tax bills.
Although the clampdown was announced early in 2020, the roll-out was postponed because of the problems caused by the Covid-19 pandemic until April 6 2021, when it came into effect.
HMRC uses this term for people who are registered as a limited company, but who act as employees. Anyone inside IR35 is in violation of the legislation and is liable to face penalties and fees.
This is HMRC's term for companies that are complying with IR35 regulations. Usually, these will be companies that act independently from clients and have control over where, how, and when they work, even if it's a one-person company.
Although it's been around for two decades, the legislation was largely ignored and forgotten. Up to 90% of contractors during this time described themselves as outside IR35, losing HMRC an estimated £1.3 billion in taxes each year.
If you are found to be inside IR35, you will need to pay the same NI contributions and income tax as if you were employed. The trouble is, you will not have the same benefits, such as sick leave or paid annual leave.
In addition to this, HMRC can look at the last six years (or more) of the contractor's history to see whether IR35 applies to this period. The resulting fees and penalties could amount to thousands, if not hundreds of thousands of pounds.
Auditox Accountancy contractor services will provide you with all the guidance and advice you need regarding IR35 and calculating your take-home pay, as well as helping you to complete any necessary documents. Our specialist contractor accountants will use their knowledge and expertise to ensure the best outcome and help you to stay on the right side of legislation.
We offer fixed-fee accountancy packages and unlimited support via our contractor accountancy services. We offer guidance and advice on all aspects of contractor accounts, including tax planning, personal tax reporting, etc. as well as preparing your accounts.
Not as much as you might imagine!
However, as with anything in life, you get what you pay for. A cheap accountant will probably be underqualified and will provide an inferior service. They may also offer incorrect advice, which could be costly to your business.
Conversely, if you approach UK's largest contractor accountants, then you would expect to pay premium rates.
It is difficult to give exact price details, as each situation is different. The final cost of engaging expert accountants will depend on the length of the job and the state of the accounts. Every project is costed after a face-to-face meeting to discuss your needs. During this meeting, you need to discuss your expectations and decide what exactly will be included in your monthly fee.
Auditox Accountancy offers complete transparency in this area, with no hidden costs.
As a rough guide, monthly fees for some of the UK's leading accountants are between £50 and £150 per month. You should expect to pay an average of £85 for a good accountant.
Depending on the accountancy firm, you might find that some offer fixed fees while others prefer a variable fee model. Obviously, the fixed fee option is preferable as this ensures that there are no surprises.
To begin with, contractor accountants should offer a free consultation. Face-to-face meetings are the best way for the client and the accountancy firm to establish exactly what is required. The Internet has made it much easier to engage professional services from outside their local area, without the need to meet in person, meaning that many contractors and freelancers never actually see their accountant as they use online accounting.
Other than this, you should expect your contractor account to offer the following at the very least:
It's also advisable to be aware of the following points before going ahead:
This will help you to secure a good contractor accountant, giving you the peace of mind that your accounts are in safe hands.
And with Auditox Accountancy contractor services, you can rest assured that your contractor accountant will be someone you can rely on.
Whether you're a sole trader, partnership, or registered as a limited company, Auditox Accountancy contractor accounts have the knowledge, experience, and expertise to handle all your accounting needs.
We understand that each case is unique, which is why we offer flexible, cost-effective solutions and low cost fixed packages. We also understand that you need expert, jargon-free advice and a reliable and trustworthy accounting service, which is why we train our contractor accountants to a high degree.
Auditox Accountancy will be on hand, offering a personal service from the very start of your new business, or to help your established business get back on course.
Here are a few areas in which we can help:
Auditox Accountancy knows that most contractors and freelancers like to devote their time to their work, rather than ploughing through the accounts and dealing with tax issues. We understand that you don't just need a good accountant, you need the peace of mind that a trustworthy accountancy firm can offer, backed by highly-qualified, expert accountants.
So, for all your accounting needs, contact Auditox Accountancy for a free consultation, whether you are in a partnership, an umbrella company, a sole trader, or a limited company. If you're looking for the best contractor accountant, you won't find any better than Auditox Accountancy.