Accounts and Accountants
No matter how you eventually decide to operate, it is essential to speak with an accountant BEFORE you decide. They will be able to advise the optimum route for you, based on your individual circumstances. They will also be able to explain the advantages and disadvantages of each of the routes open to you in more detail than this site.
Choosing an Accountant
When choosing an accountant it is advisable to choose one that has experience in dealing with contractors. They will be up to speed on the way Contractors work and on IR35, S660 etc.
Personal recommendation is an excellent way to find an accountant. Speak with other contractors.
Unlike puppies at Christmas, accountants are not for life. If you find that you do not get on with your accountant, or that the service is not as good as you thought it would be, then you can change. The best time is after a year end.
Accountants will do as much, or as little as you request. The usual menu of services offered to contractors include:
- Preparation of Company Year End Accounts
- Completion of P11D, P35, P60 and other forms on your behalf
- Dividend planning
- Completion of VAT returns
- Monthly payroll including processing of PAYE / NI payments to the Inland Revenue
- Personal Taxation - completing your self assessment forms (this may even be provided for the company secretary)
Expect to pay anything from £500 to £1000 per year for your accountant
Must I Use An Accountant?
No. If you are operating PAYE or through an Umbrella company then you probably do not need to use one.
If however you are a limited company, it is advisable to use one. Many contractors do some of the accounting themselves e.g. payroll and VAT returns and leave the rest to a professional. Remember, as a company you will have statutory obligations, and your accountant will help you comply. Also, as the tax and NI rules change, it is important to have someone who is up to speed on the latest regulations handling your affairs. You do not want to be paying unnecessary tax or NI.
The downside of contracting is that you do get involved in paperwork. PAYE and Umbrella companies reduce this substantially, leaving you with a minimum amount of work.
The most important piece of paper is your timesheet. Keep up to date with these, and any invoices you have to raise to accompany them. If you do not, you will not get paid! Every time you issue an invoice, or send a timesheet to an agent, keep a copy.
Retain a copy of receipts when purchasing goods and services for your company.
It is also the company's responsibility to operate PAYE and record all statutory deductions, declaring these payments to the Inland Revenue on a regular basis, usually monthly.
You can see that very soon you will need some sort of record keeping. Set up a system - there are easy to use software packages available that will help, see top right of this page. Again, your accountant will be able to advise. No matter what sort of system you set up, it is vital you maintain accurate up to date records.
Open a Bank Account
If you are operating as a Ltd Company, or through an Umbrella company, then you will need to open a Business Bank Account, in the name of your company. Most banks charge you for the pleasure of having a business bank account, either in terms of a quarterly charge or more commonly for each transaction you make. Do search around however as many are free for the first 18 months.
Three letters that often cause a lot of fear for contractors. They should not.
If your limited company expects to turn over more than £70,000 per annum (2010/2011), you should register for V.A.T. In essence, you become a tax collector for the VAT man i.e. you collect V.A.T on behalf of Customs & Excise on all sales invoices you issue e.g to your agent.
Each quarter, the C&E will send you a green V.A.T return for completion. All V.A.T collected on your sales invoices and V.A.T paid on legitimate company expenses (such as computer equipment) is declared on the form. Then a check for V.A.T. collected minus V.A.T. paid is sent to the C&E.
Since V.A.T returns are submitted quarterly, you gain interest on the V.A.T. you collect before having to pass it on the C&E.
V.A.T is currently 20%.
There are different ways to account for V.A.T. e.g. cash accounting, and again your accountant can advise on the one that suits you best.