Contractors Best Friend
A good IT accountant should be willing to work with their clients to ensure that they do not fall foul of the authorities and to maximum the return from their business.
Gone are the days when an accountant was merely the “bean counter” type adviser that people went to once a year to work out the tax. The role of a modern day accountant not only includes completing the tax returns, accounts and perhaps the payroll and VAT returns, they should also act as business consultants.
Most accountants have clients from a wide range of industries, having gained experience over many years of managing businesses. This puts the accountant in the ideal position to advise you on how to run your business right from the outset.
The Choice
Firstly, there is the structure of the business. The decision to trade through a limited company, sole trader, partnership, etc may be largely driven by tax reasons however there are instances where some methods are better than others. In terms of a contractor, the main choices are limited or umbrella company.
With the limited company route, a contractor should consider the structure of the company. Each business is different and advice should be sought as to how the shares are to be divided and who the officers should be.
The correct structure within the company is part of the exercise that ensures the return from the company is maximised in the most tax efficient manner.
The Contract
Once the company is set up, there is also the problem of the contract itself. How many consultants ensure that the contract is IR35 compliant? Should the contract not be compliant, the time to negotiate any amendments is before signing and after it’s been professionally assessed.
It does not necessarily need to be your accountant who does this as other organisations specialise in this area, but the key point is to ensure it’s IR35 friendly.
Bank Account
In order to receive funds and pay suppliers/staff, the company will require a bank account. Again, your accountant tends to know who’s currently offering the best deals, although many people have their personal preference.
Book Keeping
In addition, there’s the ongoing problem of book keeping. This is one of the areas that tend to scare a lot of people but an area in which accountants should be very experienced.
Advice should be sought as to the best way to record transactions through the company.
The better the company’s records, the less time it will take to prepare your annual accounts & VAT returns. It will also assist a tax inspector should they come calling, ensuring they spend less time looking at your records.
This area needs to be put on the right track right at the beginning.
With proper books, an accountant can look at the records on a quarterly basis to check the VAT figures and ensure you’re claiming the correct expenses.
In addition, they can ensure that enough funds are being retained in the company for tax purposes and advise accordingly.
Money for Tax
The most common problem encountered with IT contractors is to retain enough funds within the company to pay corporation tax & PAYE. This can lead to problems, especially if the company runs out of work part way through the year, without any funds in the account when the tax is due.
By maintaining regular contact with your accountant, this ensures you will receive regular tax updates and establish a good working relationship, which could be key to the long-term success of your business.
Darren Upton
Darren@1staccountancy.biz
www.1staccountancy.biz
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