IT Contractor Accountants - Accounting - Accounts

Simon Dolan, Managing Director of SJD Accountancy, warns IT contractors to beware companies that over-promise and under-deliver.

I've yet to meet an IT contractor or freelancer that enjoys paying tax! Most people, however, would concur with Mark Twain's philosophy that there are three certainties in life: birth, death and taxes, and accept that at least part of their earnings will be subject to a tax charge.

The challenge that each of us faces, however, is to reduce the tax due without straying into grey areas or falling foul of the UK's increasingly aggressive, organised and powerful taxation authorities.

Few IT contractors and freelancers are tax experts and therefore turn to one of the growing number of companies that offer payroll, accountancy and management services for advice and assistance with their invoicing, salary, tax and National Insurance. The difficulty is not in finding a potential supplier - there are many out there - but in choosing one that has the knowledge and expertise to make sure that tax matters are dealt with promptly and correctly.

This is crucial to avoid subsequent tax liabilities that, despite what some people would have you believe, are ultimately the responsibility of the individual contractor, not the company that prepares and submits their tax returns - if investigated you will be liable!

Unfortunately, as the IT contracting and freelance sector has grown, so too has the number of tax advisers who are ill-equipped to provide professional advice, many of whom sprang up following the introduction of IR35 legislation.

It is important to recognise that a supplier who can process your monthly invoices and salary details does not necessarily have the tax expertise to undertake tax planning for you or that you are claiming expenses correctly.

Ask the supplier what qualifications the person managing your tax affairs has; you'd be surprised how many have no qualifications at all.

IT contractor expenses are commonly used to offset earnings and frequently appear as a headline figure quoted by payroll suppliers to attract prospective customers. Unfortunately, many of the statements made about the level of expenses that can be claimed by contractors or freelancers are often misleading.

In particular, references to dispensations granted or guaranteed by HMRC need to be viewed with extreme caution as they apply to the company, not an individual employee. Any expenses you incur must have actually been spent, and should have a receipt. If not, HMRC will disallow them, costing extra tax, interest and possible penalties.

Ultimately, selecting the best supplier to handle your tax affairs comes down to personal choice. But, whatever you do, don't simply pick the first one that comes along; talk to friends and colleagues first.

Just as importantly, beware those companies that promise you
excessively high tax-free salaries, or which seek to tie you in to long term contracts. Keep the relationship open, honest and flexible and you'll eliminate the risk of nasty surprises once the initial honeymoon is over.