How to choose the best contractor accountant – 8 essential steps

Whether you’re dipping your toes into contracting for the first time or a seasoned pro, a good accountant is essential.

The right contractor accountant will take care of your tax paperwork and help you make sure you don’t pay more than you have to. More importantly, they’ll advise you on complicated rules like IR35, so you can crack on with your work without having to worry about what would happen if HMRC were to investigate you.

Of course, hiring a contractor accountant is a personal thing. They’re someone you’ll be working with closely and trusting with your money (hopefully for many years to come).

So how do you make sure you’ve chosen the best contractor accountant?

When should you hire a contractor accountant?

Before we discuss how to choose a contractor accountant, a quick word on when to hire one. While you might think it’s a big expense — especially if you haven’t made any money from contracting yet — it’s worth hiring one before you even start, for two reasons:

• They’ll make the process of setting up as a contractor much smoother
• They’ll advise you on your tax obligations

Most end-clients and recruiters won’t hire you unless you work through a limited company. So you’ll have to choose whether to join an umbrella company or incorporate on your own.

If you decide to go it alone, a good accountant can set up your limited company for you and make sure it meets all the legal requirements. The accountant will also take care of other requirements such as registering you as an employer (you’ll need to do this to pay your salary).

More importantly, your accountant can advise you about how and when to deduct business expenses, record-keeping, and staying compliant with applicable legislation. That way, you can make sure that all your Is are dotted and your Ts crossed right from the get go.

Here is a table of some of the best accountants in the contracting industry:

With that out of the way, it’s time to discuss how to actually pick the right contractor accountant.

Here are 8 things you should consider.

1. What qualifications do they have?

It goes without saying, but you should only work with an accountant if they’re suitably qualified.

At a bare minimum, they should have an AAT foundation certificate. This is an entry-level qualification which gives a good grounding in bookkeeping, costing, and other basic issues around financial administration.

More experienced accountants will typically:

• Have an accountancy degree, a more advanced AAT qualification, or an ATT, ACCA, or CIMA qualification
• Be affiliated with a professional body such as:
  • ICAEW (Institute of Chartered Accountants in England and Wales)
  • ICAS (Institute of Chartered Accountants in Scotland)
  • ACCA (the Association of Certified Chartered Accountants)
  • CIMA (the Chartered Institute of Management Accountants)

Professional accountancy bodies have specific training and continuing professional development requirements. So if your accountant belongs to one, it shows they’re serious about meeting high standards of expertise and professionalism.

Most accountants will display their qualifications and memberships on their business card, website, and other marketing materials. It’s also worth looking them up on professional bodies’ member directories to confirm their credentials.

In many cases, the firm itself will hold the relevant qualification(s), not necessarily members of staff who do much of the day-to-day paperwork.

2. Do they specialise in contracting?

As a contractor, you have to comply with complex and tricky legislation such as IR35 and the rules around expenses. These can have dire financial consequences if you get them wrong.

You’ll also want to keep your tax bill as low as possible.

Many contractors do this by paying themselves a small salary and taking the rest of their income as dividends. But if your salary is so small it puts you under the primary threshold, you may lose out on the benefits of National Insurance contributions. And if you’re not careful when you declare dividends, you may also fall foul of HMRC’s rules.

Not all accountants understand how contractors work and get paid or are up-to-date with the latest tax laws that apply to contractors. Working with someone who’s clued up will help you make sure you don’t run into issues down the line.

3. Individuals vs accountancy firms: who should you go for?

Like other businesses, accountants can vary enormously in size — from one-man bands to large firms with thousands of employees across the country (or even across the globe). Both have their pros and cons.

A larger firm with lots of employees will probably have a wider skill set. They’ll be more likely to have worked with contractors before. And they may be able to offer you valuable additional services such as financial advice and legal support.

The flipside is that you’ll probably be a small and, so, lower-priority client for them. Which means you may be assigned to a junior or get shifted from one accountant to another depending on who is available. Chances are the service will also be more impersonal. And because larger firms have bigger overheads, you can expect to pay more.

A smaller firm or an individual may be able to offer you a more tailored, personal service at lower cost.

That said, they won’t always have the expertise to meet your needs in-house or be in a position to provide additional services. They may also be less responsive when things get busy, especially if they have higher-paying clients to deal with.

4. Are they comfortable with tech?

How will you submit your records and financial information to your contractor accountant?

Will you pack up your shoebox of receipts and mail it off to them, after which they’ll mail back physical copies of your accounts and tax paperwork for you to sign? Or is everything paperless and online?

Some accountants are old school, so you’ll have to use snail mail or deliver documents personally. Others will either ask you to email everything or upload to an online portal, have their own bespoke digital platform, or use third-party accounting software programmes such as Xero, the excellent FreeAgent, or Quickbooks.

HMRC doesn’t specify what format your financial records should be in, as long as they’re complete, accurate, and readable. So whether you go with a paper-based accountant or someone who’s hip to the latest technology is largely a matter of personal preference.

That said, since 2015 the government has been working on an initiative called Making Tax Digital. This will eventually require all businesses, including contractors, to file their taxes online using HMRC-approved accounting software.

VAT-registered businesses (those with £85,000 or more in turnover) have had to comply with Making Tax Digital since April 2019. The plan was to extend the system to everyone else in April 2020. But while this has been shelved until at least 2021, the government is bound to pick it up again at some point. So it may be worth getting in front of it and choosing an accountant who’s comfortable with tech.

5. How much do they charge?

How much accountants charge varies wildly. Expect to pay as little as £25 a month, or £100 a month or more.

Be aware that most accountants quote their rates exclusive of VAT. This means you need to add 20% to their fees. So if an accountant says they charge £35 a month, that’s actually £42 a month.

You should also check what’s included in the fee. As a minimum, you should expect it to include:

• Preparation of your annual company accounts
• Company tax returns and VAT filings
• Handling of correspondence from HMRC and Companies’ House
• A certain amount of contact hours so you can ask questions and get advice and support with your tax affairs

The old adage goes that you get what you pay for. But this isn’t necessarily the case with accounting. While you should definitely check what’s included in the fees and shop around, don’t make it all — or even mostly — about price.

What’s more important is that you partner with someone you’re comfortable with, is efficient and responsive, and gives you good advice.

6. What’s NOT included in the contractor accountant’s fees?

Just as important as what’s included in the fee quote is what’s not included. Services you may want to enquire about (but may not be included in the fee) are:

• Limited company formation
• Companies’ House filings — you must file your accounts and a confirmation statement every year, and you’ll have to pay late filing penalties if you miss the deadlines
• Your personal tax calculation and self-assessment tax return
• Payroll. If you use accounting software such as Xero or FreeAgent, running this yourself is fairly straightforward. But you may want to offload the responsibility
• References, for example if you’re applying for a mortgage
• Providing a third party address for your company (and service address for directors).

Most reputable accountants will ask you to sign an engagement letter. This will specify what’s included and what’s not included in their fee, as well as their terms and conditions. But if you’re still unclear, it doesn’t hurt to ask.

7. What’s their reputation?

Your accountant may have a shiny logo, a slick website and affiliations with professional bodies. But that doesn’t necessarily mean they have a good reputation with your fellow contractors.

Do they live up to the hype? Or are they infamous for their shoddy service?

Google reviews and comparison websites can be a good starting point for checking this out. That said, it’s not always possible to tell genuine reviews from fake ones. Some reviews may be paid for. And some may be written by people with an axe to grind.

With this in mind, you should take reviews with a pinch of salt.

The best approach, once you make a shortlist of possible contractor accountants you could work with, is to ask people you know and trust for their thoughts. Speak to fellow contractors or ask in professional groups such as LinkedIn. You’ll be more likely to get an unbiased opinion and trustworthy recommendations.

8. How responsive are they?

How efficient is your accountant? Do they quickly respond to your queries? Or do you have to chase them for days to get a simple yes or no reply?

At best, an accountant who is often unavailable or unreachable is frustrating to deal with. At worst, it may mean you’re not a priority for them. Which could lead to missed deadlines, incorrect advice, and trouble with HMRC.

Of course, you won’t know for sure what someone’s like before you actually start working with them. That said, it’s worth picking up the phone or dropping an email to accountants you’re interested in working with. If someone isn’t open and helpful when they’re trying to win your business, chances are they’ll be hard to deal with when they sign you up, too.

And if your relationship with your accountant sours, don’t be afraid to switch. While finding someone new and getting them up to speed may seem like a hassle, the peace of mind that your tax affairs are in order and taken care of is well worth it.

A good contractor accountant is worth their weight in gold

Hiring an accountant may feel like a big expense, especially if you’re just starting out.

But if you choose wisely, you’ll make the fees back in tax savings and by staying on HMRC’s right side.

Costs Comparison Table

• We’ve created an accountancy fees comparison table, together with things you should look out for when comparing monthly packages.

Further information

• For more information, read our guide to the typical duties you can expect your accountant to carry out.
• For a more complete list of our partner contractor accountants, visit our directory.