If you are a limited company contractor, you will need to hire a specialist accountant to handle your affairs.
Here are some of the typical duties you can expect your accountant to carry out for you over the year. You should always check what is included in your monthly fee before hiring an accountant.
These days, many of these tasks are automated by software such as FreeAgent, which makes life easier for contractors and accountants alike!
Corporation tax is a tax on the profits of all limited companies. You pay 19% on profits under £50,000, 26.5% on profits between £50,000 and £250,000. And 25% on profits above £250,000 (an impressive achievement if you’re an IT contractor!)
At the end of your company’s financial year, your accountant will calculate your corporation tax liability. They will submit your Corporation Tax Return to HMRC and compile your company’s annual accounts.
Year End Accounts
The annual accounts must be submitted to Companies House within 9 months of your financial year-end. You must also pay any Corporation Tax you owe within 9 months and a day
The full accounts must be sent to HMRC within 12 months.
If you are registered for VAT (and most limited company contractors are), your accountant will check your accounts on a quarterly basis to determine your VAT liability.
Most contractor accountants will then submit your return online (via FreeAgent), or you can do this yourself.
They should also be able to advise you if you’re better off switching to the Flat Rate VAT Scheme. Most contractors can no longer benefit from this scheme following the introduction of ‘limited cost trader’ rules in 2017.
Your accountant will set up your company’s payroll, which will pay you (and any other employees) a monthly salary.
Again, this task is usually automated via accounting software. Each month, you and your co-employees will be able to view a payslip which details your gross monthly salary, and any deductions – for income tax and NICs (if applicable).
You – and you alone – must decide the annual salary to pay yourself. Your accountant cannot be seen to advise you on this, due to the Managed Service Legislation. Read our guide to choosing the optimum salary for 2023/4 here.
Your accountant can prepare dividend paperwork for you – specifically a template for board meeting minutes during which the dividend declaration was made, together with dividend vouchers for each shareholder.
Once again, almost all contractors use online software, such as FreeAgent or Xero. Board meeting minutes and dividend vouchers are generated automatically once you distribute a dividend to your company’s shareholders.
You can also read our guide to dividend taxation.
Most accountants also offer a personal self assessment tax return service. All company directors must complete a SATR, which details all of the income received during the previous tax year.
Accountants will typically charge £100 – £200 to file your SATR. Bear in mind this is a personal expense, as it relates to your individual tax affairs, not your company’s.
The January 31st deadline applies for both submission of your tax return and cleared payment for any tax you may owe.
Your accountant will deal with any correspondence between your company and Companies House and HMRC.
This is probably one of the most valuable aspects of hiring an accountant. Dealing with these organisations can be ‘testing’ to say the least. Having a professional onside to do this on your behalf is invaluable.
If your accountant is an IT contractor specialist, you should expect them to advise on relevant tax legislation, such as the notorious IR35 legislation.
Some accountants also provide a ‘contract review’ service to ensure that you are not caught by the IR35 rules. From our own experience, however good your accountant is, we recommend you run your contracts via an employment status specialist.
Your accountant will also be able to incorporate a company for you and help you set up a business bank account.