Avoid being a contractor stressed out by accounts

Why everyone is getting stressed out about accounts

In a survey conducted by SJD accountancy, only seven per cent of the contractors said they employ a specialist accountant to do their accounts. Of the contractors who do their own accounts, seven in 10 said it causes them stress. When asked what the most stressful thing about doing their own accounts is, the responses were varied:

• 35% said they worry about making costly accounting errors
• 15% said the time it takes
• 13% said the complexity of the process
• 5% said they were worried about financial penalties

From where I sit, these numbers are not surprising. Accounting law in the UK is complex, especially for contractors. To successfully file your accounts you need to understand IR35, Corporation Tax and the pros and cons of working through a limited company.

One small error can result in hundreds of Pounds in tax lost to HMRC unnecessarily. It’s little wonder contractors get flustered and stressed when their tax returns are due.

It’s not all doom and gloom, there are solutions

Take home more pay with a limited company

One of the major benefits of working as a contractor in the UK is that you can run your business as a limited company. While sole traders pay Income Tax, limited companies pay Corporation Tax on their profits.

Corporation Tax is set at 19% for the current tax year, with the government aiming to cut it down to 17% by 2020. The basic Income Tax rate is 20%, while the higher rate is 40%. This means that you can significantly reduce the amount of tax you pay to HMRC if you structure your earnings within a limited company correctly.

This is especially true for higher-earning contractors. If you earn £200 a day (equating to about £50,000 per annum) then using a limited company is an absolute no brainer. Take a look at the illustrative comparison below.

Ensure your contracts are outside of IR35

IR35 legislation is designed to ensure that only contractors who are truly self-employed receive the relevant tax breaks. If a contract between an employer and a contractor seems to set up some sort of ongoing relationship, the contractor could be liable to be taxed as if they are an employee (i.e. at a higher rate).

You could potentially lose 25% of your earnings if you are deemed an employee, so it’s vital that you get your contracts correctly assessed. What’s more, if you’re found to have been paying tax incorrectly, you will be liable for interest and penalties on further tax and NI contributions.

Get help where it’s important

While it’s possible to do your own accounting, it’s not easy to run your contracting business as well as keep abreast of all the ever-changing HMRC and Companies House requirements and deadlines. By hiring a reputable accountancy firm to ensure you remain 100% compliant, you can stay in HMRC’s good books and save valuable time that could be spent furthering your career.

Although many people think that they have to hire an accountant who they meet with on a regular basis to assist them with their accounts, this isn’t the only option out there. There are also simple, online accounting packages that don’t break the bank but still ensure that you meet all your accounting deadlines and have a specialist accountant just an email away should you have any queries or concerns.

We offer a basic online package that is designed for contractors able to do some accounting themselves and looking to save on accountancy fees, but still get the help they need. Simply send us an email or fill in the form to get started.