If you are a limited company contractors working in the tech sector in the UK, you will usually need to hire a specialist accountant to handle your financial and compliance obligations. The tax system for small companies is not especially complicated, but it is detailed, and the deadlines and filing requirements can mount up quickly if you try to manage everything alone.
Here are some of the typical duties you can expect your accountant to carry out for you over the course of the year. You should always check what is included in your monthly fee before hiring an accountant, as firms vary in how they package their services and what they consider to be an add-on.
These days, many routine tasks are automated by software such as FreeAgent, which makes life easier for contractors and accountants alike. Automation does not remove the need for professional oversight, but it does make the day-to-day bookkeeping far more manageable and reduces the likelihood of errors.
Corporation Tax
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 based on your turnover, allowable expenses, salary, and any other relevant adjustments. They will prepare and submit your Corporation Tax Return to HMRC and compile your company’s annual accounts in the required format.
In most cases, the accountant will also remind you of the payment deadline and ensure that any available reliefs have been applied correctly. This is one of the main reasons contractors prefer specialist accountants rather than general practices with limited contractor experience.
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. Contractors sometimes assume that Companies House and HMRC share data automatically, but they operate separate filing systems. Your accountant will handle both submissions for you and make sure they match.
Year-end is also a good point for your accountant to review the company’s overall position, including retained profit, dividend history, and whether your current structure is still appropriate for your level of contracting activity.
VAT Returns
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), although you can choose to file your own return if you are confident with the figures and the software.
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 the limited cost trader rules in 2017, but it is still worth confirming with your accountant if your working practices have changed or if you have unusually low costs.
Payroll
Your accountant will set up your company’s payroll, which will pay you (and any other employees) a monthly salary.
This task is usually automated via accounting software, but the accountant will still check that the payroll complies with HMRC rules. 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 directly on this due to the Managed Service Company legislation, although they can explain the rules and outline the consequences of different salary levels.
Dividends
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.
Almost all contractors now 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, but your accountant will ensure the paperwork is correct and properly recorded.
Self Assessment
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 to £200 to file your SATR. Bear in mind this is a personal expense, as it relates to your individual tax affairs rather than your company’s.
The January 31st deadline applies for both submission of your tax return and cleared payment of any tax you may owe. Your accountant will normally alert you well in advance if your figures indicate a payment on account may also be required.
Correspondence
Your accountant will deal with any correspondence between your company and Companies House and HMRC.
This is one of the most valuable aspects of hiring an accountant. Dealing with these organisations can be testing, and response times have slowed in recent years. Having a professional to handle queries, chase missing documents and keep records updated is invaluable for contractors who want to stay focused on their client work.
Additional Services
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 help you understand whether an engagement is likely to fall inside or outside the IR35 rules. From our own experience, however good your accountant is, we recommend you run your contracts past an employment status specialist for a more detailed assessment.
Your accountant will also be able to incorporate a company for you and help you set up a business bank account. Many will also assist with switching from sole trader to limited company if your circumstances change or if your contracting workload increases.