If you have made the decision to set up and run a limited company, one of your priorities should be finding the best contractor accountant for you and your business. The right accountant can be a valuable asset - not only can they save you time and money when it comes to managing the financial side of your business, but they are your first port of call for specialist advice and guidance on contractor-specific legislation, such as IR35. Contractor accountancy has become a very crowded industry in recent years, so just how do you choose the best accountant to look after you and your limited company? As with any service, it pays to research and compare what is on the market. We have put together some pointers on what to look for, so that you end up with the right fit.

Tips for choosing the right contractor accountant

Make sure they know contractors

One of the most important things to ascertain is that the firm you are considering genuinely know how contractors work and their particular needs. A contractor accountant will be familiar with the accounting life cycle of a typical contractor, which a standard high street accountant may not completely grasp. A high street accountant may also not appreciate the importance of complying with IR35 or be up to speed with the latest changes to the rules. Many accountancy firms look after a range of different clients, from sole-traders up to big business, but you should ensure they have a service specifically dedicated to contractor and freelance workers running limited companies.

Online Accountants vs Offline Accountants

Most modern contractor accountants offer an online service with a degree of accountant support. This gives the best of both worlds - you can access your accounts online 24/7 and easily create invoices, upload receipts and calculate take-home pay and salaries. Then when you need some help, you can easily contact your accountant by phone, email or webchat. But while this approach gives great value for money, it isn’t for everyone. You may prefer a more traditional accountant, perhaps a firm which is local to you and can work with you face to face. However you should still ensure they are experienced in looking after contractors and have the online capability to be ready for Making Tax Digital.

Accountant Pricing

Usually contractor accountants charge a fixed monthly fee, as opposed to the annual and adhoc fees charged by traditional accountants. You should reckon on paying somewhere between approximately £70 and £150 per month, depending on what different services you need, such as registered office services and VAT. It’s not always the case that the most expensive is necessarily the best, so we would caution against using price as the main decider. It is more important that you feel comfortable with your contractor accountant of choice and have confidence they will provide the service you expect.

Accountant Tools and technology

Modern online accounting software is super-smart and makes life so much easier for contractors to access and manage their accounts in real time. Make sure your contractor accountant of choice is embracing this technology and not just relying on posted receipts and excel spreadsheets. This is particularly important given HMRC’s plans for Making Tax Digital (MTD) by 2020, which will require taxpayers to use MTD-compatible software. They may use a bespoke accounting system (such as the Boox app) or a third-party provider, like Freeagent, Xero or Quickbooks. Best case scenario, you’ll be given the choice of what software to use, subject to the nature of your business and your particular needs. Most firms should offer a free online demo of the system they use, so make sure you take this up.

Accountant Service

When it comes to service, the crucial thing is that the reality matches up to your expectations. The best contractor accountants provide a balance between online tools and tech and interaction with real people. If are new to the contracting life or you know you’ll have lots of questions about your accounts as you go along, look for inclusive support as part of your accounting package. Find out the person or team who will be looking after your affairs and how to contact them - by phone, email or face to face if you prefer.

Accountants Reputation and Recommendations

The best contractor accountants tend to grow their business by word-of-mouth, so asking contractor friends and workmates for their recommendations is a good way to go. You can also check out review sites such as Trustpilot to see how others have rated their service. A word of caution though - these sites can be used to vent (or worse still, reviews can be fake) so scroll through several reviews to get a balanced and realistic picture.

Questions to ask your contractor accountants when comparing

Whether you are calling around a few contractor accountants, browsing their websites or have reached the point of signing up with one, there are a few key questions you should ask. These not only relate to their service and what differentiates them from others, but what you will be required to do to assist your accountant in managing your company affairs. What professional bodies are they regulated by and what accreditations do they hold?
  • Are they experienced in dealing with contractors?
  • What do they charge and what is included in that fee?
  • Are there any “extras” you will have to pay for?
  • What support and advice will you have access to?
  • What makes them different in the contractor accounting market? Why should you choose them over others?
  • What are your responsibilities?

Switching accountants

If things aren’t working out with your contractor accountant, don’t just grin and bear it. You may well get a better service elsewhere. If you do decide to switch accountants, you need to decide the best time to make the move. Quite often your company year-end is an ideal time to switch as it provides a natural break between what your old accountant is responsible for and where your new one picks up. If you change accountants mid-year, your new accountant may need to complete or recreate work. A decent contractor accountant will have provisions in place especially for switchers, including a clear and easy process to quote for these costs and manage the handover. Find out about switching to Boox
Benjamin Franklin famously said “Nothing is certain, except death and taxes”. It’s human nature to want to put both these off as far as possible! It goes without saying that advertised schemes offering contractors the opportunity to hold on to up to 90% of their income are going to be tempting. But as with much in life, if something seems too good to be true, it probably is.

What are these schemes?

There are some variations to the model and terminology used, but all have one thing in common - they use loans to reduce the tax that the contractor pays. Instead of being paid directly to the contractor, subject to normal taxation, the income is diverted through a chain of companies or trusts, which make a loan to the contractor. They will normally be paid a small salary to cover off the personal tax allowance, with the rest paid as a loan. In theory, the contractor is being provided with the use of the money tax-free - hence the heavily promoted tax savings.

So is this really avoidance?

HMRC is absolutely clear on this. The “loans” are not really loans at all; they are never repayable and the contractor uses the money as if it were his or her own. The sole purpose of the arrangement is to avoid tax. In September 2015, HMRC published Spotlight 26, in which they highlighted the warning signs to look out for if you are offered a remuneration scheme which seems too good to be true:

Alarm Bell #1 “If you join our scheme you can take home 80% to 90% of your income”

Don’t take their word for it - take independent advice on legitimate ways to maximise your take home pay.

Alarm Bell #2 “Our scheme is HMRC approved”

HMRC will NEVER approve such schemes and regards them as tax avoidance. They will challenge the scheme and recover correct tax from users.

Alarm Bell #3  “You don’t have to declare our scheme”

Scheme promoters are sure to roll out this line but again it is false. Contractor loan schemes must be declared under the Disclosure of Tax Avoidance Schemes legislation. The scheme promoter is required to give the scheme reference number (SRN) to all users, which must then be included on their tax return. Incorrect or non-disclosure will result in penalty charges.

HMRC action

HMRC will investigate both disclosed and undisclosed schemes and will seek to recover tax, interest and penalties on money received in the form of contractor loans. Check out the case of Boyle v HMRC [2013]

What to do if you have fallen foul of a contractor loan scheme

Your accountant will be able to advise you in the first instance, but you need to contact HMRC. It is always better to knock on their door, with genuine intentions, rather than wait for them to knock on yours. Concerned about contractor schemes? Talk to Boox
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