If you’re starting off as a first-time contractor, it’s all very exciting times in which you want to hit the ground running and get stuck into things with immediate effect. However, you may not want to run quite yet before you’ve learnt to walk as a contractor. There are a number of important administrative duties to attend with as a contractor, one of the most significant being your accounts.
Contractors enjoy a unique tax status but before you can even think about enjoying this benefit, you’ll need to have certain measures in place. If you’re not sure where to start as a contractor when it comes to the question of tax and accounts, here are a few points to think about.
Umbrella or Limited?
You have two usual choices in how to set up as a contractor; either as an umbrella company or as a limited company. The word limited company might strike fear into many people who didn’t believe they were about to be running a company all by themselves. Fear not, this isn’t the case and limited companies in the case of contractors – the only person you’ll be running is yourself! Limited companies have great financial benefit to contractors with this working status allowing contractors to claim back on numerous working expenses such as mobile phone costs, travel costs and equipment costs, as well as VAT you pay.
Umbrella companies are an option for contractors wanting to take a more hands off approach to their admin worries. An umbrella company will take care of all the admin duties of your accounts such as handling client payments, and managing Tax and National Insurance Contributions. This will free up your time to focus on other responsibilities as a contractor – delivering work, marketing yourself, networking, etc. However, there is discussion to be had about the tax benefits this option brings with Umbrella companies charging a fee for these ongoing services . Whereas a Limited Company, the only service fee you’ll be paying is for the support of an accountant. But of course with an Umbrella Company, you are essentially removing yourself from the burden of paperwork as a Contractor which a lot of contractors greatly benefit from.
There are positives and negatives to each option, so it pays to do your research within your personal networks and evaluate what your unique position is a contractor and what exactly you want from this aspect of your business as a contractor.
Finding the right help with your accounts isn’t going to come from a straight first-time Google search. You want to ensure you’ve got the best deal that works for you. Find out from your networks if they have any personal recommendations. Have a closer look at who they’re suggesting and see if you can research further, whether that’s through more online research (we live in very online testimonial focused world so take advantage of that) and through any questions you may have. Remember any prospective accountant or umbrella company will be treating you as a prospective client when meeting them initially face to face. Ask questions and be clear in what you want from them and what they can deliver.
It pays to be organised and have everything in order. Your accounts don’t have to be a stressful thing so ensure you have a system that works for you. For everything from invoices to receipts, keep everything logged and stored in a way that doesn’t create an administrative headache for you and can be easily accessed and referred back to when the time comes for you to review your accounts.
With this, be mindful of dates so there’s no last-minute rush for anything. The first date being January 31st in which you submit your earnings for the last year as well as a payment for the forthcoming year, plus the second deadline date of July 31st, again which covers earnings from the last year but involves another payment for the current financial year. There’s no excuses over missing these two dates and any late payment will incur a charge for you which is something you don’t want.
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