Accounting For Contractors
Are you a busy contractor in Lancashire struggling to keep on top of your finances? Reach out to the experts at Level Accounting for a friendly, reliable, no-nonsense accountancy service.
Level Accounting – specialist accountants for contractorsLevel Accounting is an expert in accounting for contractors, whether you provide your services as a sole trader, through a limited company or an umbrella company. We know all the ins and outs of contractor tax legislation and can provide you with valuable guidance on things like IR35 and CIS. We can fulfil all of your accounting requirements, including tax advice, to ensure you remain fully compliant and maximise your take-home pay. That may mean registering as a limited company, in which case we can guide you on the pros and cons and assist you with company formation. To apply for a free consultation, please fill out our contact form, and we will be in touch.
What is a contractor?Contractors are self-employed individuals who provide services under the terms of a contract to a specific organisation or client. They often have specialist skills, such as an electrician, carpenter, plumber or plasterer. Independent contractors are not considered employees, so they are responsible for their own taxes and business expenses.
What’s the difference between being a contractor and being self-employed?A contractor is self-employed, but not all self-employed people are contractors. Self-employed sole traders tend to take on work on a job-by-job basis with no contract and invoice for their services accordingly. Whereas a contractor works for an organisation under the conditions of a pre-agreed contract for a specified length of time.
Contractors with day rate wagesSome independent contractors choose to offer their services for a fixed daily rate for a set number of hours or days worked. This arrangement can provide greater flexibility and enables contractors to manage their own working hours or take on multiple contracts at once. It also allows them to quote clients an accurate cost for specific tasks or projects. However, it is important for day rate contractors to consider the big picture when agreeing on terms with their clients and ensure that their hourly rate, coupled with any additional expenses, covers all costs, including taxes, insurance and administrative fees. This is where the advice of contract accountants can be very beneficial.
What records does a contractor need to keep?You need to keep a record of all invoices, receipts and business expenses for a period of 6 years. While you are not expected to submit these with your tax return, they may be requested by HMRC at any point if you are subject to an inspection.
What expenses can a contractor claim?If you work outside of IR35, then you are entitled to tax relief on allowable business expenses. The one rule to remember is that the purchase must be solely for the use/benefit of your business and not for you personally. Examples of expenses include mileage and motor costs, accommodation, consumables such as stationery, specialist clothing, professional subscriptions and a proportion of overheads if you spend a significant time working from home. Don’t forget, if you are a contractor that is deemed as working within IR35, then you are only entitled to a 5% expense allowance as a regular employee would be, with some exceptions. See our FAQ section below for more details on IR35.
Our contractor accountant servicesAt Level Accounting, our passion is supporting small businesses and contractors throughout Lancashire to help them grow and prosper. Our accountancy services can be packaged according to your particular needs and include the following services:
Annual AccountsIf you are a limited company owner, then you are obliged to submit annual returns. We can help lighten the load by preparing your statutory accounts and liaising with Companies House and HMRC on your behalf.
BookkeepingBookkeeping is the foundation for good financial management, but many contractors struggle to fit it in on a day-to-day basis. We can take it on for you to ensure you don’t lose sight of your income and expenses.
Online accounting softwareCloud-based software is the new norm, and if you haven’t already embraced it, we heartily recommend Xero, one of the world’s leading providers. Xero is easy to use wherever you are and on whatever device, so you can always be sure of an accurate view of your finances.
VATIf you reach the income threshold for VAT, we can help with VAT registration and guide you on your new obligations. We’ll help you to plan ahead for your VAT bill, submit your quarterly VAT returns and ensure you meet the requirements for Making Tax Digital.
Tax ReturnsWe will help you with tax planning throughout the year so that your tax bill doesn’t come as an unpleasant surprise. Whether you complete a self-assessment tax return, a Corporation Tax return, or both, we’ll submit them accurately and on your behalf.
CISThe Construction Industry Scheme (CIS) affects you if you pay for the services of subcontractors. It’s important that you seek advice to understand your obligations under the scheme from a specialist like Level Accounting to avoid costly mistakes.
Why choose us as your contractor accountants?Level Accounting is a team of experienced contractor accountants offering a full range of services and excellent customer service. When you work with us, you will benefit from your own dedicated accountant who will make it a priority to get to know your business and be proactive in helping to maximise your profits. We help contractors to gain control of their finances and ensure they stay on the right side of HMRC. Our cost-effective accountancy packages are designed to suit all needs and budgets for sole traders and limited companies. At the end of the day, we’re here to help you to be profitable, and we’re committed to making you more money than we charge! Our services are not confined to Lancashire; we are also remote accountants. Whilst you might not be able to visit us for face-to-face meetings, you will receive the same personal service and unlimited support as our local customers. For a friendly and jargon-free contractor accounting service, contact us at Level Accounting and apply for a free accountancy consultation. We look forward to hearing from you.
Many contractors start out as sole traders, but some choose to start their own limited company as it gives them personal protection from debt and is more tax efficient. Generally, contractors charge more and pay less tax - but that, of course, comes with all the associated risks of going it alone.
IR35 was introduced to root out 'disguised employees', i.e. those who appear to be on the payroll of a company but still enjoy the tax benefits of being a contractor. The rules around whether you are 'inside' or 'outside' of IR35 can be tricky to understand. Basically, as a contractor, you are 'outside' IR35 as long as you can prove you have complete autonomy over how, when and where you work.
There has been a real crackdown on IR35 in recent years, and it can be difficult to navigate. If you are contracted by a company, and you are unsure whether you are classed as 'inside' or 'outside' IR35, it is very wise to consult an accountant and understand your position.
Contractor accountants are fully up to speed on IR35 and can help allay any doubts or misunderstandings.
An umbrella company is a business structure that provides employment services to contractors. This allows contractors to have the same benefits as employees, such as holiday pay and sick pay, while still being able to charge clients on a self-employed basis.
The umbrella company will handle all aspects of payroll, such as national insurance, income tax and employer’s liability insurance. This can make it easier for contractors to manage their finances as it means they only need to worry about one payment each month.
As a contractor, you are responsible for paying your own Income Tax and National Insurance contributions and any business-related expenses you incur. If registered as a limited company, you also need to complete a Corporation Tax return.
If your turnover exceeds the threshold of £85,000 per annum, you must also submit VAT returns. Contractors may be eligible for certain tax reliefs or exemptions depending on their circumstances; however, it is important to seek professional advice on what you are eligible for.
Making Tax Digital for VAT is now live, so if you are VAT registered, you must submit your VAT data electronically using approved software, such as Xero. As of January 2023, MTD for Income Tax has been moved to 2026, and the date for MTD for Corporation Tax is yet to be confirmed.