Contractor Accountants

What should I look for in a business bank account?

Providing you have a good banking record and have managed your personal bank accounts well then you should have a lot of choice when you are opening your business bank account.

Aspects to consider when choosing a provider are:-

Bank charges and interest

As a freelancer or contractor you will be attractive to a bank as you will generally have money in your account and will not require a lot of banking resources such as business loans, cash handling facilities etc.

You should look for an account which offers free banking for as long a period as possible.

Company debit/credit card

A company credit or debit card would be useful as it will enable you to totally separate business and personal expenses, it is best to always  keep your business and personal banking separate, unless it is totally unavoidable.

On-line banking and telephone banking

Anything that will add to your convenience and save you time is worth considering. As a freelancer or contractor your time is a valuable commodity as you can be using it to earn money as opposed to spending it queuing down the bank.

Should I insure myself against a tax investigation?

A tax investigation can take years to sort out and if it goes through the courts then it can cost thousands of pounds in professional fees, not to mention the tax and penalties that might be at stake if you are found to be at fault.

Plus a HMRC investigation will cause you untold emotional costs, for both you and your family.

If you decide to fight an HMRC investigation then you should have professional help as fighting inspections and rulings by HMRC is not for the faint hearted, it is also technically demanding in terms of procedures and legislation.

Most contractors/freelancers will have some sort of insurance cover, which as a minimum will cover the professional fees incurred by an investigation.

As an addition many have policies which cover to a varying degree the tax liability at stake.

A common question that we get asked by potential contractors is ‘ I am thinking of going contracting and when would be a good time to do this?’

This is an excellent question and this is what we have found over the years.

First make sure that there is demand for the services you offer, check with online job boards and agents before you make the plunge of leaving the security of a monthly pay cheque.

Make sure you hit the market at the right time, there are two cycles to consider, firstly the general economic cycles and secondly the annual hiring cycle.

General economic cycles run over many years, we are currently kicking around the bottom of one, and when permanent headcount get squeezed contractors become more attractive to employers as they offer flexibility and don’t come with the overheads of permanent headcount, and work still needs to get done.

The annual hiring cycle, this is driven by the annual financial year and holidays. In essence you do not want to hit the contract market in July or August, as agent and HR people are holidays on holidays, hiring becomes non existent.

A similar story occurs between mid December and mid January with the Christmas holidays.

Perhaps the best time to be looking for a contract is after the Christmas holidays where clients are looking at new projects for the year and reviewing headcount, appraising new budgets and starting to hire.

There is a minor slowdown for the Easter holidays and May and June are normally quite strong months for obtaining contracts. October to November are normally quite good as well before the Christmas slowdown.

So just apply commonsense really, and if the phone is not ringing for you it is probable that everyone is on Holiday.

Is it a good time to go contracting/freelancing?

Now this is a big question, with the economic situation of  the country being talked down daily it seems you should be thankful if you have a job and the stability which goes with it, you just need to keep your head down until the better times return.

Well it may pay to look at things slightly differently, normally when times are hard businesses cut back on their permanent headcount by making people redundant and having headcount freezes , the staff who are left behind picking up the additional work, whilst also coping with the uncertainty of their situation, staff morale often suffers which is often picked up in the staff surveys.

Contrast this to the situation where someone who was laid off by the business (normally with a redundancy payment), sees this as an opportunity to sample the contractor/freelancer style of working, to see if it is for them, there are normally more opportunities for freelancers and contractors  in a bad economy because firms have cut permanent headcount hard and fast , and need someone to pick up the slack.

We know of may freelancers & contractors who started off in a recession who are still contracting and wouldn’t have it any other way. It is perhaps a good time to think about going into contracting, yes the market does sometimes fall, but it never disappears, what will tend to happen is your market rate will adjust, it will fall in the bad times as it adjusts to market forces, and increase more in the good times, but always tends to be better than being permanent.

A blunt answer to this is yes, and if you do not give this careful thought there may be trouble around the corner.

It is generally accepted that when the taxman checks your accounts for your limited company one of the things that he looks at is your directors loan account.

If you owe your company money it will show up here as a debt to your company.

If your directors loan account is overdrawn then you will have two possible tax charges.

Your company will have to pay tax equal to 25% of the amount that you owe the company (if it is still outstanding 9 months after your accounting year end) commonly referred to as the s419 charge (Tax payable under s419 ICTA 1988) refers to the legislation that covers corporation tax on directors loans, Income and Corporation Taxes Act 1988 sections 419.

Also and perhaps a lesser known one, is that you will be taxed on a benefit in kind (BIK). A BIK will arise if you owe the company over £5000 at any point in the period of the accounts in question, be it six months or a day. This BIK should be declared on your P11d and if not it will create fines and penalties for you.

To protect yourself from being at risk from this, it is good to get into the habit of paying dividends, and having the correct paperwork and procedures in place for this.

Or risk if the taxman comes knocking and easy check through your directors loan account and some easy money.