With the almost universal adoption of Cloud software by specialist contractor accountants, is any accounting ‘hassle’ associated with being a limited company contractor now a thing of the past?
Elaine Clark of online accountants Cheap Accounting believes that the use of Cloud accounting has allowed the technology savvy contractor to appreciate just how easy their accounting needs really are.
Here, Elaine explains how bookkeeping and accounting tasks can be divided up into an annual planning session as well as monthly, quarterly and annual activities.
Annual planning activities evolve around agreeing on a suitable profit extraction strategy which is usually done in conversation with the contractor and the accountant taking into account the specific personal circumstances of the contractor.
The profit extraction strategy is often a mixture of a salary & dividends, although pension contributions, spousal income and long term exit strategies will need to be considered in the mix.
In addition to paying the agreed salary and reporting the PAYE Real Time Information (RTI) returns to HMRC, the contractor would need to attend to some monthly bookkeeping or pay an accountant to do this on their behalf. The bookkeeping would comprise:
- Uploading the monthly business bank statements into the Cloud accounting system and “explaining” each transaction i.e. allocating it to the correct accounting heading. Good systems usually remember the explanation for a transaction and so will automatically post similar subsequent transactions meaning that the whole process gets simpler over time.
- Recording and posting out of own pocket costs via an expenses app or by posting an expenses claim form.
Assuming that the contractor is registered for VAT, the quarterly accounting task would be to prepare and file the VAT return. Most often a contractor will be registered for the VAT Flat Rate Scheme making the VAT return much simpler to complete.
Not only will good Cloud accounting systems prepare the VAT return for review but they will also file it with HMRC without further intervention and, as long as a direct debit has been set up, the payment for any VAT due will be automatically taken from the contractor’s business bank account, normally one calendar month and ten days after the end of your VAT period. So there’s actually very little involved in the quarterly VAT return.
HMRC Returns / Annual Return
If all of the bank statements have been loaded throughout the year, out of pocket expenses recorded, salaries reported & paid and VAT returns filed then the actual year-end accounts and corporation tax returns production are very straight forward tasks which should take little time and will mostly be system generated.
The salary and dividend information from the accounts will be used to prepare the annual self assessment which will also be filed with HMRC.
That just leaves the Annual Return which is a snapshot of information about the company including registered office, directors, shareholding and so on. The name is confusing and many muddle this up with the annual accounts. Luckily the name will change to the Confirmation Statement from 30th June 2016; so the confusion should disappear.
Never before has accounting for contractors been so easy.