If you decide to contract through your own limited company, you’ll need to engage an accountancy firm to handle your tax and accounting requirements, unless you’re confident in doing it yourself.
Most specialist firms charge a monthly fee to maintain the books of a contractor’s company. Based on our recent analysis of the leading firms’ current prices, you can expect to pay anything from around £75 to over £200 + VAT per month for a contractor accountant.
In recent years, some firms have introduced different levels of service based on price, but our experience shows that the “gold” or “VIP” packages offered by some firms merely include add-ons that aren’t related to your company’s essential needs, such as business insurance, “free” IR35 reviews, and similar extras.
So, although the cost of an accountant varies considerably, there are a number of core responsibilities that all accountants should carry out for their clients.
Here we look at the initial (start-up) duties, ongoing responsibilities, and then some add-on extras which you might need.
Start-up accountancy tasks
When you first sign up with a new accountant – often before you have even formed a company – there are some initial start-up tasks which need to be carried out.
Many firms will set you up as a new client for free (including company formation), although others might charge a fee for such things. Best to check before you sign up to find out exactly what is included.
Here are the key start-up tasks:
It is surprisingly simple to set up a company these days. In fact, you can do it yourself for a mere £12 via Companies House. Many contractors prefer for an accountant to do this, as although the process is fast, there are a lot of details to capture. Many of the terms will be unfamiliar if you are a first time company director.
Make sure you have the required information to hand so that your accountant can incorporate your company. Read our 10 company formation steps to get an idea of what information is required for successful incorporation.
Registering your new company with HMRC
Your accountant will act as your ‘agent’ with the tax authorities. Once you have granted them permission to act on your behalf, they can register your company for the following taxes:
- Corporation Tax – which is payable on company profits.
- Value Added Tax (VAT) – charged on all sales your company makes – mandatory if your turnover is £85,000 or more.
- Employment Taxes – you will be registered as an employer. You need to make deductions from salaries for National Insurance and income tax – which are payable to HMRC quarterly.
Your accountant will create a new payroll for your company. This will enable you to pay yourself and any employees a salary. Payroll data is sent to HMRC automatically via RTI.
Your accountant will typically offer you a choice of online accounting software – such as Freeagent or Xero. These excellent systems have made life much easier for both accountants and their clients.
You can invoice clients directly, link up your bank account, run your payroll, submit VAT returns, and view your tax position instantly with the market-leading software providers.
We’ve used Freeagent for over a decade and strongly recommend it. It seems to be the package of choice for most contractor accountants.
Find out if your accountant provides a user account for free (included in the monthly fee), or if the service is chargeable.
Business bank account
As a limited company is a separate legal entity from its owners, you must set up a separate business bank account. Your accountant will happily do this on your behalf, or you can set one up yourself. Find out more here
What core ongoing tasks do accountants undertake?
- Run monthly payroll for one employee (typically the contractor). You may be charged an extra annual fee if you have further employees.
- Submission of payroll data to HMRC.
- Deal with Companies House correspondence, including completing your company’s Confirmation Statement. In a minority of cases, you may be charged the £13 fee separately.
- Deal with all HMRC-related correspondence, such as changes to your personal tax code or tax-related queries.
- Completion of your company’s quarterly VAT returns.
- Completion of your company’s annual accounts (which are sent to HMRC and Companies House).
- Completion of CT600 (annual Corporation Tax return).
- Tax planning advice (usually this is included, although the depth of specific tax advice varies).
- Answering any day-to-day questions you may have relating to your tax affairs.
Some of our partner accountants
|Aardvark Accounting||£76||Free company formation + FreeAgent.|
|Clever Accounts||£89.50||Free company formation + IR35 FLEX solution – for any contract.|
|SG Accounting||£109||Free company formation + free tax return.|
|InTouch||£105||Free company formation. Easily switch between ltd and umbrella.|
|You can compare the monthly fees of over 30 accountants here.|
Additional services offered by accountants
Alongside the core tasks listed above, most accountants provide a variety of bolt-on services – some are ‘free’, and others may cost extra.
- IR35 contract reviews (providing an opinion on the IR35 status of your contract, or providing access to a third party professional IR35 contract review service).
- Bookkeeping – with most firms now offering some type of online accounting (either bespoke or a commercial system), entering details of your everyday transactions may be charged as an optional extra if you do not do this yourself.
- Completion of your personal self-assessment tax return (as a ‘free’ service, as you cannot reclaim the cost of this personal service against your company’s Corporation Tax bill).
- Provision of a registered office address for your company. This means that all official paperwork (from Companies House and HMRC) goes straight to your accountant, rather than your home address. You may also prefer to have a more ‘professional’ sounding address to use on your company stationery/communications.
- Providing a service address for directors and other company personnel, so that your residential address doesn’t appear on the public record.
- Provide accountancy references for letting agencies/mortgage companies (sometimes chargeable).
- In most cases, you will be assigned your own dedicated contractor accountant and single point of contact. However, where several fee packages are available, this may not always be the case, so check first before signing up.
- Financial services, including mortgage/pension advice. Some firms, especially larger ones, have their own in-house IFA firms, whereas others can refer you to partner firms.
Try our guide to choosing the right contractor accountant for tips on what to look out for when selecting a service provider to look after your company’s tax and accounting affairs.
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