As a busy IT Contractor, work will always be ongoing. From providing services for small businesses, to performing important IT functions for a larger client, you will probably carry out a large number of different projects.
However, juggling the various payments and invoices can be daunting and very confusing. Getting an accountant involved to help share the responsibilities can ensure you get the best advice all round and don’t get too distracted by the red tape.
Below is a guide to IT contract work and how accountancy support is so useful.
What is an IT Contractor?
As a trained professional, an IT Contractor can pick and choose what work they want. This can be a very attractive pull for people considering switching from traditional employment to freelance work. However, there are some downsides, specifically the instability and lack of guaranteed employment. This can be a particular concern if no other income is coming into the household and you have an expanding family relying on you.
As an IT Contractor you are paid as you complete a job whereas employees are paid per hour, regardless of how much of the job they get done. The money is remarkably good and if managed correctly comes with significant tax advantages.
However, the exact set up of the IT contractor determines the exact amount of tax and National Insurance payable. There are many options available but the two main choices are either a Limited Company or an Umbrella Company.
Here are the main things you should know about both:
Limited Company
- There is no middle man involved which saves time and effort.
- You have control over all your affairs.
- It allows you to appear professional and established which creates a good impression.
Umbrella Company
- Instead of being paid directly the money goes through to the Umbrella Company.
- You submit your timesheets and the company bills the client.
- The umbrella company deals with all accountancy issues and money would become effectively a salary of sorts.
- You pay more tax and national insurance.
- No fears of breaching IR35 regulations
The right choice will depend on each individual and their circumstances; there is no ‘one size fits all’ solution. If in doubt, an accountant can help you decide which type of set-up would be the most advantageous for you.
What is an Accountant?
In short, an Accountant performs accounting tasks for and on behalf of companies and individuals. They look at records, issue financial reports and calculate taxes as well as providing a range of other financial advice and services.
How an Accountant can support an IT Contractor
When starting up a business as an IT Contractor it’s crucial you pick the right accountant to work with you. Accountants are pivotal to the success of your business; pick the wrong one and you could end up heading for disaster. On the other hand getting the right one could enhance your business and provide you with peace of mind knowing your finances are under control.
If you choose to work for an Umbrella Company, accountants take on a large amount of the financial work which removes a huge weight from yourself. The accountants look after timesheets, invoices and liaise with HMRC to deduct tax. You will also become part of their firm so will become almost an employee.
However, even as an IT Contractor for a Limited company, an accountant plays a vital part. When you are working on your own without any back-up your financial assets must be managed efficiently. An accountant can support you with specialist advice about IR35 and making sure you are compliant with HMRC guidelines.
The great advantage of having an accountant is the fact they can give advice on how to make your business reach its potential by maximising income. Your accountants may well also update your accounts on a daily basis which can make it very easy for you to ascertain at any point exactly how much profit is in your business. This is a huge help as it means that you can ensure you don’t overspend and leave the money earmarked for tax payments untouched.
Conclusion
Overall, an accountant is vitally important to an IT Contractor, regardless of how you opt to structure your business. An accountant can handle all your finances and relieve you of the stress, worry and hassle of having to complete the paperwork by yourself. From dealing with the tax man to maximising your business earnings, accountants can seem to be truly indispensable – can you really afford to manage without one?