Contractors who choose to set up limited companies do not have the luxury of someone else taking care of accounting like their umbrella company counterparts do. Contractors are legally responsible for making sure all their accounting is done according to statutory requirements. This is why so many of them hire traditional accounting firms or sign-on with online accountancy providers.
That moment the contractor chooses an accountant is that moment he or she is trusting the future of the company to someone else – at least to some degree. In light of that, one's choice of accountancy firms is critical. This is especially true for contractors who are subject to a handful of additional rules that do not apply to most other companies.
It has been our experience that contractors who know a little bit about accounting before selecting their own accountants are in a better position to choose wisely. We recommend new contractors make an effort to learn more about how accounting actually works. The work accountants do is fairly detailed.
The truth is that accounting is more than just adding up a few numbers, filing a few forms, and keeping tabs on statutory accounts. Everything an accountant does has to be done in accordance with existing rules and regulations which, as only experienced professionals tell you, can be exceptionally confusing and terribly rigid. Trust us when we say that the contractor's accountant puts a lot of time and effort into keeping the taxman happy.
The new contractor may decide to go with an accountancy firm right from the first day of business, which is probably the best choice, or wait until things get too complicated for him or her to handle on his/her own. The latter case requires knowing when to make the switch from in-house accounting to paid services.
If it's possible to hold off, the best time to make that switch is at year-end. Waiting until year-end makes it possible for the contractor's new accountant to start out fresh. The same principle would hold true for contractors who already have accountants but are looking to switch. Waiting until year-end just makes things easier.
Contractors are a unique breed in that they do business in ways other professionals do not. This subjects them to a different set of rules – like IR35, for example – and different methods of accounting for expenses and revenues. Contractors are better off with specialist firms that focus on contractors. A general accounting firm with few contractors on its client list may not have the expertise a contractor needs.
That moment a contractor chooses an accountant is the moment his/her business enters a new phase. We definitely recommend that every contractor uses some sort of accounting provider, whether it's full-service or something more along the lines of à la carte accountancy. Enlisting the help of professionals to keep things on the up and up ensures a business keeps rolling along without any interference from HMRC.