Updated: 19th January 2021
HMRC can impose significant penalties on freelancers and contractors who fail to comply with their accounting requirements. Maintaining proper books and financial records, and filing tax returns on time, is one of the most important business responsibilities - HMRC can investigate your working practices and tax affairs at any time.
A number of accounting issues need to be considered when working freelance or as a contractor, and although some simply require a consistent approach – completing your books regularly, for example, and filing tax returns when needed – others benefit from a qualified accountant’s input to make your business more tax efficient.
With efficiency in mind, here are just a few suggestions to keep your business finances in order:
The Intermediaries Legislation, commonly known as IR35, was introduced by the government in 2000 as a deterrent to tax avoidance. HMRC believed some contractors were working as ‘disguised employees,’ with both the contractor and their client paying less tax as a result. To combat this, HMRC has the power to demand a ‘status review’ during which they scrutinise the wording in your contracts, and compare this to your working practices.
If you’re a contractor providing personal service via your own limited company, it’s important to establish whether you fall under IR35 rules. These essentially mean you would pay tax and National Insurance under the PAYE scheme, rather than taking a small salary from your own company, and the remainder of your remuneration via dividends which attract less tax.
At the end of your company’s tax year you would need to calculate what is termed the ‘deemed payment’ to establish your tax and NI liability under IR35 rules. This involves deducting allowable expenses, plus 5% for the costs of running your company.
From this figure, any employer NICs and your salary should be deducted. If the resulting figure is higher than zero, you’ll be liable for further tax.
For more information and advice on your accounting responsibilities as a freelancer or contractor, or to deal with IR35 legislative requirements, contact our expert team at Real Business Rescue. We have an extensive network of 100 offices offering confidential director support across the UK.
17th September 2021
Sales across the UK’s retail sector fell in August for the fourth consecutive month, according to the latest figures from the Office for National Statistics (ONS).Read More
9th September 2021
High levels of debt are causing significant concerns for decisionmakers at small and medium-sized enterprises around the UK, according to a new piece of research.Read More