Basic guide for contractors and freelancers

Weber & Associates
Chartered Certified Accountants
and Registered Auditors

Bromley

Website: www.w8a.co.uk

Registered as Auditors by the Association of Chartered Certified Accountants

INTRODUCTION FOR CONTRACTORS
Weber & Associates has been providing services to the Contractors
and Freelancers in the following sectors since 2004:

 IT (Information Technology)
 Telecom
 Engineering
 Accountancy
 Medical Professionals
 General Consultancy Businesses


LIMITED COMPANY
 Each new company is “incorporated” on a particular date which
appears on the “Certificate of incorporation” (Birth Certificate of a
company)
 Unless you request a different financial year end from the
Companies House, your Company’s first year end will fall on the last
day of the month of the anniversary of incorporation (e.g. Company
incorporated on 15 August 2009 – first financial year end will be 31
August 2010)
 It is possible to extent or shorten financial years but there are
hardly any advantages for Contractors or Freelancers
 Company statutory books you normally receive straight after the
Company is incorporated and must be kept in a safe place
 Company accounts have to be filed with the Companies House each
year (9 months after the year end date)


RESPONSIBILITY OF THE DIRECTOR
 Company law requires the director to prepare accounts for each
financial year under the UK GAAP (United Kingdom Generally Accepted
Accounting Practice and applicable law).
 Under company law the directors must not approve the accounts unless
they are satisfied that they give a true and fair view of the state of
affairs of the company and of the profit or loss of the company for that
period.
 In preparing these accounts, the director is required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• prepare the accounts on the going concern basis unless it is
inappropriate to presume that the company will continue in business.

 The director is responsible for keeping adequate accounting records
 ensure that the accounts comply with the Companies Act 2006
 Director is also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.


IMPORTANT DATES FOR YOUR CALENDAR

FOR YOU PERSONALLY
 Personal Tax Year End 5th April
 PAYE & NIC on Salary 19th April
 Self Assessment Return Due By 31st January after year end

FOR COMPANY
 Corporation Tax Payable Within 9 months and 1 day
of the Company’s Financial
Year End
 Annual Accounts to be Filed Within 9 Months after the
Company’s Financial Year
End
 Company Annual Return Anniversary of Incorporation Date

IT IS IMPORTANT TO UNDERSTAND THAT BOTH HM REVENUE AND CUSTOMS AND
COMPANIES HOUSE LEVY FINES/INTEREST FOR LATE FILING


PAYE
 PAYE is administered by HM Revenue and Customs
 The rates below apply from Oct 2009 and are likely to change
again on 1 Oct 2010 in relation to national minimum wage

Category of worker Hourly rate from 1 Oct 2009
Aged 22 and above £5.80

Aged 18 to 21 inclusive £4.83

Aged under 18 (but above £3.57
compulsory school age)


PAYE CONTINUED

Registering as an Employer

You don't necessarily need to register as an employer once you
take someone on. Check first that at least one of the following
conditions applies to you:
 the employee already has another job
 they are receiving a state or occupational pension
 you're paying them at or above the PAYE threshold
 you're paying them at or above the National Insurance Lower
Earnings Limit
 you're providing them with employee benefits

If any of the above conditions apply, then you need to register.


WHAT EXPENSES CAN I PUT THROUGH THE COMPANY?

Accountancy fees
Advertising
Bad Debts (provisions for bad debts are not)
Bonus payments
Business entertainment (subject to various conditions)
Car hire
Child care (All expenditure incurred by employers for the care of
children of their employees whilst the latter are at work is allowable
for tax purposes)
Compensation for loss of office
Directors remuneration
Donations (to charitable bodies)


WHAT EXPENSES CAN I PUT THROUGH THE COMPANY? (CONTD)
Gifts (business gifts of promotional nature but no more than £50 other
than food, drink, tobacco or a token or voucher )
Goodwill
Use of home as office
Travel and subsistence
Postage for business
Stationery for business
Mobile telephone calls
Wages and salaries
Pension contributions
Equipment purchased for business purposes
Computer software
Technical books and journals
Bank charges and interest


WHAT EXPENSES CAN I CLAIM BEING A DIRECTOR?
Annual subscription fees
Business travelling expenses
Postage and stationery for business
Telephone calls for business purposes
Purchase of mobile phone
Salaries paid by the Company to the Contractor and Contractor’s
spouse for work done
Employers NIC
Pension contributions
Business entertainment (tax relief not available)
Equipment purchased for business purposes
Computer software
Business mileage allowance
Technical books an journals
Use of home
Bank charges and interest

SHOULD I HAVE A COMPANY CAR OR USE MY PERSONAL CAR?

We generally recommend that rather than having a Company car, you use your
own car for businesses purposes and claim the mileage.
Each business
First 10,000
mile over
From 2002/03 business miles
10,000 in the
in the tax year
tax year
Cars and vans 40p 25p
Motor cycles 24p 24p
Bicycles 20p 20p

This is tax free in your hands and tax deductible for the Company. The
alternative is for the company to own the car but this will mean that you would
be taxed on the benefit in kind


WHAT CAN I CLAIM VAT ON IF COMPANY IS REGISTERED FOR
VAT?
 Computer equipment and software
 Stationery and printing cost
 Accountancy fees
 Legal and professional fees (Not Company Formation Fees)
 Telephone
 Mileage allowance/Petrol and motor repairs (if company owns
the car)
 50% of the VAT paid on either the car lease rental payments or
car contract hire payments


WHAT CAN I NOT CLAIM IN RELATION TO VAT?
Expenses on which generally you cannot usually claim VAT are:

 Postage
 The purchase of car by the Company
 Road Tax and insurance for a Company owned car
 Public transport costs
 Payment to the Registrar of Company
 Payments of Directors remuneration


DIVIDENDS

 Dividends are movements on reserves and hence do not affect
the amount of Corporation Tax payable
 Provided the Company is trading profitably and funds are
available for distribution to the shareholders, dividends may be
declared at any time during the Company’s financial year
 It is imperative to prepare Minutes of Meeting declaring
dividends
 Dividends come to the shareholders as “Tax Credit”
 If you are high rate taxpayer you will need to pay additional tax
on any income that falls into higher rate bracket


WHAT IS IR35?
It was first proposed by the Chancellor in the 1999 Budget
The aim of the legislation is to eliminate the avoidance of tax and
National Insurance Contributions (NICs) through the use of
intermediaries, such as Personal Service Companies or partnerships, in
circumstances whereby an individual worker would be :
• for tax purposes, be regarded as an employee of the client; and
• for NICs purposes, be regarded as employed in employed earner’s
employment by the client.
The Government concern is that small limited companies are being
used to disguise employment, so this is the test which is applied:

where the employee is provided by his company to a client on terms
which would normally constitute an employment with the client, this is
called a relevant engagement (section 2.1) and IR 35 rules apply


IF YOU ARE OUTSIDE THE SCOPE OF IR35

 We recommend a reasonable salary with any other monies
being taken out as dividends
 Salary level however may be dictated by pension requirements
depending on personal circumstances

Chartered Certified Accountants and Registered Auditors

Important
information
This document is confidential and prepared solely for your information. Therefore you should not, without our prior written consent, refer to or use
our name or this document for any other purpose, disclose them or refer to them in any prospectus or other document or make them available or
communicate them to any third party. No other party is entitled to rely on our document for any purpose whatsoever and thus we accept no liability
to any other party who is shown or gains access to this document.


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