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11 tips for choosing the best contractor accountant

Once you have decided that the best trading option for the current stage of your contracting career is a limited company, then choosing a specialist contractor accountant is the next step.

It is also a hugely important one, as a good accountant can save you many times your accounting fees by efficiently managing your tax affairs.

Here are 11 great tips for choosing a great contractor accountant:

1. Choose a specialist accountant that understands your needs

Make sure the accountant is a specialist in contractor/freelance or small businesses and understands key issues relevant to you, like IR35. Most high street accountants do not have this knowledge.

You need an accountant and tax advice, and not just an accounting system. Don't try and be your own accountant.

2. Go "accountant-first" but also make sure systems are supported

It is an accountant you primarily want, who can support you with automation and online systems. Go "accountant-first" when choosing a provider. But, make sure are familiar with market-standard packages for accounting needs, like Xero, FreeAgent, or Quickbooks.

Whilst you should definitely be using an online system for your record keeping and accounting, on it's own it is not enough.

It's wise to use accountants that have not built their own software for many reasons:

  • Historically, some accountants systems have been breached by hackers, making them less secure than the larger software providers.
  • It's much easier to change accountant if you use market-standard software.
  • A bespoke system created by the same accountant firm could lead to claims by HMRC that they are a Managed Service Company Provider (see later).

3. Check each accountant’s qualifications carefully

Find out whether the accountant is registered with a professional accountancy body, such as the Association of Chartered Certified Accountants (ACCA), or the Institute of Chartered Accountants in England and Wales (ICAEW). If they are not, then move on.

On top of accounting and bookkeeping help, you will need help for tax matters. Check for qualifications of memberships like the Chartered Institute of Taxation (CIOT), or the Association of Tax Technicians (ATT).

4. Evaluate the differences between big and small accountancy firms

Accountancy firms vary in size enormously, and you should choose one that suits your purposes and can deliver the services you need. A larger practice might have thousands of clients.

On the one hand, large firms may be inexpensive, because they leverage economies of scale, but this can mean they deliver a rather impersonal service and are more like a sausage machine. The more you earn, the more accounting and tax support will be needed, so focus on personal service, and access to qualified people.

A smaller boutique service is more likely to deliver a tailored service, but will be more expensive. A one-person practice might have all the key contractor accountant skills you require, but might not be able to concentrate on your needs at busy times, such as in the weeks before tax return deadlines.

5. Get accountant references from other contractors

Before you decide which accountant to choose you should chat to fellow contractors and ask about their experiences with different accountancy firms. References are usually one of the best methods of judging which accountant is the right one.

6. Confirm what’s included in the price

Contractors should expect to pay between £60 - £200 + VAT per month for their accountancy services. Typically, they should expect to receive some included services, with extras as bolt-ons if needed:

  • Annual accounts
  • Tax returns
  • Payroll
  • Self assessment
  • P11D
  • VAT returns
  • References (eg for mortgages).

Make sure you know what you need and check to see whether it is included in the price.

7. Check what’s NOT included

Sometimes accountants omit to mention that not everything is included in the fee structure. So a contractor may receive an unexpected supplementary bill, say for personal tax returns. Contractors should check if there is anything not included in the price, and negotiate to have anything they see as essential included.

8. Make sure the accountant understands how to process IR35 taxes

A specialist contractor accountant should have a good understanding of IR35 and how to process taxes that are caught within the IR35 tax legislation - whether that's the original rules from April 2000 or the newwer ones that came in April 2017/2021. Make sure the accountant genuinely knows all about IR35, and hasn’t just added it to their list of services in the hope of attracting extra business.

Beware that for IR35 matters, there are two strands. The first is how to accurately determine the correct "IR35 status", which is not an accounting matter - it's a legal matter that requires considerable knowledge of decades of case law on status matters. For that, we recommend using our sister company IR35 Shield. For an annual fee, IR35 Shield offers unlimited assessments, and if HMRC investigate you, they will defend the enquiry for you. Under no circumstances should your accountant be trying to defend your IR35 status.

The second strand of IR35 involves processing the taxes correctly, if the engagement is "Inside IR35." The calculations and process is different, depending on which IR35 legislation applies. If your firm is liable for the taxes, then the original Intermediatries Legislation needs to be followed. If the newer Off-payroll rules apply, then your "client" will be deducting taxes from source, before your company is paid net of tax - which will require special treatment by your accountant, to ensure you don't pay tax twice.

Some accountants also offer contract reviews, but contractors should ideally consult a legal specialist to assess their IR35 status.

9. Confirm they are familiar with the Managed Services Company (MSC) legislation

Many non-contractors are content to let their accountants perform a whole range of tasks that contractors are responsible for performing themselves and which have been effectively barred by the Managed Services Companies legislation.

Contractors should ensure that their contractor accountants only perform legitimate tasks and avoid the MSC rules. The MSC rules are brutal. If the contractors accountant is accused of being an MSCP, then the contractor must pay more taxes, regardless of their "IR35 status."

Given HMRC have been investigating over 2,000 contractors under MSC rules in recent years, it is essential that contractors conduct their own due-diligence. For each accountant you approach, ask them the following:

  • Are you currently under investigation by HMRC under the Managed Service Companies Legislation?
  • Have you been investigated by HMRC under MSC, and if so, what was the result?
  • Can you provide an undertaking that you are not currently under investigation by HMRC?
  • What steps have you taken to ensure you are not an MSCP?
  • If HMRC open an investigation, can you confirm you will immediately notify me?

A firm that is squeaky clean should be able to provide comfort on the above. If they cannot, then don't use them.

10. Remember, as the contractor, it’s your job to manage your accountant properly

Accountants are professional advisers, not employees or co-workers, and can only provide their services when provided with timely and accurate information. Contractors should understand exactly who is supposed to do what and by when.

HMRC and other relevant bodies, such as Companies House, will not accept as an excuse that something has been filed incorrectly or paid late. It is the contractor’s responsibility to ensure everything is done correctly and on time.

11. Know when it’s best to change your accountant

A good contractor accountant will pay for themselves by saving your time and money with correct tax planning and management. If you don’t feel they are doing a good job you should be prepared to find a different accountant.

If a contractor is moving from one accountant to another, their existing accountant is obliged to pass on the contractor’s records to their new accountant. Changing contractor accountants is easy, especially if you are using market-standard software (see point 2). Only choose an accountant with great service. You get what you pay for.

Published: 22 November 2023

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