IT Contracting – Accounting and Taxation Issues

As a small business site, we have a wealth of taxation information which details what a limited company’s tax obligations are, how to find an accountant and deal with current tax issues. We have also produced an overview of things you should consider below:

We’d highly recommend hiring a contractor-specific accountant before embarking on your first contract. They will be able to provide tailored advice to you on how best to withdraw money from your company (if you’ve gone down the limited company route as most contractors tend to do). Our widely-read “Top Ten Tips for Choosing an Accountant” is worth reading, as the same tips apply for contractor-specific accountants as they would do to any small business service provider.

Most contractors will draw a small-ish salary each year, and take the remainder of their funds out as dividends. You are liable to pay National Insurance and PAYE on the salary, as well as Corporation Tax on all company profits. Each year, you will also need to fill in a self-assessment return, and pay ‘payments on account’ for the following year if this applies.

When working via an agency, or direct, you will invoice the client/agency each week/month. If you are VAT registered (if your income is likely to exceed £60k p.a), you will invoice for your contract rate + VAT. Your accountant will tell you what your National Insurance, VAT and PAYE liabilities are at regular intervals, and when/how to settle these tax liabilities with the Inland Revenue.

Here are some of our key taxation guides which you can find elsewhere on the site:

Overview of Value Added Tax (VAT).

Tips to complete your self assessment return.

Key Accounting Dates for Small Businesses.

Small Business Banking - The Basics.