Best Business Methods used in Accounting for Contractor

While climbing the ladder of success and boosting your firm’s revenue you sometimes tend to ignore the tax factor which can be troublesome in the later stage. Accounting and taxation is an integral part of any business showing them the mirror presenting a clear picture of difference between earnings and expenditure on a larger frame. It presents overall picture of company's financial stance by giving a clear view of your firm’s Assets, Liabilities, Equity, Income, Cost of Goods Sold and Expenses.

Like all other businesses accounting holds same prominence for construction contractors. But the accounting angle changes in accounting for contractors as the time period for completion of tasks and money flow is completely different as compared to other businesses. Accounting for contractors gets out of the box if we talk about accounting methods used in any business. 

Accountant dealing with contractor’s firm need to be fully aware of different methods used in accounting for contractors as well as understands construction to meet the specific accounting requirements of construction industry. 

In accounting for contractors except for other basic accounting needs there is a need for specific methods to handle job costing, overhead, billing, and unified applications to handle project , scheduling and customer management. 

There are some basic accounting methods used specifically in accounting for construction business which makes accounting an ease for construction firms. 

These methods can be used based upon the length of the project such as: 

Cash Vs Accrual accounting – In cash accounting income is recognized when it’s received and expenses when they are paid and no comparison is done to match expenses and income. On the other hand in accrual accounting income is recognized when it's earned and expenses when they're incurred. Depending upon the length of project these both methods can be used accordingly.

Percentage of completion method- In this method the income is recognized based on the progress of the project. Profit or loss related to a project can be recognized in every accounting period in which the project continues to be active. 

Completed Contract method- As the name suggests in this method income or expenses can’t be recognized until the project ends. In this method revenue is recognized when the contract is complete. So with appropriate accounting method and adequate knowledge of CPA accounting for construction firm scan be made convenient and lot easier.

How to Choose the Best Type of Accountants for contractors

Choosing the right Accountant is difficult as there as such a large number of unqualified accountants claiming to be specialists. Excellence Accounting are a firm of Chartered Certified Accountants this implies that we have experienced exceptional and thorough preparing before getting proficient capabilities and are obliged to keep up our skill with continuous professional development.

While choosing an accountant you ought to take as much time as is needed and consider the accompanying components:

Key Qualifications – Nowdays, everybody can call themselves a Accountant, which implies there are numerous unqualified accountants in the market. You wouldn't go to an inadequate specialist, so ensure your Accountants for contractors  are Chartered Certified Accountants.

Experience - where have the partners of the firm worked before? How long experience do they have? A specialist firm with important experience will always give you the most recent to date guidance on areas which affect you, e.g. IR35.

Specialist contractor knowledge – with a specialist contractor accountant you can rest guaranteed that they will advise you on the most proficient method to spare more expense and earn more benefit since they they simply understand the industry you work in.

Contact – do you have regular contact with your accountant? Do you feel you can pick the telephone or send them an email? Does your accountant give you a quarterly call just to perceive how your business is and if there is anything they can do to offer assistance? Tax planning – from the balance you should choose an accountant who can give you a tax plan of roughly how much your salary will be and where you can make significant saving for instance by being on the VAT flat rate scheme.

Cost – cheapest is not always the best. Your accounting fees should be a settled month to month expense and should cover all the administrative dealings with the tax authorities; tax returns, VAT registration, PAYE administration and end of year accountants.

Expert Industry Knowledge - Being specialists in Accounting for Contractors , your accountancy provider should have inside and out learning on the following subject areas like AWR and Income Shifting.

Face to face meetings? – many accountants are just “online” implying that you can never meet or see them in individual. Here at Excellence Accounting, we are experts in online accounting for contractors and small business accounting software because it truly saves time and gives you much more compared to spreadsheets. However, we are always available over phone, email or face to face at any of our locations.

Child care vouchers

One of the ways to reduce the corporation tax is by the child care vouchers.

Contractors can benefit from it as the government is helping the working parents to afford the satisfying child care.

If a parent spends money on child care , than for qualifying children they can apply for child care out of their limited company or personal income and the expense will qualify for the allowable expense to enable the taxable income to be reduced on which the tax is calculated.

In order to qualify for child care voucher the child must be under 15 or 16 if they are disabled. The child can be your own or step child, lives with you and you have the parental responsibility, The other thing to remember is in order to qualify for making the child care cost as allowable expense the child care cost must be paid to the registered or approved child carer. The exempt allowance is 55 per week. And if it’s after Aril 2011 there are different amounts allowed depending on if you are basic, higher rate tax payer.

Contractors will just need to arrange an approved child carer and pay the cost through the limited company and that will help the limited company to reduce the tax. Please speak to one of our accounting service for contractors tax advisor London and he/she will be able to advice you whether what is the best option for you and how you can save taxes fully.

HMRC normally issues refund of child care vouchers issued in current tax year.  Please find below the links for more information:-

                                https://www.gov.uk/expenses-and-benefits-childcare/technical-guidance

                                https://www.gov.uk/

Things to remember is if you are pregnant make sure you leave the child care vouchers in week 17 of the pregnancy ,if you are sick as long as your salary does not fall below the lower earning limited you can claim for child care voucher benefit and your pension contribution will not be affected by child care voucher benefit.

Please contact our contractor accountancy services London for more information.  See more here :- excellenceaccounting.com

How do dividends work?

Dividends are a type of income that a shareholder can take from the company.In order to calculate the dividend the company must have the distributable profits and these are the profit after tax.

Most important thing to consider in case of dividends is what the percentage of shareholding between the shareholders is. If the percentage is 50% each between two shareholders than both shareholders will receive equal dividends regardless of the workload, i.e. why the work needs to be distributed too as it might lead to conflict at the time of declaration of dividends. 

Dividends can be at any part of the year and it is entirely up to you as at the end of the day these are your own profits, but we recommend that you take dividends quarterly so that we can prepare the management accounts for you along with the VAT return and calculate the tax efficient amount for dividend for you.Our tax advisers recommend that you keep some profit in the company for tax planning and incase of fluctuation of income in coming months.

Our tax adviser London excellence accounting advises that director of the limited company must understand that dividend does not affect corporation tax as it is distributable profit after tax that is taken from the shareholders of the business. Dividends only affect the personal tax computation and it must be included in the taxable income of shareholder in preparing the tax return for the tax year which runs from : 6^th April till 5^th April.

One last thing that I would like to include in Dividend discussion is if you want to take dividends a document that must be signed and produced by the accountant for contractor is the Dividend voucher.

Dividend voucher is the official document that shows the percentage of shareholders, date of dividend taken, the company name, shareholder details and must be signed by shareholder.

If you need more advice please contact us for more information a 02034894704 or accounts@excellenceaccounting.com

IR35

IR35 is the difference between the employee and the self employed.It is applied to all the contractors who are not self employed as per HMRC.And what HMRC refers to as the disguised employee.

I can explain this by using an example of an employee who is working in the same company where he was working as a permanent employee but now they are working as contractor under limited company in order to save tax.

IR35, and does if applies to you?

HMRC believes that as the director of the company you should be wholly responsible for the work you do under the limited company if you try to work under the same responsibilities as the permanent employee than you might caught up under the IR35 and might have to pay the full NIC and PAYE rather than taking the salary and dividend through the limited company.

Is there any benefit if you are inside the IR35?

Director at Excellence Accounting says that “If you think that you fall inside the IR35 than you have to be really sure that you still want to run the company, the questions you need to be sure of are in order to keep the limited company are: is there any other contractual work you might receive that you can put through the limited company than YES or under the current contract on which you will be paying the full tax but still you will be able to claim the following expenses like: 5% of the turnover, benefits from the flat rate scheme which is going to be (up to 2,000) and can put the funds in the business savings account and receive interest thus it is still worth keeping the company running.

The correct way to find out whether you fall under the IR35 is to take the expert advice. At Excellence Accounting Limited we strongly advice our clients to get the expert advice, we work with several partners who help in advising our clients in regards to their contracts.

For more expert advice please contact Accounting for contractors; Find accountant in London team of Excellence Accounting Limited. Our contact details are : accounts@excellenceaccounting.com or by phone 02032894704

Best Accountant in London

I have been dealing with Contractor clients for a couple of years. There are some problems that I come across in normally all of them are as follows, I am sharing this as it might be helpful for any person who is starting contracting or already a contractor.

One thing is clear that you will be able to take home 75-80 percent of the income for example if you earn 350 pound per day you will be able to take home 280 per day and more with you are earning more 350 per day. And it is far more tax efficient than being in permanent employment.

Secondly as a director of the business you can take salary and dividends of a total of 42,000(approx). And if you have no more personal income like: rental etc you can save personal tax or even not pay any personal tax at all.

Thirdly the most important thing that a director of a limited company needs to know is how to use the business bank account and which expenses to claim for. The expenses that are wholly and exclusively for the business are eligible expenses, and the director has to pay for the normal expenses of the business through personal account after transferring a fixed amount of money from the business account. And update the expenses claim monthly. The expenses to be paid directly from the business account are: Professional insurance, Health insurance, Professional fees, Pension contribution, HMRC taxes, Wages and salaries, Dividend and the transfer to director personal account.

There are more to accounting for contractors than just the three points above. I will try to cover more points in my coming posts. Should you be looking to find accountant in London please feel free to contact Excellence Accounting Limited at accounts@excellenceaccounting .com/ 02032894704

We have a specialist team in London office that deals with contractors, freelancers, self employed and startups. We are available Monday to Saturday 11am to 11pm.Our response time is within 24 hours and we have a team of qualified accountants for contractors who are very flexible and can meet with you via email, phone or face to face anytime you need.

Limited Company Setup/Startup

How easy it is to setup/start-up a limited company

Setting up a limited company only takes a few hours. Once a contractor has decided to form a Limited company rather than working under an umbrella company, it can be set up and registered with Companies house with in three working hours.

Opening a bank account and free business banking

Opening a bank account can take somewhere between one day to three working days but it’s best to choose a bank that offer free business banking for a good few months so that it doesn’t start charging even though there are no transactions on the bank account. Santander and Lloyds are amongst a few banks that facilitate the small businesses with free banking.

Accounting services for contractors

A typical contractor require an accountant for the following services. Company Incorporation (can be done directly through Companies house)

Bookkeeping

Year end accounts and tax return

Tax advice

Payroll

VAT

Cloud accounting is one of the best options available in the market for contractors. This helps both clients and their accountants keep track of all the information and update the system on real time basis. Excellence accounting offer choice of software clients can choose from like free agent, XERO, Clear books and Liberty.

For more information please visit www.excellenceaccounting.com