How To Be A Tax Efficient, IR35 Compliant And Time Savvy IT Contractor

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Published: 22nd February 2013
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If you are already trading as a Limited Company IT Contractor, you will know that aside from the work involved with your Contract, there are other tasks and responsibilities involved with running a Limited Company.

Contract work in the IT world brings many perks including tax efficiencies and opportunities of flexible working, along with being your own boss. A large part of being compliant as an IT contractor is to ensure that you are operating within the IR35 legislation, as well as ensuring that you are keeping good records, and submitting everything to Companies House and HMRC in a timely manner.

IR35 Legislation was first proposed in 1999 by HMRC, to ensure that Contractors working in the UK through a Limited Company are truly self employed, and not just 'disguised employee's behaving exactly as they would if they were in a staff position, without taking any risk, and still reaping the tax efficient benefits.

Since 1999, many investigations into Contractor's IR35 status have been underway. This panics many Contractors. If an IT Contractor is found to be non compliant within the IR35 Legislation, they can be forced to pay back all of the funds they have made through tax efficient means by trading as a Limited Company.

If an IT Contractor is truly self employed, and is found as being Low Risk in the 12 Business Entity tests proposed by HMRC, then they should have nothing to worry about. If IT Contractors find themselves dangerously close to medium or high risk, there are changes they can make to both their contract, and their 'working practises' i.e. how they actually work to ensure they lower their risk significantly. Some of the smallest amendments to the way they work can improve their IR35 status dramatically. One of these amendments is the use of a substitute in your contract. This is relatively simply to organise, all you need to ensure is that the substitute you choose can do your job for just one day of the term of the contract.

Aside from the IR35 stipulations you must work within when you are an IT Contractor, which can be helped massively from the guidance of an IR35 Accountant, there are other tasks that you will need to consider on top of working through your Contract.

When you are a Limited Company Director, you will be required to submit Limited Company Accounts, a Corporation Tax Return, Personal Tax Returns, PAYE and VAT Returns (when required). You are also required to keep succinct records via Book Keeping. A good Contractor Accountant will take care of all of these tasks on your behalf, providing you with guidance on operating in a tax efficient manner, as well as extra Contractor and Limited Company advice. They will also run a payroll for you, as you will be the Employee and Employer of a Limited Company. This is all work that can be outsourced to an Accountant.

Many IT Contractors choose to utilise a Contractor Specialist Accountant to keep them on the right track in terms of everything required when running a Limited Company, working as an IR35 compliant Contractor, as well as outsourcing the entire administrative burden associated with running a Limited Company. This puts their mind at rest as well freeing up their time significantly ensuring a much better work life balance for them.

Mervin Stanley works for FW Accounting which provides accountants for contractors as well as financial administration and invoicing. The contractor accounting services offered by FW, particulary IR35 advice, which is supplied by specialist IR35 accountants is invaluable to limited company owners.

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