Costly mistakes when starting out contracting

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July 01, 2015

We’re looking at some of the mistakes a contractor can make when first starting out.
Below we have complied a list of common mistakes which contractors make when first starting out. Almost all of these mistakes can be squashed by appointing a contractor specialist accountant from the start of your contracting venture.

 Not running a payroll through your limited companya good majority of clients who have not appointed an accountant until the end of their first years accounts failed to apply to HMRC for a PAYE scheme. In these cases money which has been taken out of the company will either be classed as dividend payments, or fines will be due for late RTI submissions. You will also be missing out on the corporation tax relief available for the salary. Therefore when setting up ensure you have applied for a PAYE scheme and are also running monthly RTI submissions to HMRC.

2) Not registering for VAT – It may be that your income is under the VAT threshold, however you may be missing out on a potential saving. Using the flat rate scheme may benefit your company by allowing them to pay over a set percentage of the gross sales as opposed to the 20% charged.

3) Not claiming for all relevant expenses – Commonly missed expenses include use of home as office and staff entertainment. You should consult an expert to run through the expenses that you may be missing out claiming.

4) Claiming for personal expenses – A common error is to think that any expense you incur personally will automatically be claimable through the company. A good example of this is claiming for petrol instead of claiming for the mileage at the approved rate. It is always a good idea to run through any expenses with your accountant before claiming them.

5) Not leaving enough funds in your business to cover taxes – If you do not have sufficient bookkeeping software in place then this is a relatively easy mistake to make. The approach that you should take if you do not have any software to advise of your current reserves would be to do the calculation of (Sales – Expenses x 20%  = corporation tax). You should also be mindful of any personal tax you will need to pay on the dividends you are taking (if you go over the basic rate band).

Although you may be tempted to “go it alone” we would advise to get an accountant on board from the get go. Not only will it help cut out any expenses but a good specialist accountant will be able to advise you on other issues you may come across when contracting.

Ready to appoint your specialist contractor accountant?

Here at BI Accountancy we are “More than just accountants”.

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