Question submission date: April 2021
Full Question: Do I need an accountant when contracting through my limited company, inside IR35?
There is a myth that being ‘inside IR35’ means less accountancy work. That is not necessarily the case and we break down why.
Despite tax and national insurance being deducted from your pay (at source) before being paid to your limited company, if you are a VAT registered business you are still required to charge 20% VAT and report and submit this to HMRC via your quarterly VAT returns.
Regarding payroll requirements, even though your tax and national insurance is being deducted by the end client, you will still need to report this to HMRC via a Real Time Information (RTI) submission as ‘Pay not subject to tax and national insurance’ and this must be done monthly either by you or your accountant.
In addition, while your company remains active at Companies House you are required to report to HMRC and Companies House an annual set of accounts and company tax return. This is because your company has still earned money as income (even though it’s been paid as a salary) so must be reported, regardless of whether there is any corporation tax to pay or not. You may also still have a small amount of expenses to claim for which will either help to lower your corporation tax bill, or count as a trading loss. Either way the report must be submitted.
As director of a limited company, you will also still need to complete a self-assessment tax return at the end of each tax year. Income from inside IR35 still needs to be reported on the ‘Employment Pages’ of the return.
Finally, while your company remains active at Companies House, you are still obliged to submit annual confirmation statements to Companies House otherwise you risk your company being struck off the register.
None of these tasks should phase any limited company contractor. The time and effort of which can be taken away by your accountant than trying to do everything yourself. You will, of course, still be responsible for keeping information up to date for them to work from.
Are there benefits to keeping your limited company dormant while IR35 private sector roll out takes shape?
No-one can predict how the contractor market will FULLY take shape throughout 2021. However, like no-one could have predicted the events of 2020, having every option available keeps you better equipped and ready if circumstances change again.
Keeping your company dormant gives you the flexibility to re-open the company should you get a contract outside IR35. Bear in mind that the amount of work that you get outside of IR35 contracts may increase. If that happens, you’ll want to take advantage of the fact your company allows you to split your pay between dividends and salary.
Better tax planning opportunities will be available to you should you find yourself with multiple contracts.
It also means that your company is secure because if you close it and change your mind later, you will not be able to start a new limited company for several years.