When becoming an engineering contractor there are many new issues that you need to know about regarding how to pay your taxes and if you will need an accountant to help you with them.
What taxes apply to engineering contractors?
Of the tax laws around contracting the most important for independent contractors, no matter their profession, is IR35. This law was conceived to stop tax avoiders using the Limited company rules to avoid paying certain taxes. These ‘disguised employees’ use an intermediary, such as a limited company, to supply services to a client, while essentially being employed by the client. If you come under this law you will need to pay both income tax and National Insurance Contributions (NIC). Contracts up to six years old can be investigated, so ensure you keep good records.
What are the filing dates for engineering contractors?
All tax filings need to be submitted on or before the January 31st that follows that finical year, assuming you are using the online submission method. Non online submissions must be made by the October 31st after the
end of the tax year. A self assessment tax return means you are estimating the tax you need to pay. Make all attempts to be accurate in your record keeping to make this process easier for you or your accountant.
What are the allowable expenses?
Allowable expenses for contractors are expenses that are exclusively for your business. This includes, but is not
limited to the following list:
· Travel Expenses.
· Meal Allowance
· Pre-Trade Expenses. Only relevant to contractors in a Limited company this would only include expenses
(from a maximum of seven years before your first day of business) that would be
normally counted as business expenses.
This type of allowable expenses applies if you are not in IR35, in that case it is capped at a 5% of your total income and can only be claimed for administration expenses. Always keep receipts of business expenses whether under IR35 or not.
What type of accountancy services will an engineer need?
The services that a contractor requires will depend on whether they are self employed or part of a Limited Company:
· Self Employed.
For self employed contractors only once tax return needs to be submitted per year. So
long as you are keeping accurate records and separating out the necessary tax,
you required accountancy services would be minimal. Necessary services would
generally be the single tax return.
· Limited company.
Due to the more complex administration and tax return procedures, someone part of a
Limited company many find themselves in need of regular accounting services.
This is especially important for IR35 issues and self assessment tax returns.
Choosing an online accountant
Like any other professional, an online accountant should have verifiable qualifications such as CGMA(Chartered Global Management Accountant) or ACCA(Association of Chartered Certified Accountants). Also check online reviews and general word of mouth opinions.
Choosing the right Accountants in London
Like choosing and online accountant you should check their qualifications, any reviews and word of mouth. You can also check business directories and professional accounting organisations (like the Institute of Chartered Accountants in England and Wales) to see for any previous sanctions or breeches of codes of conduct or ethics.