How to make your company more profitable
The following advice comes from SJD Accountancy:
1. Are you claiming all the expenses you can?
As an IT contractor, assuming you are not caught by IR35, there are a wide range of expenses you can claim to keep your tax bill down. For example:
2. Have you registered yet for the VAT flat rate scheme?
For most IT contractors this will be beneficial. Provided you don't work outside the UK, or have a turnover exceeding £150,000 you will almost certainly be better off under this scheme.
For IT contractors the flat rate is 13% with effect from 1st January.
For example, a contractor with a turnover of 50,000 pa will be able to claim 1112.50 pa in input tax, compared with just 231 pa before the changes.
For new registrations there is an additional 1% discount for 12 months.
The calculation works as follows:
Sales - Add VAT at the usual rate of 17.5% - Equals gross sales.
You then take 13% of that figure and that is the amount you have to pay to Customs and Excise for VAT each quarter. You will no longer claim VAT on expenses. To decide whether you wish to join the scheme, take your current turnover, apply the formula as above and compare that with how much VAT you currently claim on expenses.
To join the scheme, you need to complete and submit form VAT 600 FRS which is available here: www.hmce.gov.uk
There is also a useful calculator here:
3. Have you considered retraining?
A quick glance of the jobsites will show you that there is a vast discrepancy in the rates attainable for various types of work. As stated above, the cost of training is an allowable, tax deductible expense for your Company, therefore, whenever possible, you should look into training in some of the more highly paid skills. The cost of the courses can sometimes be high, but the potential rewards can also be great.
4. Are you being paid what you are worth?
There are many sites around, like jobstats, which will tell you roughly what sort of rate your skillset can command in different geographical areas. If you are currently earning less than the rates shown you should bring the matter to the attention of your client or end user when your contract is next due for renewal. Sometimes just asking will be enough to secure a better rate.
5. Are you getting a decent rate of interest on your Company bank account?
There are banks that pay interest on your current account, and offer free banking for good. You should also be looking at getting in excess of 4% on the funds held in your deposit account.
6. Can you use your skills outside of your contract work place?
Many contractors have skills that are very saleable to the public as a whole and to small business in their local area. Some local advertising and networking could prove a fruitful source of additional income. In addition this additional work is a useful pointer towards being outside of IR35, and lessens your reliance on your main contract
7. Do you have insurance?
With Revenue inspections becoming more and more common, and the culture as whole becoming more litigious we recommend you take out tax investigation and professional indemnity insurance as a minimum. Nothing will sap your profits quicker than an unhappy client, or perhaps worse, the Revenue, starting proceedings against you.