Contractors’ Questions: Can I do my limited company accounts myself, if I’m decided inside IR35?

Contractor’s Question: If I’m tomorrow told I’m inside IR35 as I expect, but continue supplying the client on a ‘caught’ basis, can I do my limited company accounts myself?

Expert’s Answer: Contrary to popular belief, contracting inside IR35 (through your limited company) does not actually mean no tax return or work from an accounting standpoint.

Bookkeeping

As you probably know but it bears repeating, the three things that make up successful bookkeeping are timely invoicing, accurate records of bank transactions and keeping logs of all ‘out of pocket expenses’.

While you can pay a third-party to do your book-keeping, if you do it yourself efficiently and regularly, it can take as little as 30 minutes a month, which is very manageable even for the busiest of contractor!

Remember, keep copies of all your accounting records for at least six years. These can be digital or physical and will need to be available should HMRC want to look at them.

Busting the myth

But in terms of the amount of accountancy work suddenly shrinking due to you being decided by your end-user as inside IR35, this is a myth. Or more technically-speaking, being found as caught by IR35 does not necessarily mean your accounting obligations reduce or simplify.

In fact, although tax and national insurance will be deducted from your pay (at source) before being paid to your limited company, if your company is a VAT- registered business, you are still required to charge 20% VAT; report it and submit this to HMRC via your quarterly VAT returns.

And regarding payroll requirements, even though your tax and national insurance are to be deducted by the end-client if you are deemed inside IR35, 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.’ Be aware – this reporting must be done monthly, either by you or your contractor accountant.

The duties of a PSC found caught by IR35 (continued)

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 it 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 still be submitted too.

Furthermore, as the director of your own 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’ working still needs to be reported on the ‘Employment Pages’ of the SA return.

Risk, responsibility and readiness

Lastly, while your company remains active at Companies House, you remain obligated to submit annual confirmation statements to Companies House, otherwise you risk your company being struck off the register.

None of these tasks should necessarily phase the typical limited company contractor. But the time and effort of doing them all, which can be taken away by your accountant rather than you trying to do everything yourself, is arguably quite significant. You will, of course, still be responsible for keeping information up-to-date for your accountant to work from.

A final thought for you at this seminal time. Nobody really knows for certain how the contractor market will FULLY take shape throughout 2021, after IR35 reform-day on Tuesday. However, given that nobody could have really predicted the largely unimaginable events of 2020, having every option and piece of support or assistance available to you will see you better-resourced – or even just plain ‘ready’ – no matter what circumstances come your way during the rest of this year.

The expert was Christian Hickmott, chief executive of Integro Accounting.