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Everybody is required to pay their taxes – there is no foolproof way to avoid your fair share, without the taxman eventually catching up with you and we certainly wouldn’t recommend it.

However, there are many subtleties to the UK taxation system and we are of the opinion that nobody should pay more tax than they are required to. With that in mind, we’ve put together this guide so that you can ensure you are not overpaying.

Operate through your own Limited Company.

Many contractors choose to operate through their own Limited Company, particularly those on higher rates and longer-term contracts. Although it’s not for everybody – check out our guide to the advantages and disadvantages – it is a decision that can pay for itself many times over in the right circumstances. Income can be split between salary and dividends, taking advantage of additional tax allowances not available to the self-employed. You can also plan for National Insurance contributions, offset tax against pension contributions, take advantage of the Flat Rate VAT scheme and importantly, claim tax deductible expenses – which brings us on to our next point.

Know what expenses you can claim.

Any costs you incur in the course of your contract can be offset against your company’s tax liability. In plain English, this means that if you spend, say, £500 on travel for a contract, you won’t need to pay tax on £500 of your income over the year. Many contracts involve travel, accommodation, meals, training and many additional costs – keeping proper records and knowing what you are entitled to claim can keep thousands of pounds of income per year out of the taxman’s pockets and put it into yours. For an in-depth guide to contractor expenses, check out our introductory guide.

Avoid late payment and late filing penalties.

One of the potential pitfalls of operating your own Limited Company is that your payments to HMRC and the filing of your company accounts, payroll submissions and VAT returns, need to be done in a timely manner. These penalties rise the later you pay or file – so keep on top of your deadlines and make sure you have money set aside to settle your tax liabilities. Of course, a good contractor accountant will know your deadlines and ensure you have all the information needed to meet them.

Pay into a pension.

Paying into a pension is a win-win when it comes to tax. Any money you set aside for a pension is excluded from the profits of your Limited Company. This means that, just like expenses, you won’t pay tax on anything you set aside for a pension. As well as reducing your tax bill, you are also setting aside money for your future – extremely important when contracting, as you won’t have an employer or anybody else saving for your retirement.

Work Outside IR35.

IR35 is legislation designed to stop contractors in ‘disguised employment’ – that is, acting as an employee while operating through a Limited Company – gaining tax benefits not available to actual employees. Taking contracts Outside IR35, or renegotiating the terms of your contract to make sure you don’t fall foul of IR35, can potentially put thousands of pounds into your pocket. If you are unsure where you stand regarding IR35, check out our introductory guide  – and if you are not sure how your contract should be categorised, we offer a comprehensive IR35 review to guarantee you peace of mind.

Use a specialist contractor accountant.

Unless you are an experienced accountant yourself, running every aspect of your own Limited Company will be far more trouble than it’s worth – and there is less guarantee of everything being done correctly! Appointing an accountant is therefore a necessary step when going Limited. But not all accountants are created equal – a general-practice high street accountant will deal with a wide range of clients and different jobs and so their expertise is spread thinner. A specialist contractor accountant will only deal with contractor Limited Companies, so each accountant is an expert in situations just like your own.

We hope you’ve found this guide useful. If you need any more information or are interested in appointing Dolan Accountancy as your expert contractor accountant, give us a ring on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.

Why Thousands of Contractors Choose Dolan Accountancy

With over 25 years experience in contractor accountancy helping thousands of contractors, freelancers and the self employed, Dolan Accountancy has the specialist skills, reputation and credibility you can trust.

Working closely with our sister company, Contractor Umbrella, it means we can offer one low cost, fixed fee package at £105 + VAT. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795 100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.

We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours
  • Free use of Contractor Umbrella – With IR35 Legislation changes we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, Contractor Umbrella
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams
  • Free Access to FreeAgent – We offer all of our clients access to FreeAgent, free of charge
  • Free Business Banking – We have decided to waive our commission so our clients can use Tide free of charge for the first year
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few
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