If you work as an independent contractor or run your own limited company, you’re no doubt aware of how difficult it is to do the work that’s required of you, let alone keep a handle on your company’s finances. Here are six common accounting mistakes many contractors make – and how you can avoid them.
The saying goes that only accountants love doing accounting work. So it’s easy as an independent contractor to leave things until the last minute, simply because you’re dreading it. But letting your paperwork pile up is a recipe for disaster. Important things could go missing; you could forget what receipts were for, leaving you with a nightmare of a job when the time comes to file your tax return.
Many contractors also delay filing a return, incurring heavy penalties which could easily have been avoided. Try to set aside half an hour a week (perhaps on a Friday afternoon) to file bank statements and record expenses. Not only will you feel less overwhelmed each week, you will also save yourself a mountain of stress at the end of the tax year.
Traditionally, contractors needed to provide HMRC with receipts if they required proof of expenses. This means you needed to keep all of your receipts in a safe place and – as per point 1 – record your expenses regularly.
We offer clients a cloud accounting app, which allows you to take pictures of receipts on the go with your iPhone or Android phone. We then see these receipts and deal with them in the background, saving you the hassle of keeping track of every last bit of paper. This means that, in theory, you could throw away or lose a receipt once you’ve taken a picture of it using the app. This advance in technology is hugely beneficial for on-the-go contractors.
Missing out on tax deductions
Many contractors are unaware of all the expenses they can claim and lose out on hundreds of Pounds every year. Others are too busy to properly record their expenses for claiming purposes or don’t believe the amount to be significant enough to warrant the effort. Don’t let that be you. Depending on your circumstances, you could claim back overnight expenses, meals, dry cleaning costs, fuel costs and more – that all add up to extra money in your pocket.
Borrowing money from your company
Whether it’s raiding the petty cash tin or borrowing money that’s not a salary or dividends, taking company money is a sure-fire way to make your accounts complicated and add to your end-of-tax-year stress. Avoid it if you can; if you can’t, get professional advice as soon as possible.
Paying too much tax
Many contractors miss out on tax breaks and/or pay too much National Insurance (NI) because they are uninformed about tax issues. Millions of pounds lie unclaimed, and it’s estimated that one in three workers are due a tax refund. You might think overpaying is not too bad since you can get it back – but the truth is, many people never bother to claim a refund and lose out on hundreds – if not thousands – of Pounds that shouldn’t have gone to HMRC in the first place.
Doing your own accounts
Getting your accounts wrong could mean huge financial penalties and the kind of stress you really don’t have time for. A typo, a missed deadline, an incorrect number – these can all lead to problems that can easily be avoided simply by hiring a professional accounting company. You might feel like you’re saving money by doing it alone, but in the long run, it could cost you dearly.
Choose a long-standing reputable firm that specialises in limited company and contractor accounts. They can help to minimise your tax liability, offer assistance in applying for tax breaks, and ensure you don’t pay too much tax. You can also relax, knowing that you are 100%-compliant, and putting the maximum amount into your pocket every year.
Special offer: For a limited time, our accounting team ;will be doing all the necessary paperwork to get your company going – without charging you a penny. So grab a cup of coffee and let’s get your company registered.
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