FreeAgent simplifies bookkeeping; it will produce your invoices for you and you can upload your bank statements into it to capture expenditure.

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1 New to Contracting If you have already been working for yourself through a limited company you will already have some knowledge of what is required to manage your company and personal finances on an on-going basis. If you are considering or are new to contracting through a limited company you will probably have a large number of questions about this new approach to working. Please take a few minutes to read this document. It aims to inform you about the key basic requirements that you will face initially and then what is required on an on-going basis. The whole area is understandably complex and there are many variations to the base which we are happy to advise you on personally should you require. We advise and assist our clients with the key actions as they become due, however, you can use this document as a basic checklist to ensure you know what your obligations are. Limited Company Your limited company needs to be formed and registered at Companies House. Once this has been done then Company Accounts need to be filed each year. This must be done within a period of nine months after the company's year end date. By law your company is required to keep appropriate accounting records. We provide our clients with Freeagent accounting software to assist with this. Accounting records essentially track all income and expenditure in sufficient detail in order to be able to prepare company accounts. FreeAgent simplifies bookkeeping; it will produce your invoices for you and you can upload your bank statements into it to capture expenditure. Your company will also need to file an Annual Return with Companies House which basically confirms details of your company. This is required on the anniversary of the formation of your company. We do this for our clients automatically at the appropriate time. VAT 1) VAT is administered by H.M. Revenue & Customs. 2) It is not necessary to register your company for VAT until the annual turnover reaches a certain level (in 2012/13 this is 77,000). 3) Generally we recommend that you register for VAT regardless of your turnover. This will allow you to recover VAT on purchases that you make for your business (e.g. computer equipment, accountancy fees etc.).

2 4) You are also likely to have the option to register for the VAT Flat Rate Scheme. Whilst this scheme's aim is to ease administration, it can be financially beneficial to join the scheme, depending on your personal circumstances. 5) VAT registration usually takes around 2-4 weeks. This will not prevent you from invoicing your agency/client or reclaiming VAT on expenses. Until the Company is registered you simply raise sales invoices without adding on VAT. We can provide further advice if required. 6) Once the Company is VAT registered you must invoice using a suitable VAT invoice. There are key things that the invoice must contain such as VAT registration number and a breakdown of the VAT charged. Invoices created in FreeAgent meet all VAT requirements. 7) You will have to submit VAT Returns to HMRC on a quarterly basis. 8) VAT payable must be paid within 7 days of the last day of the next month following the VAT quarter end i.e. Return ending 31 March payable by 7 May. There are penalties for late payment. 9) In order to recover VAT on things that you buy for the business you must obtain a VAT Invoice showing the supplier's VAT number. Always ask for a VAT invoice as they will not automatically be provided every time. 10) It is important that you keep full records of all the items on your VAT returns such as invoices as you could be subject to a VAT review by HMRC at any time. What expenses can I put through the company? You should record all business expenses in your records so that you may see the true of cost of running your Company. 1) Any business expense you incur should be categorised appropriately. Please see What can I claim as expenses? for more details. 2) If your contract is caught by IR35 then the only expenses that can be claimed before the calculation of the deemed salaries are:- a 5% of net sales b Travel and accommodation expenses c Pension contributions d Certain professional subscriptions

3 Is my contract caught by IR35? 1) If you are unsure about this we will be happy to review the contract for you and give you our professional opinion. 2) We do not provide a contract template, but the Professional Contractors Group ( has IR35 compliant contracts available for members' use. Please contact us regarding PCG membership as we can provide an introductory code to you which will entitle you to a 15% discount. Insurance We strongly recommend that you take out insurance to cover yourself against the costs of dealing with an investigation by HMRC. These costs can be considerable. We are able to offer clients insurance against this through Abbey Tax. You also need to ensure that you have appropriate indemnity cover for your business to cover you against unforeseen costs. Important dates For you personally: 1) Personal tax year ends 5th April 2) Self Assessment return due by 31st January after year end For the company: 1) Corporation tax payable: 9 months and 1 day after your year end 2) Annual Accounts to be filed: 9 months after your year end 3) Company's Annual Return: Anniversary of incorporation date. 4) PAYE & N.I. liability payments on salary 19th of the month following quarter end Please note that both HMRC and Companies House levy fines/interest for the late filing of returns. How do I pay myself? Outside IR35 1) We recommend a relatively low salary with any other money being taken out of the company in the form of dividends. Please contact us to discuss an appropriate salary level as factors such as pension requirements may impact your personal

4 circumstances. 2) Once a salary level has been determined it is necessary to register for a payroll with HMRC and then make returns to them showing the amount to be paid to the Revenue for tax and N.I. You can withdraw the net amount from the Company as salary. 3) Every time that you make a dividend payment to yourself from your company you need to completed dividend paperwork and also minute a board meeting. FreeAgent will produce these documents for you automatically. Inside IR35 1) Unlike a standard employee, if your contract is caught by IR35, then any tax due is payable by the following 19th April (i.e. not monthly). 2) During the year you will need to set aside money for tax and N.I. and the net deemed salary which you can withdraw from the Company. 3) At the end of the tax year the tax due needs to be declared to HMRC along with the payment of it. Dividends. 1) Dividends are a distribution of Company profits and do not affect the amount of corporation tax payable 2) Provided the Company is trading profitably and funds are available, dividends may be declared at any time during the Company's financial year. Under IR35 there will usually be only very small amounts of funds available for dividend declaration. 3) It is necessary to complete a Dividend Declaration Form each time a dividend is declared. 4) Dividends come to the shareholder with a tax credit, so there is no additional tax to pay unless your total income (i.e. salary, dividends, interest etc.) exceeds the basic rate threshold.

5 Taxation Corporation tax 1) Corporation tax is a tax on Company profits and is not affected by how much dividend is paid. Company profits are simply defined as net sales less net expenses. 2) It is payable within 9 months and 1 day after the Company's financial year end. Income tax and National Insurance 1) If you are outside IR35 then Income Tax and National Insurance is payable monthly (or in some cases quarterly) on the salary you draw from the Company. Your monthly payslip shows the amount that is due. 2) If you are a basic rate taxpayer (for rates see our website or contact us), you will pay no further tax on any dividends or salary you receive. If you are a higher rate taxpayer you will need to pay additional tax on any income that falls into the higher rate bracket. 3) If you are caught by IR35, then Income Tax and N.I. is payable by the following 19th April. This document is intended to cover the basics of what is involved in running a limited company. At Freelancer Accounting we aim to make this process simple and hassle free for our clients and have many happy clients who will testify to this. Freelancer Accounting is an established specialist provider of fixed fee accountancy services to Freelancers and Contractors in London and the South East of England. We understand that tax is complicated so we offer you face to face meetings at one of our office locations convenient to you. You will have your own dedicated accountant as a point of contact. We are accredited by the Professional Contractors Group (PCG) and are an ACCA Practice, so you never have to worry about your tax and accounting affairs again. If you are thinking of contracting or are an existing contractor with questions and would like some further advice, please do not hesitate to call Freelancer Accounting on