How to choose the best contractor accountant – 8 essential steps

A skilled accountant is vital whether you're just getting started in contracting or are a seasoned pro

The right Accountants for contractor will handle your tax papers and ensure that you don't pay more than you should. More significantly, they'll give you advice on technical rules like IR35, so you can focus on your business without worrying about what might happen if HMRC launched an investigation.

Choosing a contractor accountant is, of course, a personal decision. They're someone you'll be working directly with and entrusting your money to (hopefully for many years to come).

So, how do you know you've made the right decision?

When is it appropriate to use a contractor accountant?

Before we go into how to find a contractor accountant, let's talk about when you should hire one. While it may seem like a large outlay — especially if you haven't yet generated any money from contracting — it's worthwhile to hire one before you begin for two reasons:

• They'll make the process of becoming a contractor a lot easier.

• They'll help you understand your tax requirements.

Unless you work through a limited company, most end-clients and recruiters will refuse to hire you. As a result, you'll have to decide whether to join an umbrella company or form your own business.

Other obligations, such as registering you as an employer (which you'll need to do in order to pay your salary), will be handled by the accountant.

More importantly, an accountant can advise you on how and when to deduct business costs, as well as record-keeping and remaining compliance with applicable laws. That way, you can ensure that all of your Is are dotted and all of your Ts are crossed straight away.

Now that's out of the way, let's talk about how to choose the best contractor accountant.

Here are eight things to think about.

1. What are their qualifications?

It should go without saying that you should only work with accountants who are appropriately qualified.

They should have an AAT foundation qualification at the very least. This is an entry-level qualification that provides a solid foundation in bookkeeping, costing, and other financial administration fundamentals.

Accountants with more experience are more likely to:

• Have a bachelor's degree in accounting, a more advanced AAT certification, or ATT, ACCA, or CIMA certification.

• Become a member of a professional organisation such as:

• ICAEW (Institute of Chartered Accountants in England and Wales)
• ICAS (Institute of Chartered Accountants in Scotland)
• ACCA (the Association of Certified Chartered Accountants)
• CIMA (the Chartered Institute of Management Accountants)

Specific training and continuous professional development requirements are imposed by professional accounting groups. If your accountant is a member of one, it demonstrates that they are committed to maintaining high levels of knowledge and professionalism.

On their business cards, websites, and other marketing materials, most accountants will list their qualifications and memberships. It's also a good idea to check their qualifications in the member databases of professional organisations.

The required qualification(s) are often held by the firm itself, rather than by members of staff who conduct much of the day-to-day paperwork.

2. Do they have a contracting background?

As a contractor, you must adhere to complicated and confusing regulation such as IR35 and spending requirements. If you make a mistake here, it might cost you a lot of money.

You'll want to limit your tax bill to a minimum as well.

Many contractors accomplish this by paying themselves a little salary and investing the remainder of their earnings in dividends. However, if your pay is so low that it falls below the primary threshold, you may be unable to take advantage of the benefits of National Insurance contributions. You could potentially run afoul of HMRC's guidelines if you're not careful when declaring profits.

Not all accountants are familiar with how contractors work and are paid, nor are they up to date on the most recent tax rules that affect contractors. Working with someone who knows what they're doing will help you avoid problems down the road.

3. Should you use an individual or a firm of accountants?

Accountants, like other businesses, range in size from one-man bands to major corporations with thousands of staff across the country (or even across the globe). Both have advantages and disadvantages.

A larger company with a high number of employees is likely to have a more diverse skill set. They'll have more experience working with contractors. They may also be able to provide you with essential extra services such as financial guidance and legal assistance.

On the other hand, you'll most likely be a little and thus low-priority client for them. As a result, depending on who is available, you may be allocated to a junior or switched from one accountant to another. It's also likely that the service will be more impersonal. You should also expect to pay more because larger companies have higher overheads.

A smaller company or individual may be able to provide you with a more customised, personalised service at a lesser cost.

However, they may not always have the skills or resources to meet your demands in-house or to provide additional services. When things get busy, they may become less responsive, especially if they have higher-paying clients to deal with.

4. Do they know how to use technology?

How will you send your contractor accountant your records and financial information?

Would you place your receipts into a shoebox and mail them to them, who will then send you physical copies of your accounts and tax forms to sign? Or is everything digital and paperless?

Because some accountants are old-school, you'll have to send documents via snail mail or personally deliver them. Others will ask you to email or upload everything to an online portal, have their own unique digital platform, or use third-party accounting software such as Xero, FreeAgent, or QuickBooks.

HMRC doesn't care about the format of your financial records as long as they're complete, accurate, and readable. Choosing between a paper-based accountant and one who is up to date on the latest technologies is primarily a personal choice.

However, the government has been working on a project called Making Tax Digital since 2015. All firms, including contractors, will eventually be required to file their taxes online using HMRC-approved accounting software.

Since April 2019, VAT-registered businesses (those with a turnover of £85,000 or more) have been required to comply with Making Tax Digital. In April 2020, the system was supposed to be extended to everyone else. However, while this has been put on hold until at least 2021, the government is likely to revisit it at some stage. So it could be worth getting ahead of the game and hiring an accountant who is tech-savvy.

5. What is their fee structure?

The fees charged by accountants vary greatly. You can expect to pay as low as £25 per month or as much as £100 per month or more.

Keep in mind that most accountants' prices do not include VAT. This means you'll have to add 20% to their fees. So, if an accountant claims to charge £35 per month, they are actually charging £42 per month.

Check what is included in the charge as well. You should expect it to include at the very least:

• Preparation of your company's annual financial statements
• Tax returns and VAT filings for businesses
• HMRC and Companies House correspondence is dealt with.
• A set number of contact hours during which you can ask questions and receive advice and assistance with your tax problems.

We've put together a table below that compares accounting fees. You can have a look at to get a sense of what's available, how much it costs, and what it usually covers.

You get what you pay for, as the old phrase goes. However, this isn't always the case in accounting. While it's important to understand what's included in the fees and shop around, don't make it all — or even largely — about the price.

What matters most is that you work with someone with whom you feel comfortable, who is efficient and responsive, and who gives you sound advise.

6. What does the contractor accountant's fee NOT include?

What's not included in the charge quote is just as significant as what is. You might want to inquire about the following services (which may or may not be included in the fee):Creating a Limited Liability Company

Companies' House filings - you must file your accounts and a confirmation statement every year, and if you miss the dates, you'll have to pay late filing penalties.

Calculate your personal tax and file your self-assessment tax return

• Creating a Limited Liability Company
• Companies' House filings - you must file your accounts and a confirmation statement every year, and if you miss the dates, you'll have to pay late filing penalties.
• Calculate your personal tax and file your self-assessment tax return
• Payroll is a term that refers to the process of Running this yourself is fairly simple if you use accounting software like Xero or FreeAgent. However, you could want to delegate responsibility.
• For example, if you're looking for a mortgage, you'll need references.

Most professional accountants will require you to sign a letter of engagement. This will detail what is and is not covered by their fee, as well as their terms and conditions. However, if you're still unsure, it's never a bad idea to inquire.

7. What’s their reputation?

Your accountant may have a snazzy logo, a well-designed website, and professional associations. That doesn't guarantee they have a good reputation among your fellow contractors, though.

Is it true that they live up to the hype? Or are they known for their poor customer service?

Checking out Google reviews and comparison websites can be an excellent place to start. However, it is not always possible to distinguish between real and false reviews. Some reviews may be compensated. Some of these may have been written by persons with a vendetta.

With this in mind, you should approach reviews with caution.

Once you've narrowed down your selection of potential contractor accountants, it's a better idea to ask people you know and trust for their opinions. Speak with other contractors or post a question on professional sites like LinkedIn. You'll have a better chance of getting an unbiased perspective and reliable advice.

8. How responsive are they?

What is the efficiency of your accountant? Do they answer to your questions quickly? Or do you have to follow them down for days in order to receive a simple yes or no answer?

At best, dealing with an accountant who is frequently unavailable or unreachable is aggravating. In the worst-case scenario, it could imply that you aren't a priority for them. This could result in missing deadlines, inaccurate advice, and HMRC issues.

Of course, you won't know exactly what someone is like until you begin working with them. However, it's worthwhile to call or email accountants with whom you're interested in collaborating. If someone isn't upfront and helpful when trying to get your business, you can bet they'll be difficult to deal with once you've signed up.

Don't be scared to transfer accountants if your relationship with your current one becomes strained. While hiring someone new and getting them up to speed might be time consuming, the piece of mind that comes with knowing your tax affairs are in order is well worth it.