There’s no doubt about it, the wholesale contractor accountancy marketplace is big business and everyone wants a piece of the action.

In recent months, a new wave of online accountants have been hitting the forums and contractor portals hard in the hope of gaining a foothold in what is already a fragmented market. Their message is clear – why pay £130 a month for the ‘old school’ contractor accountants when you can get the same, if not better service for a third of the price?

It’s a pretty compelling argument and their proposition is almost too good to be true.

Lets dig a little deeper.

Was is an online accountant?

An online accountant offers contractors an ‘end-to-end’ accounting service. This usually combines a bespoke web-based accountancy package that is backed up by a team of accountants and personal account managers. The idea here is that the contractor or freelancer is able to create invoices, manage their expenses and calculate a real-time view of their business. This then enables them to work out how much they can pay themselves (in PAYE salary, expenses and dividends) without having to produce in-year accounts or time-consuming reconciliations.

Obviously there is an element of work required by the end-user but certainly no more than you are asked to do when working through a traditional contractor accountant, and in some cases much less. The technology is also impressive. Real-time feeds into HMRC, Companies House and the government Gateway make online accountants the perfect choice for any time-precious contractor.

Of course, the more challenging aspects of accounting are managed by the online accountants who will submit VAT, corporation tax and personal self assessment returns on behalf of their clients. They will also handle the Companies House annual return and accounts as well as advising on complex issues such as IR35, family business tax, ESC 16 and the agency workers directive.

How much does an online accountant cost?

Most online accountants pitch their monthly fees around the £50-£60 mark. This includes all of the above services as well as unlimited telephone support and free company setup.

Why are online accountants so cheap?

One word – volume. Most high street accountants are happy with 100-200 clients and are therefore keen to maximise their return on investment for what is a relatively small client base. By making their business scalable, online accountants on the other hand are able to service more and more contractors without taking an enormous hit to their margins. This is why their fees are way cheaper than some of the more well-known contractor accountants.

Where can I find out more?

We have a selection of online accountants in our top 10 directory although companies such as Crunch and My Accountant Friend are definitely worth a closer look. A quick search in Google will throw up at least another 20 providers at the time of writing so take the time to do your research. My guess is that this is just the start of a new and exciting time for the contractor accountancy marketplace……I shall watch with interest.

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The Companies Act 2006 was introduced on 1st October 2009 as a way of bringing UK companies into the 21st century. It consists of 1300 sections and is the single largest piece of legislation ever made.

The 2006 Act effectively replaces almost all of the Companies Act 1985, the Companies Act 1989 and the Companies Act 2004.

Most of the existing legislation was written back in the days of the quill pen and it was generally accepted that it needed modernising. Smaller businesses form the vast majority of companies registered with Companies House, and were being bogged down with excessive administration due to the out-of-date legislation. Something had to change.

Following the arrival of the Companies Act 2006, a new Annual Return was introduced. Now given the fact that every company registered in the UK has to file an Annual Return, one could quite reasonably expect it to be;

easy to understand,
easily completed,
with good guidance
and completion online.

How does one out of four (online completion) grab you?

Lets take a closer look at the form itself:

One of the first questions it asks is whether you are a ‘traded company’. I suspect the vast majority of directors would answer ‘yes’ – we are not dormant so are trading….right?. A closer inspection of the guidance notes shows that you should be answering ‘no’. A traded company is one in which its shares are publicly traded on the stock markets.

Moving on…

Next you are asked whether you have a SAIL address (or a Single Alternate Inspection Location). I foresee some blank faces but if you ignore the question it goes away, which is probably the right answer.

You are then required to confirm the addresses of directors. Same as before you might think. But if you confirm that, you are confronted with an error message saying that you need to enter the Country of Residence. You need to enter when you changed your Country of Residence as well. ‘But I haven’t’ you might say, but you cannot progress without giving a date on which you did move, even though you have not! It seems safest to use the same date as the made-up date for the Annual Return.

You are then given a number of options for Country of Residence. The most popular options are;

* United Kingdom
* England (seems to be the safest choice, if you do live in England
* UK
* Great Britain

At this point you may also catch sight of notes asking whether you are an EEA Company, or maybe a Non-EEA Company? Don’t worry as these do not apply but it is a little tricky to know that they do not apply without reading the First Company Law Directive (68/151/EEC). Don’t have that to hand? – ignore the note, that is easiest.

On to Capital : Update/Amend. That is ok, share capital and shareholders are the same as last year, so this section must be easy, right? I am afraid not. You are asked to free-type the ‘Prescribed particulars of rights attached to the shares’. I wonder how many directors of small companies know these rights?

Most companies operating with ordinary shares will be safe with the following answer;

‘Fully voting, fully participating, non-redeemable shares’

I hope the above allows you to get through your Annual Return without too much pain, if you are due to make one. It is disappointing though, that a simplification exercise immediately makes things, more difficult and confusing.

John Mumford is the Accounting Director of Carrington Accountancy
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If for any reason you want to close down your limited company, there are a number of things you have to do. The full details can be found on the Companies House website but the basic process for the average freelancer’s small business is as follows.

Tell People

Before starting the process to close the company, you need to inform your shareholders, if you have any and any outstanding creditors, who may object to the company being closed.

Pay your debts

Ensure all outstanding debts and routine payments have been cleared in full.

De-register for VAT

If you are registered for VAT, you need to inform HMRC using Vat Form 7

Finalise the payroll

Run the final payroll for yourself and any other people you employ (and pay them). You will need to issue P45s to all employees, including yourself, and submit a P35 to HMRC

Finalise the Accounts

Prepare a final set of accounts for the company and submit them to Companies House. Clearly you should do this a few months after the closure date to ensure all monies are fully accounted for.

Pay your Corporation Tax

This is due no more than 9 months (and one day) after the closure date. The company will not be closed until all tax liabilities have been settled with HMRC

Pay out the Remaining Funds

Assuming there is any money left in the company at this point, it should be distributed to the shareholders either as a dividend or as capital under the provisions of ESC 16.

Strike off the Company

Thee months after the closure you should apply to Companies House to have the company struck off using Form 652a for a fee of £10.

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Having made the decision to work through your own limited Company, there are a few steps to take to set it up. Always remember the Company is a separate legal entity and never mix its affairs up with your own.

Choose a Name

The name has to be unique, obviously, and not likely to be confused for someone else’s existing name. The best reference point is the Companies House website which has a simple search facility so you can check your chosen version. Also, try to avoid names that are specifically related to your line of work, just in case you want to change careers later: imagine selling cars though a company called Al’s Bakery.

Decide on Share Ownership

Is this just you, or you and your spouse, or you and two or three other people? This is important, because it defines how to allocate the Ordinary Shares In the company. Dividends are paid in direct proportion to numbers of shares held. A husband and wife typically have 50% each, for example, but if one is already earning money, be aware of the impact of the share income on their tax position. Share allocation can be changed after the event. There are several variations on share management; but for anything other than a simple allocation of ordinary shares, get expert advice.

Register at Companies House

There is an online system you use to set up your company and pay the registration fee. It is fairly simple to use. One question it will ask is who the directors are. For a typical small contractor company you only need one but there’s no reason not to have more. Although not strictly necessary any more, it also helps to nominate a Company Secretary: this could be the same person, but it’s more sensible to have someone else, a partner or relative for example.

Register a Memorandum of Association

Something else to do while you are at Companies House. At its simplest this is a document describing what your company is for and how you wish to run it. You can do it yourself, but the document can have legal implications in a tax investigation so do some online research for a suitable template from sites such as Simply Docs or Click Docs.

Set up a Bank Account

This has to be a business bank account. Banks are increasingly wary of new business bank accounts, so you will have to answer some detailed questions and it will help if you have some professional references and a signed contact to demonstrate you actually will have an income.

Register for VAT

You have to do this if your annual income is in excess of a set amount (currently £67,000 pa) but it Is advantageous to register anyway. VAT and the Flat Rate Scheme are discussed in more detail elsewhere.

And that’s it. It sounds complicated but is in fact quite straightforward. You can also take the easy way out; either use a company formation agent, or there are several accountants who specialise in contractors who will set up all if the above for you for a small fee, or even for free, as well as providing expert support. Finally keep track of all your various expenses setting the company up, since you can reclaim these once you start trading.

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