Tax tips on surviving the recession as a Contractor or Freelancer

1. Go limited – If you’re using an umbrella company switching to working through your own limited company could save you tax and give you a higher take home amount from your contract, for an illustration try our limited company take home pay calculator.

Forming a limited company takes just five minutes online and with the formation usually completed within 2 hours. Managing the administration behind your company is also less than you might think and with the help of a good accountant most contractors only need spend 15-20 minutes a month on paperwork. Most good accountants will also help you to understand if your contract is IR35 compliant or not, obviously your working practices will also need to reflect your contract.

2. Increases to your take home amount by going limited due to NI and VAT savings which can be quite large, for example if you are a contractor on £200 per day you'll save £9,000 or if you’re on £600 a day you’ll save £20,000 on NI contributions. 

Are you on the Flat Rate Vat Scheme? Most contractors benefit from this and saving opportunities can be substantial for example if you’re on a £200 per day contract you’ll add £1,500 extra per year to your bottom-line and with a daily rate of £600 you’ll add upwards of £4,500 extra per year (based on a 45 week year).

3. Know what you can and cannot claim, HM Revenue and Customs ‘Expenses’ (480) booklet is 100 pages long so it’s no wonder that your head maybe left spinning after reading it. Do your research, speak to an accountant or read our contractor expenses guide.

4. Get things in on time to avoid all the nasty penalties – this is the easily one of the most common mistakes, tax saving advice can soon be eroded by penalties and interest on the tax you owe, a £300 fine for a £10m company isn’t really much but for a startup company or smaller business working from home it’s quite a chunk.

Additionally, new limited companies that have only just registered for vat and then go on the vat flat rate scheme they get an extra 1% discount to the rate for the first year of the vat registration, meaning even more money. 

5. Do you have tax planning in place? Although tax planning is a little more limited for a sole trader in that you can’t leave money in your company like if you had a limited company but would going limited be an advantage?

6. If you’ve been trading for over a year and you have a legitimate reason for closing your company down, you might want to speak with an accountant about a special government tax relief scheme which could help reduce your tax liability down to as low as 10%.

7. If you have an accountant are they Contractor experts? Managing the tax affair of Contractors and Freelancers is different from managing the accounts of the local engineering company, there is specific legislation that applies to contractors, before appointing an accountant find out if they are specialists in the contractor market.

8. Pensions – Speak to an IFA/pensions advisor about setting up a pension from your company. This way the company gets tax relief and it uses up some of the remaining funds in the company account in a very tax efficient way. 

9. There are special rules which govern the use of child care vouchers which directors of companies and or their company secretaries can make use of; these could save as much as £486 per month. 

10. Separate bank accounts – don’t leave your business current bank account with a huge balance. Instead move it over to a high interest savings account, there are still a few banks who are interested in providing savers with good rates of return, albeit lower than the good old days but every little helps. Also using a bank that doesn’t charge for business banking you will help.

Times are tough, so it makes sense to take advantage of every little incentive, government scheme or piece of tax saving advice available.

If you do choose to set up a limited company, which is exactly what our other 15,000 contractor and freelancer clients have done, you may like to chose SJD to help form your company. Last year alone, more than 3,000 contractors formed their limited company on our website.

If you wish to appoint us as your accountants immediately, the quickest and easiest way to do so is by accessing our Client Agreement Form   

If you are undecided about whether to go limited or use an umbrella company  please click here: Take home pay through a limited or umbrella company – The differences. 

If you have any question about contracting or would like any further advice please call our new client services helpdesk on 01442 275789 or email: janice@sjdaccountancy.com.

Call Back Request

1 + 0 =
Solve this simple math problem and enter the result. E.g. for 1+3, enter 4.

Speak to a
friendly expert
01442 275789

Monday to Friday (8am to 6pm)

SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 15,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy has more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATT, AAT, CTA, ACCA, CA, ACA and FCCA.

  • Unlimited face to face meetings. This is a unique service only SJD Accountancy offers - unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant face to face.
  • Money back service guarantee. All your Emails received by 4pm on any normal working day will be answered the same day. Should it be necessary to leave a telephone message it will be answered same day/following day latest or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee starting from £120 plus VAT per month. Check our packages for more detail.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on 01442 275789 or email: janice@sjdaccountancy.com. Our new client services helpdesk is open Monday to Friday (8am to 6pm).

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

Form your own Limited company with SJD - our same day online company formation service includes company bank account set up, VAT/PAYE registration and advice on optimum share structure. 

You may also find the following pages, guides and case studies useful:

*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.