Rob has provided specialist services to the television and film industry for many years but until 2014 he did not take specialist advice himself!
Originally operating as a self-employed individual, Rob took the decision to open his own Limited company back in 2008 based on the advice of his friends that he would be “much better off”! The same friends also recommended a local one-man firm of accountants to Rob, who had looked after them for many years and whom he assumed would look after him too.
In the beginning, everything went smoothly.
Rob opened his Limited company with ease and began to trade almost instantly. He kept his paper records and at the end of the year his accountant prepared statutory accounts that were filed with the relevant authorities, all be it sometimes late and incurring late filing penalties. Rob accepted the excuses for the lateness and thought everything was under control and he paid his taxes as he was asked.
The problems lay with what Rob had not been made aware of.
Transferring a sole trader business into a Limited company brings with it potential tax liabilities and issues of Goodwill. Without a thorough understanding of the implications, tax liabilities can be missed or incorrectly recorded.
In addition, Rob’s local accountant never discussed the implications of IR35 with him. Rob had operated for four years, totally unaware of the legislation that was crucial to determining his tax liability. He also continued to claim travel and subsistence costs, unaware of the 24-month rule and the risks he was now facing.
So what changed for Rob?
In the same way that he had been recommended to his first accountant, he happened to have a conversation with an expert in the contractor and freelancer world. They recommended he talk to Orange Genie Accountancy who specialise in Freelancers. That conversation began to ring alarm bells and Rob questioned what he had previously accepted.
After meeting with Helen from Orange Genie Accountancy, it became clear that Rob’s situation needed to be reviewed. She went back to the beginning and considered the incorporation of his Limited company: Rob was advised on how this should have been reflected in the accounts and tax returns, correcting them as she progressed, Helen went on to liaise with HMRC to bring everything up to date. This secured him a tax refund of £11,000 just in time to pay for his wedding!
Discussions about IR35 and the 24-month rule now form part of regular dialogue and Rob understands how the legislation affects him and he can make informed decisions.
Through access to our online Portal, Rob and his accountant can review his financial situation and taxes due. Everything is up to date and prepared in real-time so late filing penalties are a thing of the past.
Rob truly recognises the value and peace of mind that comes with engaging a specialist accountant: he has recommended his colleagues to Orange Genie Accountancy and they have all benefit from our advice.
Should your friend be your contractor accountant?
If you’re contracting through a Limited company and you have a friend who’s an accountant, the idea of getting your accountancy services at “mate’s rates” from someone you know and trust might seem very appealing. However, your choice of contractor accountant is very important, and this apparent “win-win situation” can turn out to be a recipe for disaster, both for your business and your friendship.
As a contractor, you need specialist expertise
However knowledgeable your friend appears to be when you hit them up for free advice in the pub, unless they’re a specialist contractor accountant they’re unlikely to have the expertise you need. Legislation in the contractor sector is complex and fast-moving, and general practice won’t prepare your friend to help you run your Limited company.
Only a specialist contractor accountant will be aware of the specific issues and legislation that affect your business. Worse, your friend probably won’t know what they don’t know, and will believe their advice is sound when it’s not.
You need the best possible service for your Limited company
In order to be effective in supporting your business, your accountant should provide a personal, bespoke service, with pro-active tax planning advice tailored to your circumstances and goals, and regular reminders when deadlines are approaching. You can and should expect this kind of service from a good contractor accountant.
However, your friend will have other clients who pay full price for their services, and they will have to prioritise based on what’s best for their business. This means you could find yourself competing for your accountant’s attention, and muddling through with minimal expert support.
Insurance and protection
Just as you need insurance to protect your clients in the event that you make a mistake and cost them money, your accountant should have insurance to protect you.
As a minimum, you’ll need to ensure your friend has a practicing certificate and professional indemnity insurance. If they don’t, they’ll be putting themselves and your business at risk. It’s also worth remembering that if they work for an accountancy business and they help you “on the side” any professional cover they do have is unlikely to apply.
Pressure on your friendship
In doing your accountants and personal tax return, your accountant knows the details of your financial affairs in a way that most of your friends probably don’t. This potentially gives them a window into every aspect of your life, which is fine when your relationship is underpinned by professional confidentiality, but not necessarily when it’s your friend.
You’ll also have to ask yourself what happens if your accountant gets something wrong and costs you money. Mistakes happen, and if a deadline is missed, or they forget to tell you when a payment is due you could be penalised by HMRC and made to pay a penalty or interest charges. Can both of you work through that situation without taking it personally? If your friend is important to you, your “mate’s rates” discount may not be worth the risk.
We strongly recommend that any accountant you work with should be accredited by FCSA. FCSA accreditation is accepted as the gold standard for compliance in the contracting industry. Accreditation demonstrates a high level of competence and commercial stability, as well as a consistent commitment to doing things properly. Your arrangement with your friend is unlikely to come with accreditation and the peace of mind it provides.
Finally, your friend is unlikely to offer the kind of extras you’d expect from an established contractor accountant, like online accounting software, or a contractor benefits package. These details can make a significant difference to your experience of contracting, and can therefore have an impact on the success of your business.