I'm software developer in the UK. By October last year I became a contractor and completed two assignments (2 to 3 months each), using my new limited company. For the last 3 months I was not working but still paying my accountant Brookson £170 a month as they claim I need their services anyway. My understanding about accountancy is quite poor. However I must be prepared for contracting again so I haven't closed my company.

My question is: How can I reduce to the minimum my expenses in periods of inactivity?

  • If you have done any business during your accounting year, your company is trading for that entire year. Your accountant can advise you on this. You can always drop your accountant and move to one who charges you per hour for actual work. On average, a small limited company's end-of-year corporation tax and Companies House filings should cost around £500 if there's nothing too non-standard about it. For my first company I did my own tax returns. One year I missed a deadline and had to pay HMRC a £100 fine. That was a damn sight less than paying £170 per month to an accountant. – Jonathon Cowley-Thom Jun 26 '17 at 16:51
  • The thing is I'm a software dev, not an accountant. I just want to do what I know. In my opinion all this process should be free and 90% automated through HMRC web site with little or no work for the contractors. This should be: just log on into your HMRC account and run a couple or wizards and all done. – derloopkat Jun 26 '17 at 17:35

You have two choices: You hire an accountant, or you do it yourself. Your accountant is getting £170 a month for very little work. The government websites are quite decent, so you can do this yourself. As a software developer, I don't expect you to have too many different expenses (one big chunk for using your car or paying for public transport, and that's mostly it. If you miss out on £100 of things that you could have expensed, that costs you £20 compared to £170 for the accountant). And the work is proportional to the number of expenses, not the amount.

By the way, to HMRC your company is trading. You just submit your income / expenses every 3 months. Importantly you will employ yourself all the time nobody else employes you, and you need to handle that right. Again, government website is quite helpful.

There's no point telling HMRC you are not trading. You have to tell them at regular intervals what was the company's income and what was the expenses. You can tell them "the company's income was zero, the expenses were zero". If that's what happens, that's all you need to do.

In practice, your company should be employing you at a very low wage, meaning the company should pay you something like £800 a month as salary, and zero or close to zero income tax and employee NI. So your company has expenses which will reduce your annual profit and your company taxes.

  • My expenses don't represent much money. Do you think I'd rather should tell HMRC I'm not trading? If this can prevent corporation tax, that would be nice. If I do that I read my business bank account needs to be closed but I can have a new one in 24hs in case I get new contract again. – derloopkat Jun 24 '17 at 20:12
  • @derloopkat why would you be paying corporation tax? – Neuromancer Jun 25 '17 at 10:27
  • Sorry, not sure if that's due in my situation. As mentioned my understanding about accountancy is poor. – derloopkat Jun 25 '17 at 10:31
  • @Neuromancer: In the UK, contractors typically create a limited liability company, with themselves as director and single employee. The LLC has income and expenses, the difference is profit, and you pay 20% corporation tax on the profit. To maximise your personal money, usually the LLC pays the employee a small salary that is just about tax free, which reduces the profit of the company, pays 20% corporation tax on the profit, and out of the profits pays the company director dividends. (Company director and the sole employee are the same persons). – gnasher729 Jun 25 '17 at 15:43
  • @gnasher729 assuming you can jump trough the hoops to avoid IR35 I think many people using a PLC would get caught by IR35 should HMRC want to audit them – Neuromancer Jun 25 '17 at 16:52

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