Contracting Clarified with our Team – Jordan’s Top Tips

Welcome to the latest edition of our blog series, “Contracting Clarified with Our Team.” In this post, we'll be addressing some of the common questions and concerns contractors have about managing their finances. Our expert, Jordan Donegan from the Icon Accounting team, shares valuable insights and tips to help you navigate the complexities of contracting with confidence and ease.

1. Common Contractor Expenses

One of the primary aspects of being a contractor is managing your expenses. Contractors often need to process expenses related to office equipment and various subscriptions essential for their work. These can range from software licences to office supplies, all of which are crucial for fulfilling contract obligations. Understanding what qualifies as a business expense can help you maintain accurate financial records and optimise your tax returns.

2. Importance of Proper Invoicing for VAT Claims

A frequently overlooked aspect by contractors is ensuring that the company name is on the invoices for their expenses. This is particularly important for expenses where VAT is claimable. By having the correct company details on the invoice, you can reduce your VAT liability, thus enhancing your financial efficiency.

3. Clarifying Company Bank Balance vs. Reserves

A common mistake contractors make is confusing the company’s bank balance with the amount of reserves the company has. It’s important to remember that the bank balance is just the available cash at a given time, whereas the reserves include all accumulated profits after deducting liabilities. Keeping these two concepts distinct will give you a clearer picture of your company's financial health.

4. Best Practices for Managing Company Expenses

Jordan advises contractors to strictly use the company bank account for business-related expenses only. This practice not only ensures accurate bookkeeping but also simplifies tax preparation. Additionally, it’s crucial to keep track of all expenses and retain receipts. This habit will prove invaluable in case of any queries from tax authorities.

5. The Importance of Asking Questions

If you’re new to contracting, don’t hesitate to ask questions. Seeking clarity early on can prevent potential issues down the line. Whether it’s about tax regulations, expense management, or financial planning, getting the right answers from the start can set you on the path to success.

6. Regular Reviews of Your Setup

Jordan recommends that contractors periodically review their business setup, ideally every few months. This regular review helps ensure that you’re maximising the benefits of having a limited company. It allows you to adjust your strategies according to any changes in the business environment or tax laws, keeping your operations efficient and compliant.

7. Year-End Profit as Bonus

For contractors with companies that have a December year-end, it’s important to process any year-end profits intended as a bonus in the December payslip. This timing is crucial for including the bonus in that calendar year’s income tax return. Proper planning and execution in this regard can significantly impact your tax liabilities.

8. Setting Up a Pension

One of the most tax-efficient ways to utilise year-end profits is by setting up a pension. Rockwell Financial Advisors recommend making pension contributions with your year-end profits. Not only does this strategy reduce your taxable income, but it also helps secure your financial future.

Navigating the financial aspects of contracting can be challenging, but with the right guidance and practices, you can manage your finances like a pro. By following Jordan Donegan’s expert advice, you’ll be better equipped to handle expenses, optimise tax returns, and plan for the future. Stay tuned for more insights and tips in our ongoing series, “Contracting Clarified with Our Team.”

For personalised financial advice or more information, feel free to reach out to our team at Icon Accounting. We’re here to help you succeed!