What IT freelancers should look for in an accountancy firm

With multiple considerations to make when appointing an accountant to tend to the accounting and tax affairs of your freelance contractor business, the question I got asked the other day, ‘What top three things should freelancers in the tech sector look for in an accountant?’ stopped me in my tracks.

And me being a bit lost for words was NOT due to inexperience on my part! I’ve been an accountant to freelance workers, independent professionals, and one-person contractor companies, especially those in the UK’s technology sector, for a long enough period of time that I’m now considered to be a ‘veteran,’ writes chartered accountant Graham Jenner of accountancy advisory Jenner & Co.

After quite a bit of head-scratching to try to get the many things you want in your accountant down to just a shortlist, here are my top three things freelancers should look for in an accountant -- before you sign-up to their accountancy firm on the dotted line.

1. Qualifications and regulation

Be aware, anyone can call themselves an accountant without any qualifications or accreditations!

While an unqualified accountant may well be able to deal with your requirements, especially initially, qualifications behind an accountant’s name show a level of skill and expertise. And similarly, membership of a professional body if you’re an accountant brings with it a requirement to stay up-to-date.

There are three main professional bodies for accountants in the UK, all of which are referred to as ‘chartered’ (which means the Institute was formed under a Royal Charter).

The best way to find a reputable chartered accountant is to use professional bodies; the ICAEW, the CIMA, or the ACCA. On the websites of these three organisations, you can find individual member practitioners based on specialism and location.

Chartered accountants are required to undertake a continuing level of professional development annually, including, where relevant, accounting and tax courses. This means you, the client, can be sure that their practices are up-to-date with the very latest changes in legislation, and so there’s the greatest chance possible that they can give you the most relevant and well-informed advice.

2. Experience in dealing with contractors/freelancers (like you)

There is a plethora of legislation surrounding the taxation of contractors, such as the so-called ‘false self-employment’ rules, IR35 legislation -- plus the associated off-payroll working rules, and the Managed Service Company legislation.

These complex, potentially very taxing frameworks all overlap with the effect that structuring your contractor business to prevent one set of rules applying, can bring another set into play! Your accountant needs to understand when and why each set of rules apply.

This total understanding of the frameworks by the accountant you choose is required not only when you start out as a contractor -- when you set up you services, but, potentially, for each and every contract (notably if the terms and working practices are different to previous contracts).

Be aware, your accountant might well advise that your initial contract would be easiest to execute on a self-employed basis. But a subsequent contract might allow you to operate through a limited company. This latter route, whereby you’ll be running your own Personal Service Company (a limited company), could bring significant tax savings.

An accountant experienced in dealing with contractors like you, as opposed to a generalist high street accountant, can properly consider and advise on the different circumstances -- at every turn of your independent career. It’s therefore important to remember to tell your accountant if you take on a new contract which contains different terms and conditions.

So to reiterate -- experienced contractor accountants will provide guidance not only on the tax and accounting issues but also on what it means to you to be self-employed or running your own limited company. And whatever your structure (some techies who once worked entirely freelance have more recently used umbrella companies), your accountancy adviser should outline what the responsibilities and obligations are.

However, ultimately, the structure of how you operate as a freelancer or contractor in IT or other sectors, is down to you, albeit guided by your accountant.

For example, running a limited company is not for everyone, and you don’t want to feel that you have been coerced into something you are not comfortable with! An accountant with experience in dealing with contractors will be able to make suggestions and provide additional help, while getting to know you and your appetite for everything from risk to administration, with a view to make the running of your contracting or freelancing operation as straight forward as possible.

3. Specific services to contractors

For many IT freelancers who run their own limited company (which I sense is still the favoured modus operandi), the business is relatively straight forward.

There may be a fixed monthly fee which is paid to the IT contractor, and the freelance professional will mainly have fixed expenses. In these circumstances, the accountant can estimate the net amount available -- after tax and national insurance, that you could draw from the business on a monthly basis. Positively for all of us with busy professional lives, this might only need tweaking if there is a significant change in the fee or if a one-off significant cost is incurred.

But what if the business is more complicated with, say, weekly invoicing based on fluctuating hours, or fluctuating costs? Or what if the contractor’s income is dependent on project milestones and deliverables? With these two scenarios (which are likely to come about) is your accountant geared up to provide timely advice, concerning how much you can take from the business, in any particular week or month?

Accountants who offer specialist services to contractors will be able to provide such timely, tailored advice, while you can get on with your new project or assignment. At such a busy time, you don’t want to be worrying that you may have taken too much money out of the business or, at the other end of the spectrum, be frightened that you’ll struggle to meet personal financial commitments by being over prudent.

In the above circumstances, you might need an accountancy firm that provides weekly remittance advices, based on information you provide, with an indication of the tax, which you should set aside to pay HMRC, and the amount you have available to pay yourself.

Final recommendations

One extra tip -- by all means ask friends, family and colleagues whether they know of a good accountant. But do bear in mind the factors above. An accountant who suits THEIR needs as a non-IT contractor or non-tech freelancer may not be appropriate for your circumstances. Taking an example from a different scenario -- you wouldn’t necessarily use a solicitor to deal with the conveyancing of your house sale because a friend said they did a great job in dealing with their divorce!

In closing…

Don’t be afraid to speak with two or three firms of accountants -- you will get a feel for who ‘knows their stuff’ and who you feel comfortable working with. It’s an initial time investment which can pay you dividends later!