Whats the real difference between IT contractors accounts and others?

[simplicity]

Please be gentle with me as I dare to post this question...

How come a self employed IT contractor has to be more strict with their accounts than other self employed people?

For example I would imagine a childminder, hairdresser, plumber or builder receives money from customers and spends it as he or she likes then accounts for it at the end of the year in self assessment and corporation tax. None of this dividends and basic salary worry. Money comes in - they spend it and then pay tax that is required at the end of the year....

Obviously my accountant has not advised me to follow this practice but for those without accountants is this what you do?

[contractoralan]

Please be gentle with me as I dare to post this question...

How come a self employed IT contractor has to be more strict with their accounts than other self employed people?

For example I would imagine a childminder, hairdresser, plumber or builder receives money from customers and spends it as he or she likes then accounts for it at the end of the year in self assessment and corporation tax. None of this dividends and basic salary worry. Money comes in - they spend it and then pay tax that is required at the end of the year....

Obviously my accountant has not advised me to follow this practice but for those without accountants is this what you do?

They do not run companies, but (likely) you do.

[craig1]

There are four real options for someone working for themselves:

1. Self employed. Most of those you use in your example can fit in this bracket. They account for their income on annual Self Assessment however this comes with a number of risks, for example unlimited liability and difficulty in contracting with businesses as someone truly self-employed

2. Partnerships and Limited Liability Partnerships. Moving towards more formal structures here with LLPs being fully limited companies. All profits are taxed through Self Assessment.

3. Traditional limited companies (ltd). A far greater barrier for administration and taxation done in multiple stages: corp tax, PAYE and Self Assessment.

4. Umbrella company (or other 3rd party scheme)

You CAN be a contractor as option 1 but good luck in getting any agencies to contract with you. Same with direct contracts with clients. Far too many reasons for this to go through in this thread. Most of those examples you mention are B2C relationships while contractors are almost exclusively B2B which adds far higher burdens. Admin is a necessary evil as a contractor unless you're willing to go through a brolly.

I personally use a LLP and my admin is probably about 1/2 that of a ltd company, also my taxation is far simpler. I probably pay a little bit more tax than the typical ltd company contractor but that's compensated for in many other ways.

[SueEllen]

Please be gentle with me as I dare to post this question...

How come a self employed IT contractor has to be more strict with their accounts than other self employed people?

There are people in this board who don't work in IT.

And I personally know contractors who are engineers, accountants, graphical designers, journalists (though they do tend to call themselves something else) and in the building trade who work under a limited company structure with no employees apart from themselves.

Depending on form you complete and who it is for, if you work using a limited company structure you are not self-employed.

The main reason to work under a limited company is legal ones and/or because it's the most tax efficient way of working.

[JamJarST]

Please be gentle with me as I dare to post this question...

How come a self employed IT contractor has to be more strict with their accounts than other self employed people?

For example I would imagine a childminder, hairdresser, plumber or builder receives money from customers and spends it as he or she likes then accounts for it at the end of the year in self assessment and corporation tax. None of this dividends and basic salary worry. Money comes in - they spend it and then pay tax that is required at the end of the year....

Obviously my accountant has not advised me to follow this practice but for those without accountants is this what you do?

Why would you imagine that???

[simplicity]

I imagine this because they deal with cash as a form of payment - I don't receive cash to my limited company, only electronic payments.

[JamJarST]

I imagine this because they deal with cash as a form of payment - I don't receive cash to my limited company, only electronic payments.

And there you have answered your original question "Whats the real difference between IT contractors accounts and others?"

[northernladuk]

There are a number of reasons

1) You don't know how they manage their finances so you are assuming
2) They run cash business's and try and milk it but....

it will and is coming back to bite them...

BBC News - Unpaid tax crackdown: Five plumbers arrested by HMRC

This is why we run a tighter ship to avoid this.

Makes me laugh when they say this..

However, HMRC believed some registered plumbers and gas fitters in the UK were moonlighting - being paid cash in hand and failing to pay tax.

Some.. my arse...

[Alan @ BroomeAffinity]

The main reason is that the accounting rules for a limited company and a sole trader are different. This is because the limited company is not you and you are not the limited company. A sole trader business is not legally separate from the owner.