Last editedAug 20222 min read
As a contractor, you’ll likely be in charge of your own bookkeeping. It’s therefore important that you have a firm grasp of accounting and can keep your bookkeeping processes water-tight. Otherwise, you might find yourself in trouble with HMRC and even encounter internal financial difficulties.
In this post, we’ll outline what bookkeeping as a contractor involves, as well as offer some bookkeeping tips for contractors. For specific advice vis a vis tax and National Insurance payments as a self-employed contractor, check the HMRC website. Registering as contractor with the Construction Industry Scheme (CIS) can mean you pay lower tax rates.
What is bookkeeping?
Bookkeeping and accounting are terms that are often interchangeable. However, bookkeeping is actually only a part of accounting. Specifically, it involves the recording of a business’ financial transactions.
The following information is usually included in bookkeeping:
Client billing for goods or services
Invoice records from suppliers
Records of any employee wages
One of the main advantages of well-organised and accurate bookkeeping is that it can give you a clear picture of your company's financial position. This means you can be better equipped to effectively manage and oversee cash flow.
4 Bookkeeping tips for contractors
Bookkeeping is often seen as a tedious task. The following accounting and bookkeeping tips can help you stay on top of things. That way, you’re less tempted to put it off and get yourself into hot water later on.
1. Know precisely which records to keep
Depending on whether you operate as director of a small business or are self-employed, HMRC requires certain Accounting Records. These will involve information about any expenses, sales, revenue and income, as well as VAT returns.
HMRC has no stipulations regarding how you keep your records. You can choose to use certain software solutions, apps or a simple Excel spreadsheet. However, you choose to store your records and bookkeeping, however, make sure it’s well organised and is reviewed frequently.
2. Note time frames for record keeping
If you have a limited company, be aware that HMRC can ask for records going as far back as six years. It’s therefore advised that you store records for at least that long. However, if you’re still keeping paper records, that’s going to be an awful lot of paperwork to store. To ensure you don’t get overrun with paperwork, consider digitalising them. Storing files in the cloud can mean records don’t take up physical space, and, as long as they’re backed up, they’re much more difficult to lose.
3. Look for accounting software solutions
Keeping on top of accounting and bookkeeping can be made far easier by using accounting software. Fortunately, there are a huge amount out there to choose from, and some are even free! Using a software solution to track bookkeeping has the distinct advantage of providing real-time data which can be accessed from anywhere with internet access. For travelling contractors, this can be a real life-saver.
4. Consult a third-party accountant
If you really struggle with bookkeeping, it might be worth your while to invest in the services of an accountant. While this may seem like an unnecessary additional expense, it could save you a lot of stress and time, as well as lead to healthier financial management. If you do decide to consult an accountant, it’s advised that you go with an experienced contractor accountant. That way you’ll have be able to trust that your accountant is familiar with the particularities of being a contractor.
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