ACCA, the global accountancy body, is urging contractors to retain the services of accountants.
The call comes amid fears that changes in off-payroll law may mean thousands choose to close their limited companies and terminate relationships with accountants.
Proposed changes to IR35 rules could pose a threat to small accountancy firms that work with contractors operating through their own personal service companies.
Liquidate the company
But the professional body warns that it may be a mistake to liquidate the company and axe your accountant.
Especially as it may not be possible to resurrect the company if the controversial changes are quickly diluted or reversed.
The government is reviewing the off-payroll legislation, known as IR35, which governs how contractors are taxed.
Umbrella company
Under proposals due to come into force on April 6, 2020, thousands of contractors are likely to have their employment brought under company PAYE payrolls or through an umbrella company.
Many contractors, who are typically paid a daily rate for their services, are expected to liquidate their personal service companies, as the number of contracts allowing them to work this way diminishes.
This also puts in jeopardy their relationship with their accountants, who typically manage their company accounts, payroll and VAT obligations.
Accountancy firms
Jason Piper, ACCA’s head of tax and business law, says the changes could be a ‘timebomb’ for small accountancy firms with large numbers of clients who operate via personal service companies.
He says: “This could well be an unintended consequence of the reforms to off-payroll working.
“If contractors take in-house permanent roles or must operate via an umbrella company, they could feel that the best option is to close their limited company and save the cost of their accountant, which could be a mistake.
Ticking timebomb
‘We feel this could be something of a ticking timebomb for small accountancy practices with lots of clients in this position.
“This is a definite threat to those businesses, and we would advise our members to be ready to counsel contractors on what is the best strategy for them.
“It’s better to proactively have those discussions with contractors you haven’t yet spoken to on this issue, rather than waiting for them to come to you in a panic.”
