What Does a FreeAgent Accountant Actually Do?
A FreeAgent accountant is a qualified accountant who uses FreeAgent as their primary accounting platform. They give you access to the software, set it up for your business, and use it to prepare your VAT returns, payroll, year-end accounts, and corporation tax returns. You do the day-to-day bookkeeping in the app. They handle the compliance.
FreeAgent was built specifically for contractors, freelancers, and small limited companies. It was acquired by NatWest in 2018 but remains available to anyone, not just NatWest customers. Around 150,000 UK businesses use it. It is one of the three main accounting platforms for small Ltds alongside Xero and QuickBooks.
As ICAEW qualified accountants, we use FreeAgent with most of our contractor clients. It automates the tasks that take up the most time: bank reconciliation, VAT calculations, and dividend paperwork. The key benefit is that your accountant can see your live financial position at any point, not just at year-end.
How Does FreeAgent Help Contractors Specifically?
Contractor limited companies have a specific set of accounting needs. You typically have one director, maybe a spouse shareholder, one source of income from a recruitment agency or end client, and regular dividend payments. FreeAgent handles all of that out of the box.
Automated Bank Feeds
FreeAgent connects to over 30 UK banks through Open Banking. Your transactions appear automatically, categorised by rules you set once. A payment from "Hays Specialist Recruitment" hits your account, FreeAgent recognises it, and assigns it to the correct income category. No manual data entry.
This matters because the most common mistake contractors make is mixing personal and business transactions. FreeAgent flags anything uncategorised. Your accountant can see it immediately and correct it before it becomes a problem at year-end.
IR35 Status and Tax Calculation
FreeAgent includes an IR35 status checker. It asks a series of questions about your working practices and gives you a determination. This is not a substitute for a full legal review, but it gives you a starting point for conversations with your agency or client.
The software also handles the tax calculations for both inside and outside IR35 scenarios. If you operate outside IR35, FreeAgent calculates your corporation tax, dividend tax, and personal tax position in real time. If you operate inside IR35, it handles the deemed employment payment calculations.
MTD for ITSA Ready
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes mandatory from April 2026 for self-employed individuals and landlords with qualifying income over £50,000. From April 2027 it drops to £30,000. From April 2028 it covers anyone with qualifying income over £20,000.
FreeAgent is MTD-compatible. Your quarterly updates to HMRC are submitted directly from the software. Your FreeAgent accountant can review each submission before it goes, or you can automate it entirely. The system keeps a digital record of everything, which is what HMRC expects.
Dividend Processing
Contractors typically pay themselves a small salary and take the rest as dividends. FreeAgent tracks your dividend allowance (£500 for 2025/26), calculates the tax due at 8.75% basic rate, 33.75% higher rate, or 39.35% additional rate, and generates the dividend vouchers you need to keep for your records.
It also tracks your director's loan account. If you take money from the company that is not salary or dividends, it shows as a loan. FreeAgent alerts you if that loan exceeds £10,000 (triggering a benefit in kind) or if it remains unpaid 9 months and 1 day after your year-end (triggering S455 tax at 33.75%).
What Does a FreeAgent Accountant Handle That You Cannot?
FreeAgent is powerful software. But it is not an accountant. The software handles the mechanics. Your accountant handles the judgement calls. Here is what your FreeAgent accountant does that the software cannot.
Corporation Tax Planning
FreeAgent calculates your corporation tax liability based on the numbers you enter. But it cannot tell you whether you should accelerate capital expenditure to use the Annual Investment Allowance (£1,000,000 per year) or Full Expensing. It cannot tell you whether you should defer income to keep profits under £50,000 and qualify for the 19% small profits rate rather than the 25% main rate with marginal relief.
Your accountant looks at your FreeAgent data and makes those decisions. They adjust the timing of purchases, dividends, and salary payments to minimise your total tax bill. The software gives them the raw data. Their experience turns it into a plan.
IR35 Contract Reviews
FreeAgent's IR35 checker is a useful tool. But it is based on your answers, not a full review of your contract and working practices. A proper IR35 review involves reading the contract, looking at the actual working relationship, and considering case law like Christa Ackroyd or HMRC vs Atholl House Productions.
Your FreeAgent accountant can recommend an IR35 specialist or review the contract themselves if they have the expertise. The software flags the issue. The accountant resolves it.
HMRC Correspondence and Investigations
If HMRC opens a compliance check on your corporation tax return or VAT return, FreeAgent cannot help you. Your accountant handles the correspondence, prepares the evidence, and represents you to HMRC. This is one of the main reasons contractors use an accountant rather than relying on software alone.
HMRC opened over 200,000 compliance checks in 2023/24. The odds of being selected are low but real. Having an accountant who knows your FreeAgent data inside out makes the process far less stressful.
Year-End Accounts and CT600 Filing
FreeAgent generates draft year-end accounts. But they need to be reviewed by a qualified accountant before filing. Your accountant checks the accruals, prepayments, deferred income, and sundry expenses. They ensure the accounts comply with FRS 102 or FRS 105 (depending on your company size). Then they file the CT600 corporation tax return with HMRC and the accounts with Companies House.
The deadline is 9 months after your year-end for filing, and 9 months and 1 day for paying the tax. Miss it and you face penalties starting at £150 (1 month late) up to £1,500 (6+ months late), plus interest on late tax payments.
What to Look for in a FreeAgent Accountant
Not all accountants who use FreeAgent are the same. Here is what to check before signing up.
FreeAgent Partner Status
FreeAgent runs a partner programme. Partner accountants get direct support from FreeAgent, training, and sometimes preferential pricing for their clients. Ask whether the firm is a FreeAgent partner. It is not essential, but it indicates they know the software well.
Contractor Experience
Some accountants specialise in contractors. Others work with retail businesses, trades, or property investors. Contractor accounting has specific quirks: IR35, dividend planning, multiple short-term contracts, and expenses like travel and subsistence. Make sure your accountant has contractor clients and understands the sector.
Ask them directly: "How many contractor limited companies do you currently work with?" A good answer is 50 or more. A bad answer is "a few" or "we handle all types".
Fixed Fee Pricing
Most contractor accountants charge a fixed monthly fee. This covers FreeAgent access, bookkeeping support, VAT returns, payroll, and year-end accounts. Typical fees for a contractor limited company range from £100 to £200 per month depending on complexity.
Check what is included. Some firms charge extra for things like HMRC investigation cover, same-day responses, or multiple director shareholders. Get the full list of inclusions in writing before you commit.
Real-Time Access
Your accountant should give you full access to your FreeAgent account. You should be able to log in anytime, see your profit and loss, check your corporation tax estimate, and run reports. Some accountants restrict access or use FreeAgent only on their end. Avoid those. The whole point of FreeAgent is that you and your accountant share the same live data.
How Much Does a FreeAgent Accountant Cost?
FreeAgent itself costs £19 per month if you pay directly, or £12 per month if you are a NatWest, Royal Bank of Scotland, or Ulster Bank business customer. Some accountants include FreeAgent in their monthly fee. Others charge it separately.
The total cost for a contractor limited company using a FreeAgent accountant typically breaks down like this:
- FreeAgent subscription: £12 to £19 per month
- Accountant fee: £100 to £200 per month
- Total: £112 to £219 per month
Compare that to the cost of doing it yourself. A typical contractor limited company with £80,000 profit pays around £15,200 in corporation tax. If you make a mistake on your bookkeeping or miss a deadline, the penalties and interest can easily exceed the accountant's fee. The accountant is a cost saver, not a cost.
FreeAgent vs Xero vs QuickBooks for Contractors
Which software is best depends on your specific situation. Here is a quick comparison for contractor limited companies.
FreeAgent is built for contractors. It has the best dividend tracking, IR35 tools, and MTD integration for the contractor use case. It is also the simplest to use. Most contractors find it intuitive within a few days.
Xero is more powerful for businesses with multiple users, inventory, or complex multi-currency transactions. It has a larger app ecosystem. But it is more expensive and has a steeper learning curve. For a one-director contractor company, Xero is often overkill.
QuickBooks is popular with sole traders and very small businesses. It is cheaper than Xero but less polished than FreeAgent for limited company accounting. The payroll module is basic. Most contractor accountants prefer FreeAgent or Xero.
Our recommendation: if you are a contractor with a single director, one or two income streams, and straightforward expenses, FreeAgent is the best fit. If you have multiple directors, complex income streams, or international transactions, Xero may be better. Talk to your accountant before choosing.
How to Switch to a FreeAgent Accountant
Switching accountants is straightforward. Here is the process.
- Find a FreeAgent accountant and agree the scope of work and fee.
- Sign the engagement letter. This is a legal document that sets out what the accountant will do.
- Give your current accountant a notice period (usually 30 days, check your contract).
- Authorise your new accountant to access your HMRC online account and Companies House filing account.
- Set up FreeAgent and connect your bank feeds.
- Your new accountant handles the rest: VAT returns, payroll, year-end accounts.
The transition typically takes 2 to 4 weeks. Your new accountant will need your last set of accounts, your VAT history, and your payroll records. Have those ready to speed things up.
Common Questions About FreeAgent Accountants
Can I Use FreeAgent Without an Accountant?
Yes. You can subscribe to FreeAgent directly and do everything yourself. But you are responsible for filing your corporation tax return, VAT returns, payroll, and year-end accounts. If you make a mistake, HMRC will hold you accountable. Most contractors find that the time saved and the peace of mind from having a qualified accountant is worth the fee.
Does FreeAgent Work With All Banks?
FreeAgent connects to over 30 UK banks through Open Banking. The full list is on the FreeAgent website. If your bank is not supported, you can upload bank statements manually or use a CSV import. Most major banks are covered: Barclays, HSBC, Lloyds, NatWest, Santander, Starling, Monzo, and others.
Is FreeAgent Secure?
FreeAgent uses bank-level encryption (256-bit SSL). Your data is stored in UK data centres. They are FCA-regulated and hold an ISO 27001 certification for information security. Your accountant accesses your data through their own secure login. You control who has access.
What Happens If I Leave My Accountant?
You keep your FreeAgent data. Your subscription continues. You can either take over the account yourself or transfer it to a new accountant. FreeAgent makes it easy to export your data as CSV or PDF files if you need them.
Is a FreeAgent Accountant Right for Your Contractor Business?
If you run a contractor limited company, a FreeAgent accountant saves you time, reduces your tax bill, and keeps you compliant. The software handles the day-to-day bookkeeping. The accountant handles the strategy, the compliance, and the HMRC relationship.
The alternative is doing it yourself and hoping you get it right. For a business that might turn over £80,000 to £150,000 per year, the risk of a mistake is significant. A missed VAT deadline costs you a surcharge. A misclassified expense triggers an HMRC investigation. An incorrect dividend calculation means you overpay or underpay tax.
A FreeAgent accountant costs around £150 per month. That is less than one day's billing for most contractors. It is one of the best investments you can make in your business.
If you want to discuss whether a FreeAgent accountant is right for your contractor limited company, get in touch with our ICAEW qualified team. We can talk through your specific situation and give you a straight answer.