The first thing you have to ask yourself if considering life as a contractor is: is it worth it? Most contractors who’ve set out understanding that they’re a business from the off will tell you ‘Yes!‘
Moving from an employed role to become a professional contractor is a big step. Yes, the potential for earning more (and keeping more of that income) is great. But we want to make you aware of the risks, too.
You are becoming the boss of a business that will shape your destiny. Assuming that your new income meets suffice remuneration, you’ll realise that potential through a limited company. So it’s imperative that you set up your business the right way from day one.
You can incorporate your company yourself and contract direct with the end client. Or, as is le choix du jour, you can offer your services through an umbrella company.
Either choice is liberating, but also subject to the whim of HMRC, IR35 teams especially. Limited company owners’ insurances, work ethics, pensions and mortgages all work differently, too.
We’ve created Contractor Guides to offer a mine of information for contractors new and time-served alike. Here are the sectors we cover, with a brief explanation of what you can expect us to uncover in our posts…
Contracting
There’s a lot to consider as a contractor . The biggest change in your new role will be hiring a contractor-specialist accountant.
An accountant is an expense you may not have factored in, but you need one. It’s that simple. You want to work without fear of incurring the wrath of HMRC/IR35. But you also want to claim all the tax and business reliefs available to you.
Yet you have a big enough task staying ahead of the pack in your industry. Any training you need to keep up with trends is up to you. This makes delegating the dynamic minefield of tax law to a specialist in that field your priority.
Mortgages
Mortgages work differently for workers who use a limited company payment structure. Whether you class yourself as a freelancer or contractor, if you have a PSC, you need to listen up…and sharpish!
Most High Street mortgage lenders’ affordability calculations won’t work for you. To cut a long story short, after deductions via your accountant you’ll only draw a small salary. Yet it’s this ‘salary’ figure that non-specialist lenders use for borrowing purposes.
Now, banks and building societies don’t want to miss out on this high-earning, growing sector of the labour market. To ensure they don’t, the majority use specialist mortgage brokers.
Insurance
When you work as an employee, you don’t have to worry about insurance. Most workplaces cover sick days and offer death in service benefit as a matter of course. But if you don’t work, you don’t get paid.
One of the reasons employers cover employees is that they get group cover. But you’re not a group. You’re an individual as likely to succumb to illness as any other; so what to do?
Only recently have we been able to offer insurance solutions tailored for independent professionals. Today, you don’t have to expose yourself, your family, mortgage or lifestyle to sickness or premature death. Get covered from the get go!
Pensions
Unless you’ve been living under a rock, you’ll know all about workplace pensions. The government has long been pushing hard for workers to plan for their own futures. Moreover, for employers to offer such a pension.
Being your own boss puts the onus of providing a pension for your future on you. As you’d expect, you have a wide range of pensions on offer to choose from.
Your accountant can help you understand which pensions allow you to pay through the company. An IFA can also offer insight. The right pension for you will depend on your age, outlook and status, so do make sure you get it right!
You can make switching from employee to contractor as simple or complicated as you’d like. On Contractor Guides, we hope to ease you into your new role with the minimum of fuss.
Building a solid foundation from the start will provide a platform for your ongoing success. You are a business and you need to act like one, for your self-esteem and in the eyes of the law. Our blogs aim to help you succeed on both scores.
