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ready, set, go into contracting

Ready, set go…into contracting


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Ready, set, go… into contracting

Your step by step guide to confident contracting for newbies

Keeping one step ahead – from the start

Starting up as a contractor is an exciting, but often daunting time. Where do you start, what’s involved and how do you even know if contracting is for you? It’s important you’re able to answer these questions from the outset, so that you’re fully prepared for a career in contracting

In this ebrief you’ll find all the information you’ll need in order to understand what contracting is all about, including what you need to consider and top tips on how to be a success in contracting.

No accounting jargon or false promises of what you can earn as a contractor; just plainspoken, transparent, assured advice that’s here to help you make the right decision for you.

Who are Intouch Accounting?

Limited Company contractor accounts is all we do, and we do it all – from good advice about tax and IR35 contract risk assessments to easy online accounts management.

So you can relax and spend more time doing the stuff you love. Why not speak to one of our expert advisers about what we can do for you?

Email enquiries@intouchaccounting.com

Call 01202 901 385

What is a contractor?

Contractors are skilled professionals who provide their services to end clients under a fixed contract for a fixed period. Unlike a freelancer who takes on multiple contracts at any one time and usually completes a number of contracts each year, a contractor may only take 2-3 contracts per year and traditionally won’t start a new contract until their current one has ended.

Contractors can be appointed to complete work for the end client either as themselves, through their own Limited Company, or through an agency (as an Umbrella worker). These options are determined based on the individual contractor’s circumstances, future professional goals, rate of pay and whether contracting is a long term career choice.

So how do you know if contracting is for you?

Here are some of the main reasons why people decided to become contractors:

  • Increase in pay
  • A change of pace
  • More work/life balance
  • Lack of permanent roles utilising skills
  • Gain a wider range of skills & industry knowledge
  • Personal life changes
  • Redundancy
  • Greater professional development, not achieved in permanent employment

Which direction is right for YOU?

Whatever the reason you decide to start contracting, make sure it’s the right reason for you. It can be tough to get going as a contractor, but after your first few contracts and once you’ve established yourself, the pay-off (financially, professionally and personally) can be so much greater than what permanent employment offers.

Why some of Intouch’s clients chose contracting:

“I wanted the challenge that contracting offers coupled with the independence and responsibility of being the actual product yourself.” Paul Davies; Sunny Robot Ltd

“To experience different environments and give myself life choices that are not available as a permanent employee.” Alex Paton; Ctrl Cee Limited

So contracting IS for you – but where do you start?

What are you waiting for?

Knowing where to start can be daunting, but fear not! In this section we will explain how you get started, what decisions you need to make and how to best prepare yourself.

Step 1 – deciding what your business model should be

There are a number of different routes you can take when deciding on your business model as a contractor:

Form your own Limited Company: that is responsible for all financial and legal decisions. Once you’ve created your own Limited Company, you’re an employee of it.

Contract as a Sole Trader: you run your business as an individual and retain the liabilities, therefore you are self-employed.

Contract under an Umbrella company: which effectively creates an over arching contract between yourself and the end client. The Umbrella company deals with your admin, tax and payroll. The end client will pay your Umbrella company, they then deduct their fee and National Insurance (NI) and income tax then pass what’s left onto you.

Which trading model is right for you?

Now that you have a brief overview of the options that are available, how do you know which one to use? The table on the following page gives you an idea of the different elements each option can provide, which should make you start to think about what you want from contracting.

Umbrella:

  • Take home approx. 65-75% pay
  • Non visible accounts
  • Reliance on third party to collect payment – which may lead to delays
  • Currently hostile targeting of Umbrella companies by both Government and Unions
  • Costly as tend to pay more overall tax on income
  • Some relief for claimable expenses (not as extensive as being Limited)
  • Good option for contractors intending to contract no more than 9-12 months
  • Low commercial risk
  • Minimal paperwork and administration
  • Quick and easy to set up and leave – no dissolving or formation costs
  • The Umbrella company takes responsibility for liability, therefore the contractor is not liable
  • Monthly fees to Umbrella for administration and account management
  • Less administrative responsibilities
  • Employee of the Umbrella

SoleTrader:

  • Non visible accounts
  • Joint control over financial decisions and running of business
  • Getting a bank loan is more difficult due to high levels of bankruptcy amongst Sole Traders
  • Significantly less tax efficient than operating as a Limited Company
  • Benefits from Flat Rate VAT scheme and more claimable expenses
  • Good option for contractors wishing to have similar tax benefits to Limited Companies, but without long term contracts
  • Combined personal and financial risks, meaning the contractor is personally liable for any financial difficulties
  • Increased administration and legal responsibilities for the running of the business
  • Quick, easy and low cost to set up
  • Shared personal and business liabilities should things go wrong
  • No fees – although much greater self management of accounts is required
  • Director’s responsibilities
  • Your own boss/Director

Limited:

  • Take home approx. 75-80% pay
  • Financial and account information is made public
  • Full control over financial decisions and running of the business
  • Highest level of considered professionalism, and can raise overallsocial standing and employment success
  • Higher rates of take home pay due to increased opportunities for tax efficiencies
  • Benefits from Flat Rate scheme and more claimable expenses
  • Good option for contractors intending to contract more than nine months as a full time occupation
  • Low personal risk as the company’s finances are separate to personal finances
  • Increased administration and legal responsibilities for the running of the business
  • Will take some time, administration and initial costs to set up
  • Limited personal liability as company assets are separate from personal assets
  • Monthly fee to contractor accountant for them to manage the Limited Company’s accounts
  • Director’s responsibilities
  • Your own boss/Director

Preparation is key: Limited Company

What you should be doing: It’s time to do some industry research, choose your company name, set your company up and choose your promotional methods to start getting your name out there.

Are your skills are in demand?

Before taking the leap into contracting, check first whether your skill set is in high demand, or could be if you have a niche offering. Don’t set up your shop front if no one’s willing to buy! Check various contractor job sites, agencies and forums to ensure your line of work is required

Check your potential day rate:

So you know your skills and job discipline are in demand, but are they offering the day rate you’d expect? Do some research to see what the average is for your job type. Remember to also take into consideration your level of experience. If you ’ve got years and can offer more skills than required, it’s worth commissioning a higher day rate.

Set your company up:

During this stage you have two options, go solo or enlist the professional help of a contractor accountant who can set up all the logistics required in order to get you ready to start trading. If you do decide to DIY your Limited Company, you can do so on the Companies House website.

Choose your promotional methods:

Now that you’re all set up and raring to go, you’ll need to decide how you’ll go about letting your prospective clients know who you are, what you have to offer and why they need YOU to fulfil their next contract. There are so many different methods out there, so do some research to find the best fit for you.

Choosing your company name:

Now for the fun bit! You can call your company whatever you wish (with a few exceptions). Do you want to be creative and quirky (to make sure you stand out and are memorable to your clients) or do you want your company name to say exactly who you are and what you do? Whichever direction you choose to go in, remember to check with Companies House that you can have it and that it’s not already taken.

Ready to go Limited? Call our expert advisers for a no obligation chat about your circumstances and how they can get you set up.

Call 01202 901 385

Email enquiries@intouchaccounting.com

Online intouchaccounting.com 

 

Preparation is key: Umbrella Company

What you should be doing: It’s time to do some industry research, choose your Umbrella company, check your potential day rate and decide on your online profile and self promotion.

Are your skills are in demand?

Before taking the leap into contracting, check first whether your skill set is in high demand. Don’t set up your shop front if no one’s willing to buy! Check various contractor job sites, agencies and forums to ensure your line of work is required.

Check your potential day rate:

So you know your skills and job discipline are in demand, but are they offering the day rate you’d expect? Do some research to see what the average is for your job type. Remember to also take into consideration your level of experience. If you’ve got years and can offer more skills than required, it’s worth commissioning a higher day rate.

Choose your Umbrella company:

Knowing what you need from your Umbrella company will depend on your personal requirements as a contractor. Remember that an Umbrella company cannot increase your wage (despite some of them claiming this) but they can have an overall effect on your take home pay depending on what they charge for their services. It’s worth doing some research to find an Umbrella company that suits your needs as well as your budget

Decide on your self promotion:

As an employee of your Umbrella company, they will liaise with your agency on your behalf, so there’s no need to find contracts yourself (but you are not limited to this). It’s still worth getting your online presence up to scratch, in case you decide to find contracts yourself. When it comes to self promotion there are so many different methods out there, so do some research to find the best fit for you.

Preparation is key: Sole Trader

What you should be doing: It’s time to do some industry research, choose your company name, check your potential day rate and decide on your online profile and self promotion.

Are your skills are in demand?

Before taking the leap into contracting, check first whether your skill set is in high demand. Don’t set up your shop front if no one’s willing to buy! Check various contractor job sites, agencies and forums to ensure your line of work is required.

Check your potential day rate:

So you know your skills and job discipline are in demand, but are they offering the day rate you’d expect? Do some research to see what the average is for your job type. Remember to also take into consideration your level of experience. If you’ve got years and can offer more skills than required, it’s worth commissioning a higher day rate.

Choose your company name:

As a sole trader, your name can be anything you like, as long as the word Limited or Ltd is not at the end of it. Visit the Companies House website for more advice on choosing and setting up your Sole Trader company name.

Decide on your self promotion:

Now that you’re all set up and raring to go, you’ll need to decide how you’ll go about letting your prospective clients know who you are, what you have to offer and why they need YOU to fulfil their next contract. There are so many different methods out there, so do some research to find the best fit for you

Contracting considerations – what you need to be aware of

IR35: What is it?

IR35 is the tax legislation which determines whether an individual is truly self employed, or working in permanent employment (known as a ‘disguised employee’). As contractors are able to take advantage of certain tax relief schemes which permanent employees cannot, IR35 legislation is there to ensure that no individuals abuse this system.

IR35 ensures that those who are truly not permanent employees are taxed correctly, according to their employment status. It’s other main purpose is to expose those who are acting as ‘disguised employees’, who are actively trying to avoid paying tax on professional entitlements which they are not eligible to receive.

If you are inside IR35 you are considered a permanent employee and will therefore be taxed as such. If you are considered to be outside IR35, you are considered self employed. We strongly advise that each new contract you take has undergone an IR35 risk assessment, to determine it’s status. With Intouch’s monthly service, unlimited IR35 contract risk assessments are included.

How does it work?

Unfortunately for contractors, IR35 isn’t something you need to worry about just once, as it applies to every contract you wish to complete. The following criteria gives you a brief overview of what IR35 entails:

  • Personal service: if your contract stipulates that you are able to send a substitute in your absence should you be unable to work, then this would strongly indicate that you are operating outside of IR35
  • Control: determines what level of involvement the client has over your working practice.
  • Lack of mutuality of obligation: determines whether you are obliged to complete the work and if the client is obliged to offer you work. Also whether you are obliged to complete the work outside the scope of the contract.

There are also other factors which you must consider when it comes to IR35, but the main aspect is to understand the effect it can have on your ability to contract as a true self employed professional and the impact it can have on your overall take home pay. For full details on IR35, visit the HMRC website.

Got questions about IR35?

With Intouch’s award winning monthly service, we include unlimited IR35 contract risk assessments, so our clients can rest assured knowing that their IR35 status is assessed with each new contract. Want more information on IR35? Contact our expert team today:

Call 01202 901 385

Email enquiries@intouchaccounting.com

Online intouchaccounting.com

Supervision, Direction or Control:

What is it?

Trying to answer this question is not easy, largely because it is a very subjective test, and one view of SDC will not be the same as another. We know from experience, one of the main criticisms of IR35 is the subjective nature of the assessment. Unfortunately the same problem exists when assessing SDC, but it is a more stringent assessment as only one of the measures needs to be proven.

How does it work?

  • Supervision is someone overseeing a person working, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge.
  • Direction is someone making a person do work in a certain way by providing them with instructions, guidance or advice as to how the work must be done. Someone providing direction will often coordinate how the work is done, as it is being undertaken. Control is someone dictating what work a person does and how they go about doing that work.
  • Control also includes someone having the power to move the person from one job to another. Although a degree of control may exist it is important to establish whether that control is at a sufficient level of interference in the manner in which the work is carried out. Control at a superficial level is not necessarily sufficient.

Do you need to be aware of it?

  • Limited Company contractor: If you are truly outside of IR35, then SDC does not apply to you.
  • Umbrella contractor: You are automatically deemed subject to SDC, unless your Umbrella company and end client can prove otherwise.

Need answers on SDC?

Our ebrief on SDC can give you a good understanding of what SDC is and how it may affect you as a contractor. Alternatively if you’d like to speak to an expert adviser, contact one of our team who will be able to discuss how SDC could affect you:

Call 01202 901 385

Email enquiries@intouchaccounting.com

Online intouchaccounting.com

Managing clients

Keeping your clients happy with a productive, professional relationship is the key to successful client management. But how do you achieve that relationship? Here are a few helpful tips to ensure both you and your client are getting what you need from your contract:

Take time to understand your client’s requirements

Your contract will outline the professional requirements to complete the job at hand, but what about your client’s needs? Why not ask for a short meeting at the start of your contract to understand fully how they’d like the contract to run, which will free you up to just ‘get on with it’.

Find out any deadlines, their working practices and what they expect. It will create a good relationship from the offset, show your willingness and enthusiasm for the contract and could be the catalyst for a testimonial once the contract has ended.

Explain your working practices

Your new client relationship is just that, a relationship, so they need to understand your working practices just as you need to know theirs.

Explain how you like to work, what you’ll need from them and any other considerations which the client will need to know about.

Don’t bite off more than you can chew

If your new client is throwing more work at you which isn’t outlined in the contract, remember that you’re well within your rights to refuse it.

If they’re expecting more work to be completed in the same time set out in the contract, ask for a meeting to discuss any new additions they wish for you to complete.

Don’t let a tough cookie client make you crumble

We’ve all been in working situations where you’ve come across a particularly difficult boss, client or colleague. When contracting you need to remember that you’re only there for a set period of time, so try to stay focused on the task at hand.

If the person causing friction is sabotaging your ability to complete the contract, then raise the issue with the client or another senior member of the team.

Giving that little bit extra

Whilst time is money and you shouldn’t work for free, if you see a future with your client and the possibilities of other contracts, then showing a little extra willingness can you put you in good steed for repeat business.

But before you do so, make sure the client is aware of what you’re doing, so that it doesn’t go unnoticed.

Other things to consider: Contractor Services

What other services might contractors need?

Many Limited Company contractors find that having insurance, financial advice and business internet banking are essentials when it comes to stress-free contracting

Insurance

Why do you need it?

When you provide services via your personal Limited Company it‘s very important to protect your assets and obtain adequate insurance. For almost all contractor and freelance professionals a requirement to be insured forms part of your contracts with clients, and it’s essential to be protected from the unexpected.

Who can help?

Here at Intouch we recommend Kingsbridge Contractor Insurance to any Limited Company contractors looking for a complete business insurance solution.

Financial services

Why do you need it?

As a contractor you may wish to invest your company’s assets and will therefore need professional advice.

Who can help?

PennyMatters are independent financial advisers with a long history of addressing the needs of contractors – life cover, pensions, mortgages and much more.

Business internet banking

Why do you need it?

As a Limited Company contractor, by law you must open a business bank account, to ensure your personal and business finances remain separate.

Who can help?

Metro Bank offer a specialist bank account for contractors with free banking and a mobile banking app. Ideal for busy professionals on the move.

Free advice at your fingertips Visit our resources section for all the advice and support you need when considering contracting or going Limited.

At Intouch Accounting, we work with contractors every day, helping them to understand their options, make the right decisions for their businesses and save money. So speak to us about how we can help you reduce the administration burden.