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Considering Contracting?

10 things you need to consider!impartial advice on contracting

A contractor is someone who provides a service, not as an employee but as a director of a company. To help you decide if contracting is right for you, following are 10 things you should think about if you are considering contracting. However before you take the leap, make sure you speak to a trusted accountant who can guide you on how best to structure your business and to take advantage of the tax savings

1. The Pay-Off

Contractors are paid more on average than permanent employees, even after taking into consideration paid holiday. However you are responsible for paying your own tax and covering your own holiday costs and pension plans. If handled by a qualified and effective accountant you could pay considerably less in way of tax than your employed counterparts. They can also help you manage your money better and advise on how to provide for the future.

2. Job security

Writing this in 2013, we have known some contractors who are still in jobs whilst their permanent counterparts have been made redundant, albeit the usual scenario is that contractors and part-time staff are let go first. Employed people are harder and more expensive to get rid off than contractors, although, if you have a specific niche skill not available in-house and it’s essential to the business or its future you stand a better chance of being kept on.

The upside of the current financial climate is that less companies are employing people, precisely because they are harder and more expensive to let go, and not knowing how they will survive the coming years they are reluctant to make staff permanent…therefore they are contracting more.

3. Flexibility: Working from Home

Working from home has many advantages, plus a few cons. Whether it works for you or not depends on how well you manage your time and your space. The space you use needs to be dedicated to your work, quiet and accessible at all times. Assuming you have an area like this in your home, your next consideration needs to be your communication services; is your internet connection sufficient and what equipment will you need? Plan your office out on paper and work out the cost of furnishing and equipping it before you commit to working from home.

4. Flexibility: Time

Unless it’s specified in your contract, you can choose where and when you work. In this respect, contracting can offer you a greater work/life balance; less time spent commuting and more time to spend with family and friends. Be wary of procrastinating though, if you don’t work Friday morning because the rugby was on, you’ll have to work Saturday to make up for it. Time is not a limitless thing and deadliness still have to be met, but it’s easy to be fooled and then you end up working till 2am on Sunday morning. Time management is critical to successfully contracting.

5. Finding work

A contractor needs to be good at promoting them-self and their specific skill-set. There are many ways to market your business; too many to cover here, however below are few good links to get you started, where you can promote your services on-line:

6. Networking

Once you get that first contract, keep in the good books with the permanent members of the team as they will often influence the decision to extend or re-issue a contract. Although you may feel like the outsider and not get the opportunity to meet often, try and be an involved member of the team and get acquainted with the key decision makers.

7. Company Structure

As contractor you need to think about whether you want to use an umbrella company or Limited company. If you are only contracting for 3 months and earn £20,000 or less, then a limited company is not for you.

8. Insurances and others

Now you have your own company you will need various insurances, as the saying goes, “it’s better to be safe than sorry” Ensure you have the following as a minimum:

  1. Public liability
  2. Professional indemnity
  3. Personal accident
  4. Legal Protection

There may be other insurances you should consider depending on the services you offer. Speak to you accountant who can advise you further.

9. Secure your first contract

A business takes time to establish, and whether you have the start-up funds or not, you really must do projections based on how many contracts you would need in order to make the same income as you could be making as a full-time employee (minus expenses of course). How much time do you need to invest to build to this number of contracts and what will that cost? Even if you have the funds to support this growth, and especially if you don’t, it would be wise to secure and complete at least one contract that offers a part-time income, before you pile all your money into it or leave your job.

10. Professional Help

Of course there are many things to consider before you risk the security of your job and the income to become a contractor. If you’re a newbie or veteran, we are here to help. You don’t have to be our client, so pick up the phone and let us guide you through the process. Call us now on 0207 9689 2789 and speak directly to a qualified accountant.

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About Hardeep Mangat

Hardeep is a down to earth accountant, who loves helping contractors, freelancers and small businesses save tax and make more profit. He also has a particular interest in IR35 . Hardeep attended University College London and is a Chartered Certified Accountant, who previously worked for Credit Suisse Investment bank and at a local accountancy practice.

Hardeep on Linkedin and Google+

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