Starting off as a contractor or a self-employed individual gives you flexibility and multiple other benefits.
If you come across the idea of conducting your work at your own terms and have the freedom of working through contracting services, then you need to understand how to start and what should be your initial steps.
Setting up on your own can be a daunting task, especially if you’re new to the whole idea. So, the expert team of Taj Accountants have come up with today’s blog to provide you with an in-depth startup guide for contractors.
This guide aims to give you details for you to start off as a contractor. It will help you at the initial stage to take off and help you make lesser mistakes.
What Is Contracting?
Contracting is a process in which you, as an individual get hired by a company for a specific project or a specified period of time. Contracting does not give you a full-time employment. For which, you need to have the required set of skills as per the company that hires you.
As a contractor, you generally work independently on the projects of clients. Even if you get hired by a company, you will not be working as an employee of the company as you work directly with the clients.
As a contractor you will generally be considered as a self-employed individual. It gives you flexible hours and rate of payment in return for the services you will provide. You can also work through your own limited company and provide services to a client for a certain amount of time.
Why would you choose to become a contractor?
As a contractor you work with freedom of choosing your own working hours, holidays and payment rates, instead of working as an employee where you are bound to some guidelines set by the employers.
Therefore, flexibility is the key reward of working as a contractor. Being self-employed gives you the freedom of being your own boss. Given these benefits, an increasing number of people are choosing to self-employment.
Another reward is that contractors are often paid at a higher rate than employed people. Also they get to choose the projects they want to work on instead of working on projects that are given by the employer.
Additionally, a contracting business offers flexibility, independence and security which are absent for employees. Most importantly, your income source diversifies along with valuable expertise and experience.
How can one become a contractor?
When thinking of becoming a contractor, an effective way to start is by consulting with professional contractor accountants in the UK who are specialized in contractor accounting. You can discuss your ideas with them and get tips on how to get started.
Next, with the consultation, you need to set out a plan on how you want to get started. If you are switching from a job to becoming a contractor, you need to look out for the expenses that may cause for switching and the expenses to get you in the marketplace.
Lastly, you need to understand your target audience and their demands. Before stepping into the contracting world, you need to complete the legal setup, gather the required permits, licenses, and register for taxes.
What are the categories of becoming a contractor?
As mentioned above, starting as a contractor, you get offered a set of choices of what type of business you will work as. The significance of the choices is that it can affect how much tax you pay; regarding that our specialist contractor accountants can advise you on choosing the most suitable option for you. All the options are explained below:
A limited company allows contractors to have separate legal entities from their company. It means they have “limited” liability and they are not personally liable for any financial obstacles faced by the company. Meaning,even if your company is bankrupt, your personal bank accounts, car, house etc. cannot be claimed, as you have “limited” liability.
Through a limited company, you will be paying Corporation Tax and can get paid with a mix of a low wage and dividends, meaning you will pay less tax and less NICs. Where as a sole trader, you get taxed on your income, where you may end up paying 30% tax on gross income.
You can also claim business expenses which can include mileage allowance, equipment, business trips, stationary etc via a limited company. From the company’s profit, the business expenses are deducted and they are not taxed meaning, you will be paying less tax at the end of each tax year.
For contractors, this one is the simplest option as profits are automatically yours since there is no separation between you and the business. However, you will need to file a Self-Assessment Tax Return every year and make National Insurance Contributions (NICs). London Accountants can help you with Self-Assessments. But, there are less preferences of clients to work with contractors who are sole traders.
This option is similar to a sole trader, but with two or more people working together as a single company.
This option allows you to choose to be an employee of an umbrella company. It deals with things like sending invoices and chasing payments and makes things a lot simpler for contractors at the expense of having to pay higher taxes for being an employee.
Contracting is not limited to a single field, domain or entity. In the United Kingdom, as a contractor, you can work for both the government and the private sector.
In the UK, ‘general contractors’ are involved in construction and renovation projects who can be an organisation or an individual.
There are IT contractors who provide technical expertise to help clients optimise and manage the information for the business processes.
You can work as a Transport contractor and provide transport services to institutions and entities.
You can also work as a Subcontractor and offer contractual services to major contractors and be responsible partially or fully for a contract.
There are also Consultants as contractors who provide professional advice for different areas and domains. For example, you can work as doctors providing contractual services and provide doctors to short-staffed hospitals in the absence of their doctors.
How can Taj Accountants help you?
Our specialist Accountants in London with their years of experience of working with thousands of contractors, can provide you advice and tips on getting started as a contractor. They can also help you save tax and improve cash flow. So, contact us and get on board.
How do contractors get paid?
Contractors generally get paid hourly or daily rates, which they have to invoice based on their timesheets.
What Are The Barriers Of Contracting?
If you are determined and you have considered all the benefits of being a contractor then you can easily manage the responsibilities mentioned above.
What is the legislation IR-35?
The IR35 legislation design determines whether a contractor is a genuine contractor or a disguised employee for tax advantages.
How can a Contractor Accountant help you?
Someone specialized in this area can guide you through the way of starting off as a contractor. A specialist Contractor Accountant can show you the right direction be it financial or legal. By hiring them you can save your time, energy and money.
How much will a Contractor Accountant cost?
Hiring a Contractor Accountant will be costing you between 50 to 150 pounds per month depending on your contract terms, day rate and the number of contractors working through your limited company.
DISCLAIMER: The purpose of the blog is to provide information and insight regarding the situation. The readers must contact experts before making any decisions based on the information. We highly appreciate you to contact Taj Accountants for further assistance.