Accountants guide to starting up as a contractor
It can be intimidating to think of starting your own business. Perhaps you’ve decided to provide contracting services because you want the flexibility to select how you work, or perhaps you’re between jobs and want to contract. Whatever your motivation, you’ll need to know where to start and what your initial steps should be. Our in-depth contractor startup guide, created by our in-house contracting experts, will walk you through all aspects of working as a contractor.
This contractor’s startup guide will teach you all you need to know about contracting. It will assist you in taking the first steps on your journey while also assisting you in avoiding any potential blunders and errors.
What Is Contracting and How Does It Work?
Individuals who supply a specific skill set for a limited length of time as an independent contractor rather than as an employee; they are individuals who provide a specific skill set for a limited period of time as an independent contractor rather than as an employee.
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Contractors work on client assignments on their own time rather than as corporate employees. You’ll have more flexibility in determining your working hours and amount of pay for your services. A contractor is typically thought of as a self-employed person who works via their own limited company to provide services to a client for a set period of time.
Contractors have more freedom than employees in terms of working hours, holidays, and how much they want to be paid for their labour. You are, for the most part, your own boss; many people choose to contract work to gain the freedom they desire while simultaneously putting their skills and experience to good use.
Switching to contracting, for whatever reason, is a lot easier than you would imagine. We’ve outlined the benefits and drawbacks of contracting to assist you understand what to expect.
Why Should You Become A Contractor?
Working as a contractor has numerous advantages, which is why many people prefer it to full-time employment. Contractors are generally paid more than employees and have the option of picking and choosing which projects they work on rather than being forced to work on tasks that aren’t to their liking.
Working as a contractor gives you the flexibility to choose when and how much you work, as well as when you take vacations. A contracting business provides the freedom, stability, and independence that a job may not provide. You can also make money from a variety of sources while getting useful knowledge and experience.
Advantages & Disadvantages Of Contracting
There are a variety of reasons why people prefer to work as contractors rather than employees; the benefits and drawbacks of becoming a contractor are listed below.
What Are Some Of The Benefits Of Contracting?
- A price guarantee
- Earning more money with a higher salary
- Lowering your tax bill (our specialist contractor accountants UK can show you how to achieve this)
- Professional job satisfaction is higher.
- Work on projects that interest you and have more flexibility in terms of when and where you work
- You are not obligated to work with someone you dislike.
- Having your own business
What Are The Disadvantages Of Contracting?
- Added duties as a result of having to run your own company
- Job security is compromised because most contractual positions are transient.
- It may necessitate relocating or extensive travel for business.
- Keeping a contract, as well as the necessity to seek continuous contracts in order to earn enough money, adds to the stress of having to meet deadlines.
- There are no employee holiday perks, and you are not permitted to take time off throughout your contract.
- IR35, being caught up in the IR35 Laws
How do you go about becoming a contractor?
If you’re thinking about becoming a contractor, speaking with a professional contractor accountant who specialises in contractor accounting is a great place to start. Contractor accountants can provide you with the opportunity to discuss your ideas with a contracting expert who can provide you with advice on how to get started.
To begin, you must have a well-thought-out strategy for becoming a contractor. Switching from a job to starting your own contracting firm is not easy. Keep an eye out for the costs it may impose on you, as well as the expense rate you may acquire in the marketplace.
Second, know who your target audience is and what they want. Before you begin contracting, the most important thing to remember is to finish your legal paperwork, obtain all necessary permits and licences, and register for taxes.
How Do I Begin Working as a Contractor?
Contracting isn’t restricted to a single field or industry. Contractors in the United Kingdom can work for both the private and public sectors. General contractors work on building and restoration projects and can be either a company or a single person. IT contractors give technical skills to clients in order to help them optimise and manage data for business processes.
Contractors who provide transportation services to institutions and entities are known as transport contractors. Individuals or firms that provide contractual services to big contractors and may be partially or totally accountable for a contract are known as subcontractors. Consultants are independent contractors that provide expert advise in a variety of fields. In the absence of other doctors, locums are doctors who provide contractual services to hospitals that are short-staffed.
Starting a limited company is one way to set up as a contractor, and it’s a popular choice among contractors because it provides them the greatest autonomy and can be the most tax-efficient alternative.
Setting up a Limited Company is more challenging because there are more standards to meet and a higher level of accountability. You will be in control of the accounts, invoicing, and costs, as well as filling out your tax return, if you form a limited business. We propose that you employ a competent contractor accounting firm to assist you in effectively managing your business.
In some cases, a contractor may be subject to IR-35 or may prefer to avoid the inconvenience of taxes; in these cases, they may choose to work under an umbrella business. The umbrella business works as a go-between for the contractor and the employer. They’re in charge of billing the client, receiving payment, and disbursing it to the contractor or firm via payroll.
As a result, the process runs smoothly since the contractor is paid once national insurance and taxes have been deducted through payroll, and the contractor does not have to worry about paying National Insurance or other payroll taxes.
If you want to work as a contractor but don’t want to deal with the extra paperwork, you can choose the umbrella option, which will lessen your administrative burden and tax implications.
In this scenario, your income tax and national insurance will be handled by the umbrella company, so you won’t have to worry about those areas of your money. You will still have control over your task while also receiving the perks of a permanent employee in this case.
Understand the IR35 tax code
HMRC (Her Majesty’s Revenue and Customs) has provided a precise definition of self-employment. IR-35 affects any contractor who does not fall within HMRC’s definition of self-employment. Employees working for corporations disguised as contractors for tax purposes are prohibited under the IR-35 Act.
IR35 is a tax law that applies when people declare themselves as contractors for tax purposes but are treated as employees by the company due to their working arrangements and the fact that they receive the same benefits as employees, such as holiday pay and sick pay. If you find yourself in this circumstance, you must declare that you are ‘within’ IR35; but, failing to do so may result in a substantial penalty and tax charge from HMRC.
To assist you with navigating the complexities of IR35, speak with a professional IR35 specialist who can help you ensure that your labour contracts and working methods comply with IR35.
Due to the way umbrella businesses operate and pay contractors, IR-35 does not apply to them. The umbrella business manages the contractors’ payrolls and pays PAYE taxes on their profits. As a result, umbrella corporations are not subject to IR-35.
As indicated by HMRC, you must ensure that your company does not utilise any schemes that could be susceptible to a loan charge or tax evasion scheme. If your organisation is subject to the Loan Charge Program, speak with a tax accountant or someone who is properly qualified.