Going into a new year is the perfect time for a fresh start, and for many people, moving into the new decade could mean a change of career.
If you’re looking for a job with flexible hours, increased pay, and the chance to be your own boss, contracting could be the perfect choice for you. But before you become one of the 4.8 million contractors in the UK, it’s essential to review your current situation and make sure you’re prepared for self-employed success.
With this in mind, below are five essential things to consider before taking the plunge into contracting.
Contracting work is available across multiple sectors
A study by ATT showed that the average UK worker will have at least six jobs in their lifetime, and contracting is no different. By taking advantage of flexible hours, you may find yourself working on multiple projects at the same time.
The number of firms using contractors is also on the up, with The Independent Association of Self Employed (IPSE) stating that over half of UK businesses are using contract workers to access specialised talent.
While you may find your skills in high demand at times, there is always the possibility of quieter periods too. Keep at least three months’ salary saved for your own peace of mind, so you can stay focused on expanding your network without worrying too much about where your next wage is coming from.
Choose how to structure yourself
When you become self-employed, you have options of how to structure yourself for tax purposes; however setting yourself up as a limited company can be the most tax efficient way of working for contractors, and could allow you to maximise your take home pay. If your skill-set is sought-after, you could expect to earn even more than as a PAYE employee.
Be ready to do without sick pay and holiday allowance
When you make the move from employee to self-employed, you no longer have sick pay and an annual holiday allowance as standard. The added flexibility of contracting means you can schedule in as much free time as you like, but you need to prepare for these breaks in your earnings.
Planning and saving is key for times when you won’t be working, so make sure you’ve calculated your finances in advance. For many, I’d suggest working out how much you want to set aside for holidays and setting your rates to allow for this.
This way, you can take time off without having to worry about the books and focus on enjoying a well-deserved rest.
Staying on top of paperwork is a must
Supplying your services as a business means a certain amount of paperwork, and contractors need to ensure full compliance.
Inaccurate reporting could result in financial penalties that are easily avoidable. Contractor accountants are knowledgeable specialists who can help when it comes to keeping your admin affairs in order.
Always select your accountant carefully and pick a firm where you’ll have access to the latest industry advice to make sure you’re running as efficiently as possible. This will ensure your focus remains on getting projects done.
You can still secure a mortgage as contractor
Becoming a contractor won’t put you at a disadvantage when it comes to making financial commitments as long as your books are in order, so don’t let big life decisions like buying a house get in the way of a new career.
A recent study we conducted at SJD Accountancy discovered that 62% of contractors had a mortgage, with nearly half of them reporting no issues at all with the process of securing one.
Don’t forget that running your own company doesn’t mean that you need to do it all by yourself. Dealing with tax and compliance can be daunting at first, but there’s lots of free advice and guidance out there from people who’ve been there and done it.
If you’re unsure, specialist accountants will be happy to help you get up and running. They’ll be able to help with general bookkeeping, and specific areas like the formation of your limited company.
Contracting as a career choice is increasing in popularity, and by keeping these five points in mind, you’ll be set up for a successful start to self-employed life in 2020.
James Foster, Senior Commercial Manager at SJD Accountancy