The Benefits of Being Your Own Boss
21 November 2020
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3 October 2023
Because you’re reading this article, it’s safe to assume that you’re thinking about becoming a contractor or have recently made the leap. Either way, smart move. Contracting offers endless opportunities - from working for who you want and when you want, to earning more and even escaping office politics.
The many advantages of contracting mean that in recent years, the number of self-employed people in the UK has soared to around 5 million. Hand in hand has been a steady rise in demand for contractors, who offer businesses flexibility and an abundance of specialist skills.
You won’t find many contractors who regret starting their own business either. In fact, 90.8% of more than 2,300 told us recently that this way of working has so far met their expectations.
So having established that contracting suits millions of people, and working off the basis that you’re interested in it, what do you need to know before you get started?
We’ll explain everything in our guide to contracting in 2021…
1. Get incorporated
First things first, you’ll need to incorporate your company. Contractors tend to work through their own limited company, which is also referred to as a Personal Service Company (PSC). As a contractor, this is likely to be the vehicle through which you provide your services to clients.
Working through a PSC has plenty of benefits - from limited liability to greater opportunities for tax planning. If you haven’t registered a business on Companies House before, it can be a little confusing. However, there’s plenty of help available and Caroola can even take care of the limited company formation process for you.
2. Open a business bank account
As a separate legal entity from its directors, every limited company needs its own bank account. These days, lots of banks have products tailored to the needs of contractors and small businesses. That said, it’s worth doing your research before choosing which bank to go with - factors to consider include; interest, charges and fees, online banking and the time it takes to get set up. If you’re wondering where to start, we’ve put together a useful article on setting up a business bank account.
3. Think about tax
You’ll need a plan for managing your new tax responsibilities in a compliant manner. Contractors need to pay Corporation Tax, VAT (if VAT registered) , and Income Tax, which is personal tax owed to HMRC based on the money drawn from your business.
The prospect of keeping a record of your finances, accurately calculating tax payments and submitting these to HMRC on time can be daunting, particularly if you’re new to contracting. Because of this, and given the complex nature of the tax system, you might want to engage a contractor accountant, who can look after everything for you.
4. Get to grips with IR35
You may have heard of IR35. It’s been a thorn in the side of contractors for over 20 years now, after being rolled out to combat 'disguised employment'. By this, we mean it exists to stop contractors whose engagement reflects employment from paying tax as a business rather than an employee.
On 6th April 2021, IR35 reform will arrive in the private sector. This means where the end hirer is a medium or large company, contractors will no longer be responsible for determining if their contract belongs inside IR35 (employed for tax purposes) or outside IR35 (a genuine business to business relationship). Instead, medium and large businesses will be transferred this responsibility. Where an assignment is found inside IR35, the tax liability - which currently rests with the contractor - is to be shifted to the party that pays the contractors Personal Service Company, assuming that all legal obligations are met along the way.
Contractors working with small private sector businesses are exempt from the reform, and will continue to bear responsibility for assessing the IR35 status and paying the appropriate taxes.IR35 is complex and many factors should be taken into account before an IR35 determination is made. For advice on how to navigate IR35, visit our dedicated IR35 resource section.
5. Protect your business
From the Coronavirus pandemic to Brexit, there are a number of issues likely to contribute towards economic uncertainty in 2021. Some say this uncertainty actually plays into contractors’ hands, with businesses preferring to engage contractors as they look to navigate choppy waters. However, there’s no denying that as a business owner, in this climate especially, you don’t want to leave yourself exposed to risk.
It’s why contractors often protect their business with insurance. Whether it’s IR35 insurance, professional indemnity cover or a public liability policy, contractor insurance could prove to be a shrewd move, offering you peace of mind too. For more, we’ve partnered with Hiscox to provide our clients with business insurance.
6. Market your services
Every business needs a winning work strategy, particularly in what is shaping up to be a competitive marketplace. There are a number of ways you can market your services though: build a website, establish a presence on social media, write blogs, contact your existing network and reach out to recruitment agencies.
Regardless of your marketing activity, what matters most is that you’re proactive and invest time in developing your business. If you’re interested in learning more, we’ve put together an article on how you can market yourself to win work.
Find out more
There are other things to think about of course, but most of these can wait until you’re up and running. Pensions and preparing for life after contracting being one. Contractor mortgages - which are tailored for people working for themselves - another.
However, if there’s just one point you take from this article, it’s this: as a contractor, while you’re technically in business on your own, rest assured that you’re in good company. The independent workforce is a thriving, diverse community of like-minded people, while the support available to contractors is able to help you every step of the way.
If you would like to find out more about taking your first steps into contracting, request a callback and a member of the team will be in touch.