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Contractors are preparing for another challenging period with a recession predicted to hit the UK, after two years of pandemic-related lockdowns.
Given it’s wise to prepare for the worst, there are some things that you can do to make sure your contract business weathers an economic storm.
In this article, we explore ways to make your contract business recession-proof, whether it’s this year or in the future.
Create a rainy day fund
As a contractor, you’ll likely have a good handle on your finances already – so you’ll know how important it is to budget accurately and save where possible.
From your existing income – after having set aside enough for tax, business expenses and an amount you need to pay yourself – you may find that you have some money left over.
If you’re in this fortunate position, consider building up a pot you can lean on if and when you need to.
Moreover, many business bank accounts have dedicated saving spaces, making it easier to set up a savings pot to prepare for a rainy day.
Maximise legitimate expenses
Claiming back all legitimate expenses incurred as a result of your work – travel, for example, or equipment bought to do your job – can reduce your tax bill.
Granted, by making the most of all these expenses, the profit you declare as a business will be lower. However, that’s not necessarily a bad thing, given it will also reduce the amount of Corporation Tax you pay – which is a 20% tax on profit.
So, you can legitimately lower your tax bill by having a firm understanding of what you can (and can’t) claim as a business expense.
To get started, why not check out our guide.
Guide to contractor expenses
Insure your business
Insurance policies help to protect you from a range of risks.
For an affordable monthly or annual fee, you can benefit from financial protection from unforeseen circumstances.
Depending on the clients you work with, and the environment you operate in, there are plenty of insurance policies worth considering:
- Tax enquiry insurance: offers protection from HMRC enquiries into your tax affairs
- Equipment insurance: protects your business equipment from loss or damage
- Public liability insurance: covers the cost of professional representation and liabilities if you’re taken to court by a third party, due to injury or damage to their property
- Professional indemnity insurance: protects you from claims of professional negligence or negligent advice
Review your rates
You might also want to consider reviewing your rates and adjusting them in line with inflation. Manage this and you won’t be as affected by rising costs across the spectrum – whether that’s food, fuel or energy prices.
And because engaging a contractor can be more cost-effective for businesses than hiring employees, increasing your fees won’t necessarily prevent you from winning new work.
Sub-contract out work
If it means that you can secure longer projects or larger contracts, you could also start sub-contracting work out to fellow contractors.
Of course, first, you’ll need to make sure that your client agrees, and ensure that you’ll make a margin after paying the sub-contractor. But it goes without saying that it will increase your capacity, meaning your business can generate more revenue.
In summary, while a potential recession is a worry, that’s not to say it can’t be managed. By taking some time to review your business and using it as an opportunity to refresh your approach in some areas, you can reduce your exposure to a challenging economic climate.
To learn more about managing your tax affairs, the team at Caroola can help.
Interested in finding out more? Speak with our expert Sales Team to see how we can work together.
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