Startup Guide for Contractors
Startup Guide for Contractors
When thinking about setting up on your own it can seem a little daunting. Perhaps you have decided that you are fed up of working for someone else and want to be your own boss, or maybe you are in between jobs and are thinking of contracting. Whatever your reason you have come to the right place. Startup Guide for Contractors will tell you everything you need to know about contracting as well as some useful tips to get you started.
What is contracting?
As a contractor, you will be self-employed or working through your own limited company and will only be contracting for a client for a limited time period. In contrast to being an employee of a specific company, as a contractor, you will be in control of the number of hours you work and how much you should get paid. Essentially, you are your own boss and many individuals turn to contract work to give them the flexibility they desire in life while also putting their skills and experience to good use.
Video: How To Become A Contractor In The UK
If you are thinking about becoming a contractor in the UK, watch our quick video to learn about the key things you need to know to start working as a contractor.
How and why to become a contractor
If you are thinking of becoming a contractor a good place to start would be to speak to one of our contractor accountants. We specialise in contractor accounting and can offer you the chance to discuss your ideas with a contractor specialist who can give you tips on how to get started. This will include discussing whether it would be more beneficial for you to set up as a contractor under an umbrella company or on your own as a limited company.
There are several perks to becoming a contractor which is why many individuals select this route if they are seeking an alternative to full-time employment. Contractors are often paid at a higher rate than employed staff and have the benefit of selecting the projects they work on rather than this being decided by a manager. As a contractor, you can also be in full control of your time – deciding what hours you work and the holidays you take.
There are also tax benefits that come with becoming a contractor, which our contractor accountants can help you to take full advantage of. You will be able to claim on a range of expenses helping to bring your tax bill down with a contractor specialist on board.
Beware of IR35
IR35 is a piece of tax legislation that aims to prevent contractors from working as ‘disguised employees. This is where a person is registered as a contractor (so is self-employed) but works as if they are an employee of the company and receive the same benefits as employed staff (such as holiday pay, sick pay etc.). You can declare that you are ‘inside’ IR35 if you find yourself in this situation, however, not declaring it can incur a large penalty and tax bill from HMRC.
To help you navigate the IR35 try speaking to our team of contractor accountants in London. Our team of IR35 specialists in London will be able to assist you in making sure your work contracts and working practices adhere to IR35 and provide advice on what to do if they don’t. Getting the IR35 right is a key part of contractor accounting which is why our expert contract accountants are the perfect fit if you are thinking of becoming a contractor in the UK.
Different ways of working as a contractor
There are different ways of working as a contractor and when you first take a look at these it can be a little confusing. Thanks to our in-house contractor accountants and contractor specialists there will be someone to explain your options clearly, and to offer advice on what would be the best way of working, for you. Here we explain all of your options.
One way of setting up as a contractor is by starting a limited company. Our team of contractor accountants in London can help you to do this. This is a popular option for contractors as it gives the most control and can be the most sensible choice when it comes to tax.
The potential downside with setting up a limited company is that you will have a greater responsibility. This means that you will be in charge of the accounts, taking care of invoices and expenses and filling out your tax return. Having a team of contractor accountants in London behind you, which includes IR35 specialists in London as well, will help reduce this burden and ensure your responsibility is shared.
If you are wanting to become a contractor but would like the option with the least administrative responsibility, then opting to work as a contractor under an umbrella company might be the best choice for you. In this scenario, your employer will sort out your income tax and national insurance which means you don’t need to worry about those aspects of your finances.
In this situation, you will still be able to control your own workload but also have the benefits of a permanent employee. Our contractor accountants will help you to decide if this is the best option for you.
Expenses you can claim as a contractor working through your Limited Company
As contractor accounting experts we can advise you accurately on whether or not you fall outside of IR35 and what expenses you can claim if you do fall into this category. This means you can claim expenses that relate to your business such as travel, utility bills, insurance, accountancy fees, internet costs, and phone bills.
10 key things you should know before you start contracting
- Earn more money – contractors are often paid at higher rates than permanent employees.
- Be your own boss – contracting means that you get to call the shots.
- Choose the hours you work – as a contractor you have the freedom to select when you work, and the number of hours you want to work.
- Select the projects that interest you – as you are now in charge you can select which projects you work on, selecting areas that fuel your interest and allow you to develop your skills.
- Claim tax benefits – if you go down the limited company route you can claim expenses against your income which will help to reduce your overall tax bill.
- Have the best of both worlds – if going at it completely on your own sounds too big a step you can become a contractor under an umbrella company. This gives you the freedom to work independently while having your tax and national insurance contributions taken care of.
- Employee benefits are taken away – if you set up as a limited company (and don’t go down the umbrella company route) you will lose the security of employee benefits such as holiday, maternity and sick pay. Something that is worth considering before you make your decision.
- IR35 legislation – the IR35 legislation is in place to make sure contractors are paying tax correctly. Don’t let this legislation catch you out and speak to our IR35 specialists London about how this affects you.
- Contractor accountants London – getting the best contractor accountants in London to take care of your affairs will ensure you can share the responsibility of taking on a limited company yourself. Contractor accounting is our speciality.
- Contractor UK – being a contractor in the UK can be a very smart choice to ensure that you are getting the best financial reward for your time and your skills. It is also a great option if you are looking to have more independence in your working life.
How to start contracting overseas as a UK National
Instant and affordable communication has enabled jobseekers to transcend geographical barriers to work globally.
The idea of contracting abroad sounds attractive, especially for those who have transferable skills. However, before you decide to move abroad to work as a contractor, you should prepare yourself to face unanticipated challenges early on and should be well aware of all the tax and visa requirements.
Visa requirements when working for an EU country or a non-EU country?
Before contracting overseas, shortlist the countries where you would like to work and conduct a thorough research about the visa and tax requirements. Without the appropriate visa, you will not be able to apply for your desired contract positions and time spent on looking for contracts will be wasted.
Working in the EU:
If you are a contractor from the UK and you are planning to extend your contracting services to the European Union, then the good news is that you are able to work in the EU without any visa requirements, however, this might change after Brexit.
You should also learn and understand the tax system of the country you plan to visit as it can be vastly different from the UK system, or can create double taxation issues. Speak to your contractor accountant for advice and referrals in the overseas location, where you plan to contract.
Working outside the EU:
Visa requirements outside the EU may vary from one country to another, and you might require different types of visas to begin your contracting services. You might be able to get a local company for which you plan to contract, to provide you with a visa.
It is important to note that thorough research should be conducted on the opportunities available in the country you look forward to working in, and professional advice should be sought before working on your visa application. Your contractor accountants should be able to connect you to immigration specialists who can guide you more about visa requirements.
Taxes when contracting overseas?
You need to pay attention to your tax situation to avoid double taxation, penalties and fines. Contractors are responsible for their own filings and taxes, failure to comply with these can create serious issues and fines. You might be liable to pay tax on your foreign income or any income earned from sources in the UK whilst providing contracting services abroad.
You can never fully anticipate the impact of working abroad on your taxes. Working out your taxes in a foreign country may get very confusing and frustrating, so we advise you to speak to a competitive accounting firm nearby, tax accountant or a contractor accountant to help you.
Approaching international umbrella companies can be another option if available, as they can provide you with a number of tailored solutions for your taxes and filings.
A considerable amount of time and effort needs to be put into planning for working abroad to determine if the return is worth the risk.
How to find an Overseas Contract?
The best method to find an overseas contract is to appoint a recruitment agency in the country in which you plan to contract. These agencies have built a network of connections with companies who require contract workers and should be able to match you with the right contract. You should be able to google a list of registered agencies or use LinkedIn to find consultants who should be able to help.
Another option would be to find a contractor accountant in the desired country you plan to contract in, accountants are professionals who have the right connections and would be best suited to guide you without any risk of fraud.
How to check if a country is safe for UK Nationals?
Travelling can be stressful if not planned for properly, planning ahead for it and taking necessary precautions can make the journey both safe and affordable.
The easiest way to check if a country is safe to visit is to check the travel advice on the gov.uk website. The website also mentions what to do in case you run into trouble.
Useful tips when providing contracting services abroad
Ensure that you have all legal documents
When working abroad, you should carry all relevant financial documents, past criminal records, visa-related documents, passports and tax returns.
Build your network early on
Try following events on Facebook which will help you build your network in the target country. You can join different networking events, business conferences and training seminars, to understand the culture better or try using LinkedIn to get introduced to potential professional connections.
Use the local telecommunication network
You don’t want to be using your original sim card in a foreign country, as the roaming charges are quite expensive. Instead, it’s better that you get your hands on a local sim card, as it will be much cheaper and you will also get to enjoy numerous data packages available in that country.
Keep cash in hand
Keep cash in hand, as certain local vendors might not accept credit cards, such as taxi drivers or local shopkeepers.
Learn about the local culture
Once you have selected your target country, you should dedicate some time to learn the basics of the language spoken in the country. You should also research the traditions, culture and customs of the particular area you wish to reside in.
Stay in touch with your local embassy
Remember to stay updated on notifications posted by your local embassy.
Clear House Accountants are specialist Accountants in London who have years of experience working with thousands of contractors providing them with smart solutions to tax save tax and improve cash flow. If contracting sounds like an appealing career move give us a call today and we can offer expert advice to help you decide your next steps.
General FAQ’s for Contractors
Contractors are independent of the employer and will normally have more freedom to decide the hours they work and how they get the work done, they also have to bear the risk of their work and do not have right to any employment rights. Employees, however, work for the employer, follow the instructions and rules set by the employer and get to enjoy employment rights.
Contractors normally get paid hourly or daily rates, which they have to invoice based on their timesheets.
The IR35 legislation has been designed to determine if a contractor is a genuine contractor rather than a disguised employee for the purpose of tax.
It is always wise to have an expert on your side, especially when it comes to tax. Hiring a good contractor accountant will not only save you time but also money in the form of tax savings. Speak to a contractor accountant to find out what benefits they can provide to you.
The cost can vary but you should be looking at something in between 50 to 150 pounds per month, depending on your day rate, contract terms and the number of contractors working through your limited company. Just make sure the price is a fixed fee and that the services you require are covered in the quote you get from your contractor accountant.