Working as a contractor gives you significant freedom over working as an employee. As a contractor, you will benefit from having more control of the work that you do, as well as having flexible working hours, being your own boss, and potentially receiving higher earnings. However, there are also issues that you will likely face as a contractor, and you will need to be prepared to tackle these. Aston Black Accountants are here to help answer any contractor, sole trader and partnership related queries. Here are the five most common concerns of contractors, and how to overcome them.
Being ‘on the bench’
‘On the bench’ refers to the period of time that you spend without a contract. Sometimes it’s not possible to immediately move from one contract to the next, and you may find yourself with spare time between contracts. This is one of the biggest risks that you take when you decide to work for yourself. To be able to see yourself through these periods of ‘bench time’, make sure to set aside enough earnings to see you through any prolonged period of time without work.
Receiving late payments
You are not always guaranteed to be paid on time, which can leave you out of pocket. To protect yourself, before you commit to a contract with a client, you should perform a credit assessment of their company to ensure that they will pay for your services. You should also confirm your invoice payment terms and ensure all documents are correct to avoid any delayed payments. If the payment becomes late, send payment reminder letters and final demands. If this does not work, you should resort to filing for small claims court action.
Not getting the right rates
The daily rate that you charge depends upon many factors including your skills and experience. However, the rate ultimately depends upon how much your client can afford to pay for your services, and will likely vary depending upon the contract. To make sure that you are getting the best possible rate, compare it with other similar contracts available, ensure that your current skill set is as up to date as possible and add new in-demand skills to your portfolio through training courses.
Having legal responsibilities
As a contractor, you are providing a professional service to the client which means that if something goes wrong, they have a legal right to claim against you. This is always a possibility, even for the most careful contractors, and the legal costs can become extremely high. Obtaining professional indemnity insurance will usually cover compensation needed to pay to correct any mistakes and legal costs, and provides reassurance to both yourself and your client should the worst case scenario happen.
Being caught in IR35
IR35 governs the taxable income of self-employed workers engaging in ‘disguised employment’. Contractors receive tax advantages because you don’t receive the same kind of benefits that employees do, such as sick and holiday pay. Therefore, if you work as a contractor but receive the same benefits of a permanent employee, you are not entitled to these advantages and are required to declare yourself inside IR35. If you incorrectly declare yourself inside IR35, you could be investigated by HMRC and fined. To prevent this, IR35 contract reviews and insurance are recommended to help protect you against future issues.
Whilst these five concerns are serious, it’s also worth remembering that they can be prevented or worked around if you follow the proper advice. The benefits of contracting will almost always outweigh these issues. For more contracting information and advice, contact us today.