Calling all contractors: Five tips for business success
The number of self-employed workers in the UK has risen by over a million in the past few years to reach nearly five million in 20171. That’s over 15%1 of the labour force now working for themselves. Many are attracted by the prospect of a better work/life balance, increased pay and holiday flexibility. However, there are as many cons as pros. The constant pressure to secure a steady stream of contracts, lack of paid holiday and sick pay, and the extra time needed to run your business can make self-employment a challenging career choice.
If you’re ready to take the plunge, you’ll need to make a series of important decisions when setting up your new company. Many of these might be outside your traditional comfort zone. That’s why we’ve put together a handy guide to help start you off on your contracting journey.
Here’s what you need to know:
- Choosing the right type of company
When starting out on your own there are two options on offer: setting up a limited company or operating under an umbrella services company. There are pros and cons to both:
A limited company is a highly tax efficient option. It will allow you to claim a range of expenses and make savings via the Flat Rate VAT scheme. However, you’ll need to meet various statutory and HMRC tax obligations.
The umbrella services option means less paperwork. You effectively become a PAYE employee at the umbrella company, which handles all your invoicing, payments, tax and NI. However, fees for this service can be high, you won’t be able to take advantage of things like the Flat Rate scheme, and you’ll be forced to pay NI as both employer and employee.
- Choosing the right business bank account
If you set up as a limited company, you’ll need to open a business bank account. But with so many options, which one should you choose? Things to consider include: account charges; special start-up offers; rates of interest; speed of account opening; and whether they offer things like business debit/credit cards. It’s not essential to go with an established high street name: there’s plenty of challengers to banks, so shop around.
- How fast can you open an account?
It’s essential to get up and running as quickly as possible so you can start receiving payments from clients. However, the main high street lenders treat contractors as SMEs, which can cause delays in onboarding as they nitpick over things like business plans, trading and credit history. Some banks can even take up to four weeks to open a business bank account2.
- Coping with the extra admin
When running your own business, you may be struck by how much extra time needs to be spent on day-to-day admin. Invoicing and chasing clients for payment, quarterly VAT returns, NI contributions, managing business expenses, annual corporate tax returns — the list goes on.
This can make working under an umbrella company an attractive option. But if you’re set on operating as a limited company, it could makes sense to look into working with an accountant. They’ll stay on top of all your financial affairs and ensure you don’t miss any important deadlines.
- Picking the right accountant
So how do you choose your accountant? First up, it makes sense to find one before you set up your company, as they can also help with that. Go for a properly accredited and registered professional and preferably one which has experience of working with clients in your sector. Check testimonials and customer reviews, or ask colleagues and contacts if they can recommend one.
They should also be able to offer online accounting software to take the pain out of the whole process for you. Costs can vary according to your annual income and what they include. Consider trying comparison sites as a first port of call.
No business is the same. But by understanding the common challenges of setting up on your own, you can start off on the right foot.
Find out more about how a Cashplus Business Account could help, with features like integration with accountancy software, and as little as a three minute sign-up process, here.
This content was created on 15th June 2018