If you’re thinking of becoming an engineering contractor, there are some things you should keep in mind when taking the leap, such as the best-operating structure for your business or even whether self-employment is the right step for your career.
As contractor accountants, we can help you figure these things out, so take a look at our guide on how to become a self-employed engineer.
Is Contracting or Freelancing for You?
Before deciding whether you should become an engineering contractor, think about all the pros and cons of being self-employed. Do you have the discipline to be your own boss and work even when no one’s there to motivate you? Have you researched the market and any gaps you could potentially fill? Is there enough demand for engineers or for your speciality?
Make sure you ask yourself these and other questions to minimise the risks involved in striking out on your own. Researching the market – and looking into becoming a freelancer or contractor – will also help you understand the responsibilities that business owners have, as well as all the admin duties and taxes that must be paid.
Most contractors don’t regret turning to self-employment, since the earning potential is incredibly high and you’re able to have more control over the work you do.
What Business Structure Should You Opt for?
Contractors that work through a limited company and sole traders are two different things, and it’s important you select the structure that is best suited for your business model. If you want to become a sole trader, you’ll be safe from IR35 legislation and changes, and have fewer admin responsibilities when compared to limited companies.
It can still be a hassle to stay on top of our accounts, but this is where Gorilla, as sole trader accountants, can help. We’ll make sure your taxes are paid in a timely manner and make sure all submitted paperwork is error-free as well.
We’re also limited company accountants, so we can help you handle your finances, balance your salary and dividends, claim expenses, and more. And, as a limited company, you may get a higher take-home pay than if you’re a sole trader, which is why many people opt for this structure instead.
A limited account is a separate legal entity, so your personal finances aren’t tied with the company’s the same way they are if you’re a sole trader, as you’re considered the business in that model. As the owner of a limited company, you have director responsibilities as well as more documentation to file and submit to HMRC and Companies House.
So, do your research to learn more about which structure is better for you.
Register with Companies House
This only applies if you decided to set up a limited company. Companies House is the UK’s registrar of companies and also an agency and trading fund, and your engineering business will be listed publicly. This means that everyone can see your company’s details, such as your address. You must also submit annual returns and notify them of any changes to your accounts.
You can request professional help from a specialist accountant who understands the whole process from start to finish and who can take on this task so that you can focus on your business. With Gorilla Accounting, you get your very own dedicated accountant who can help you incorporate or manage your financials, so get in touch today.
Set Your Rates
When it comes to getting paid, self-employed engineers can actually earn more than those in permanent employment because they’re free to set their own rates. You can also choose only the projects that truly interest you, meaning you don’t have to take on gigs that don’t advance your career or that you don’t like.
Engineering is a dynamic, everchanging environment, so take this into consideration when picking the rates – are you up to speed to the latest in your industry? Do you have the latest qualifications? What’s your specialisation?
Depending on your answer, you may be able to set a higher or lower amount. Your experience is also important, as you can set higher rates if you’ve been working as an engineer for many years or if you have a lot of experience.
If you’re just starting out, you may opt for charging by the hour as well, or if you’re working on a long contract or are expected to work long hours. You can also set a daily rate that accounts for a particular number of hours instead; however, it’s worth considering that you may not be able to charge overtime with this option.
Find Engineering Work
Getting that first contract – or finding work in general – is your responsibility as an engineering contractor. Whether you’re a mechanical engineer or a chemical plant engineer, for example, you have to keep brushing up your CV and your skills if you want to remain competitive, sell your services and find work. We’ve written a guide on creating a killer CV, so make sure to give that article a read too.
Networking is also very important, so get in touch with people you’ve previously worked with, interact with your peers and potential employers on LinkedIn, and more. Follow-up applications, chase agencies and do everything you can to keep your business on their radar.
You can also go through a recruiter. If you opt for this route, make sure you specify the area of work you’re interested in, where you’re looking to find work, and what you want to charge. This will help you to filter out the contractors that don’t match your requirements.
Promote Yourself Online
Marketing yourself online allows you to take advantage of the 4.66 billion people who use the internet (corresponding to 59% of the Earth’s population). Digital technologies and platforms continue to rise because of the pandemic as well, and people are expected to continue connecting to others online in the near future.
After all, there are around 3.8 billion social media users around the world – a number set to rise to 4.41 billion by 2025. This can be a good way to sell your services, then. LinkedIn is a must, as many professionals and companies make the platform their home, advertising new jobs and forging lasting relationships.
Working Away from Home
Not everyone is prepared to work away from home, as this can mean a lot of travelling, long commutes or even missing out on important moments with family and friends. Your dream contract may be far away, or you may even have to stay on site for weeks or months. Some people prefer to stay closer to home, so this can be a dealbreaker.
However, part of being your own boss is only accepting contracts you like. If you don’t have to work away from home, you can choose nearby gigs instead. You have all the control.
Handling Tax as an Engineer
When you’re in permanent employment, your boss will handle all the tax and national insurance contributions you must pay, as your income is processed through PAYE and national insurance deducted. However, once you become self-employed, whether as a sole trader or as the director of a limited company, you have to take care of this yourself.
You’re an employee of your company, so you must know the correct way of paying yourself and paying the right amount of taxes, for example. As a sole trader, you have to submit your self-assessment tax return with details on how much money you made and how much you owe HMRC.
What About IR35?
At Gorilla Accounting, we know very well how IR35 impacts contractors across the nation. With the new changes arriving in April 2021, you should confirm whether any contracts you have – or accept in the future – are inside IR35.
If you are, then it means HMRC considers you an employee for tax purposes. If investigated, you may have to pay fines and back taxes. But, if some of your contracts are caught within IR35, you just need to pay the right amount of tax on them in order to avoid an HMRC investigation.
HMRC focuses on a few points to determine whether you’re a disguised employee or not, including:
Control – If you are under the direction and control of your client then this is a sign that your engagement would be inside IR35.
Mutuality of Obligation – If you’re an employee, there is likely to be an obligation that your employer will continue to provide ongoing work for you.
Right of Substitution – If you can have someone replace you for any reason, then this is more likely to be a business to business relationship rather than employer and employee.
Accidents happen and property can get damaged, so it’s crucial that you have insurance in place to protect your livelihood against the unexpected. You may also find that some companies prefer to deal only with contractors that are insured as well.
You may be the best engineer in the world but problems can still happen; for example, you can give the wrong advice or you can measure something wrong, which costs a lot of money to repair.
Before you start contracting, get the relevant contractors insurance to protect you against claims and to give you peace of mind as you go about your day.
Benefits of Being a Self-Employed Engineer
To round up the article, we’re taking a look at some of the reasons why you should become a self-employed engineer, including:
Freedom to choose the contracts you like
Control over every aspect of your business (you make all decisions)
Job satisfaction, as you’re doing what you love
Variety of work, since no contract is the same and you can choose the most exciting projects to work on
Higher wages because you can set your own rates
You can get new equipment whenever you want
You’re able to set your own schedule
As accountants for engineers, we can help you grow your engineering business. Every case is unique and has its own challenges, so it’s important that you select an accountant who can understand the ins and outs of your company and industry.
When you become a client, you get 24/7 access to FreeAgent accounting software, so you can manage your accounts on the go, no matter where you are. You also receive real-time information, so you can make key business decisions easily.