Answers to the Questions You Always Wanted to Ask About Contracting
The world of contracting can be challenging to wade through, so it’s normal that contractors have questions or doubts about it. After all, being a contractor is very different from being an employee, especially because you’re responsible for all of your successes – and failures.
As contractor accountants, we understand just how important it is to be aware of the ins and out of contracting in order to boost your chances for success. So, we have compiled the answers to your most frequently asked questions about contracting, which we’re confident can help you to navigate this complex subject.
Can I Take Holidays If I’m a Contractor?
The short answer is yes, you can take holidays almost like a permanent employee. Typically, you’re not required to work every day of your contract, since you can make your own hours, and you can also plan time off in-between contracts – in essence, if your absence doesn’t affect work deadlines, it’s highly likely no one will have an issue with you going away for a while. You’re not limited to a specific number of days per year either, given that your time off is not paid by your customers.
Should I Choose Hourly or Daily Rates?
As a contractor, you’ll always be asked what your contractor rate is. Do you prefer to get paid on a daily or hourly basis? It’s crucial that you know this ahead of time, so you are aware of how much to quote potential clients. Some contractors choose fixed price work, where they quote for a whole project, rather than by the hour/day.
Daily rates are typically used in the finance sector or by contractors on the higher end of rates (which often means a few hundred pounds a day). With this structure, you receive payment for each day that you work. If you choose hourly rates, which is a more common arrangement, you get paid for the number of hours that you work. Some clients may put a cap on this number with overtime needing approval from managers or other superiors.
Depending on your project, you may come to the conclusion that one type of rate will suit you better than the other. This can be a complex subject, but we can help you to navigate it. Talk to Gorilla Accounting today to learn more or, alternatively, calculate your take-home pay with our online contractor tax calculator.
What Should I Do If a Client Hasn’t Paid Me?
Collecting invoice payments should be a simple, routine matter; however, if the payment deadline has come and gone without a word from your client, what should you do? While you may have a professional payment set-up in place, the truth is that it’s up to your client to pay once a project has been completed – and this doesn’t always happen.
If you have unpaid or overdue invoices and the client has ignored your attempts to seek payment, you may have to pursue the client or agency through the courts; if this is the case, it’s crucial that you follow the appropriate process to ensure success.
You can start by issuing a final payment request with the details of the agreement you have with them; you may also take this chance to let them know you will file a claim against them and/or will take them to court if they’re unable to make payment within a set period of time from the request date. Any letters you sent should be through recorded delivery, so that you can have a record of all important correspondence.
If this doesn’t work, you may use a credit collection agency or file a Money Claim online, which kickstarts the court process. If the court rules in your favour, your client must pay what they owe. Although, typically, debtors will pay at this point, it’s possible the client or agency will still refuse to pay. The court ruling will remain on a public register for six years should this happen, which means a negative impact on their reputation – this ‘threat’ may be enough for your client to pay.
The courts are the last resort, but it’s crucial that you’re aware of this option should you require it.
What are Dividends?
If you work through a limited company, you can pay yourself dividends. These are post-tax profits paid to shareholders, which help you to maximise your earnings. While dividends are now more heavily taxed due to a change in Dividend Tax regulation in 2016, this is usually still more tax-efficient than paying yourself a salary. After all, dividends are not subject to National Insurance Contributions.
Calculating your dividends and taxes can be complex, so there’s no reason why you should be wasting your time and energy on it. Let us help and free you to focus on growing your company. Gorilla Accounting can advise you and our cloud-based bookkeeping software, FreeAgent, will do the heavy lifting – because FreeAgent is a real-time tool, you will immediately be able to see these calculations.
When is the Right Time to Apply for Contracts?
You may wonder when the best time to apply for contracts is – before or after your current contract expires? We understand it may be difficult to job hunt while juggling client work, especially when this means you have to spend precious time of your busy day tweaking your CV or preparing for interviews.
However, while it’s more work on top of what you’re already doing, the truth is that it’s better to start looking for other contracts before you complete your current jobs. You don’t want to be left without a job once your current contract ends. The strategy to find contract work is different than approaching the search for a permanent job. Ensure that you’re going about it the right way so that you won’t have long periods between contracts and will be earning what you deserve.
For example, create a contractor CV tailored to the jobs you’re after, market yourself on job boards or social media, follow up applications, know how to negotiate the best rates and make sure you understand what the job will entail.
However, if you’re incredibly busy and worried about not having the time to apply for jobs to interview, there is a silver lining. Contractors are often hired right before they’re needed and are, usually, required to hit the ground running. This shorter lead time means you should get a response from a potential client fairly quickly, so you may not be between jobs as long as you think.
When Should I Quit My Day Job?
When you’re considering the contracting life, you have a very important decision to make: when to quit your job. Most people don’t leave their permanent job when they first become contractors, preferring, instead, to wait until they feel more comfortable and secure in their new role.
Yet, it’s also important to note that many potential clients will want to interview contractors immediately, which may put you at a disadvantage if you’re unable to interview at short notice or start the job within a week or two. If you possess many desirable skills, clients are more willing to wait until you can give notice at your current job, although this is a rare situation.
The contracting world is fast-paced and extremely competitive so, while you may not feel secure enough to leave your permanent job yet, you may have to in order to grab opportunities as soon as they appear.
Am I Good Enough to Become a Contractor?
Unfortunately, many people doubt their own skills and abilities and end up deciding against becoming a contractor because they believe they’re not good enough. This couldn’t be further from the truth – if you have skills that are in demand, no matter what they are, you will find clients willing to pay for them. The key to being successful as a contractor is to not give up and keep on building your skills, in order to remain competitive in the market.
Some clients won’t even need you to put all of your abilities to use, seeing as some contracts will require less experience. No contractor is the same either, so a potential client might be looking for exactly what you have to offer. Always be aware of what you can do for people; are you looking to be a high-end contractor who is constantly learning the latest skills? Do you specialise in a specific niche? Do you have a hard-to-find skill that can set you apart from the competition?
No matter which type of contractor you are or which skills you have, supply and demand are what drives the job market.
What Are My Responsibilities as the Director of a Limited Company?
Being the director of a limited company comes with many legal obligations, which is something to consider before deciding this is for you. So, if you’re just starting out or are still trialling the contracting life to find out whether it’s for you, you may want to choose to operate under an umbrella company instead. You won’t have as many responsibilities if you opt for this, meaning you can focus on growing your business without the added work. To help you decide which type of structure is best for you, take a look at our article “Limited Vs Umbrella: Which Should You Choose?”
If you’ve made your decision, always be aware that, as a director, you won’t be focusing on just the job at hand. You’ll have to submit your annual accounts to Companies House, submit your corporation tax return form, do your VAT returns and pay if applicable, take care of PAYE and National Insurance Contributions, submit real-time information to HMRC when it comes to payroll, and more.
You also need to follow the director duties outlined in the Companies Act 2006, which includes the duty to act within your powers as a company director, the duty to avoid conflicts of interest and the duty to exercise reasonable care, skill and diligence. With so much to take into consideration, it can be easy to get overwhelmed; we’ve put together a guide to setting up a limited company, which can help you to learn more about what is expected of you as a director. Alternatively, get in touch with a member of the Gorilla Accounting team and we’ll help you with the process.
Even the most seasoned contractors may doubt themselves or have questions about the contracting industry. At Gorilla Accounting, we aim to make this process as easy as possible for you, so we’re always on hand to help out with whatever you require.