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How to Avoid the Most Common Contractor Mistakes

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How to Avoid the Most Common Contractor Mistakes


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Being a contractor can offer you a wealth of benefits, from having flexible working hours, being your own boss and being able to charge more for your services – however, contracting is not without its challenges. There are many issues and obstacles you’ll face along the way, so you need to be prepared to tackle anything. Here are some of the most common mistakes that contractors make and how we, as contractor accountants, can help you overcome them:

Getting Caught Inside IR35

The IR35 regulation is a tax legislation that aims to combat tax avoidance brought on by ‘disguised employment’, a process of manipulating taxable income by supplying services via an intermediary (such as a limited company). ‘Disguised employees’ are not considered self-employed by HMRC and must be taxed the same as a permanent employee.

As a contractor, you receive tax advantages because you don’t get the same type of benefits as other employees, such as sick or holiday pay. The consequences of being caught inside this legislation could be fines and needing to pay unpaid taxes. Make sure you get the right IR35 advice and know everything there is to know about this regulation in order to stay compliant. We discussed IR35 in-depth in our article “What is IR35 And Why Should You Be Aware of It?”, which you can read to learn more about this legislation.

Settling for Lower Rates

Another common mistake that many contractors make is not charging enough. Getting the right rate for the job is crucial because you don’t want to be undercharging and overworking; you may think that finding the perfect rate for the project is a challenge, but it’s easier than you think. After all, your income will depend on factors such as your skill-set, your experience, industry averages.

Compare your rates to others in similar contracts, continuously develop your skills and ensure they’re up-to-date and add new skills to your repertoire – this way, you can justify higher fees instead of settling for lower ones. Charging less can, sometimes, be a good thing when you’re starting out and need to build up a client list, for example; however, this is not a feasible strategy in the long run.

Don’t sell yourself short – you’re good at what you do and should charge accordingly.

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Not Negotiating (Properly)

Being able to negotiate is crucial for any contractor. After all, failing to negotiate means you could be missing out on a higher rate; for this reason, negotiating successfully can make a big difference in your take home pay. There are 1.77 million full-time contractors in the UK, so you want to be able to get the best deals, whether it’s a new contract or a renewal. Improving your negotiating skills may be crucial, but we understand that this can be daunting.

While negotiating, keep in mind that you need to do your research on the market and your competitors, as well as on your audience. Be aware of the lowest rate you’re willing to go with but try to aim higher than that, and always know your worth too; the last thing you want to do is undersell yourself. You should also keep developing yourself and your skills, given this can help you to charge more for your services.

Read our article '11 Sure-Fire Negotiation Tips Every Contractor Should Know' to learn more about how you can improve your negotiating skills to maximise your earning potential.

Accepting Any Project

Just as with lower rates, you may also be tempted to accept any type of project when you’re starting out as a contractor. While it’s understandable that you want to find clients as quickly as possible to kick-start your contractor business, you don’t really want to settle for less. Be specific about who your ideal client or project is and stop applying for any available job you find.

Not only will you save time and energy, but you will also create a list of clients who respect you. In addition, while you will be qualified for a wide range of jobs, you will also come across contracts that won’t be suited to your skillset. Steering clear of these projects and carefully selecting the ones that best complement your knowledge and expertise will allow you to build a portfolio of happy clients.

Not Enough Networking

Networking is an essential part of being a contractor. Because you’re working for yourself, you have to build meaningful, long-lasting relationships in order to grow your business. From using LinkedIn to attending industry events, you need to take advantage of networking to find business opportunities and make a great first impression on potential clients. Developing solid relationships is crucial when you’re a contractor, mainly because referrals, word of mouth and personal and professional networks are the most efficient way to get more contracts and find clients.

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In addition, it’s important that you keep in touch with your clients and suggest other contracts; it’s easy to lose connections otherwise. Clients who have previously worked with you already know your ethics and work quality, and you’re already aware of their mission and challenges.

So, if you maintain these relationships, your past clients are likely to choose your business again instead of trying to find another contractor. Before moving on from a contract, make sure to suggest a new, well-thought-out project. If this proposal is rejected, send your client a thank you email with your contact details, so that you can keep communication open with them.

Using Your Personal Bank Account

As a contractor, you and your limited company are two different entities. This means you should also separate your personal and business bank accounts – personal transactions should only be done through your personal account and vice-versa. The company account should only be used for business transactions.

Not Claiming Valid Business Expenses

If you’re working through your own limited company, you’re entitled to claim business expenses; as a contractor, it’s important that you know what you can claim in order to reduce your taxes. You may think this can be a complicated process but HMRC has a few simple guidelines that can help you to know what qualifies as business expenses and what doesn’t. Boiled down to its most simplistic view, business expenses are everything you need to run your business.

One of the most common types of expenses is usually items and equipment, such as stationary, furniture, IT equipment and work wear. Certain services may also be deductible; if your business needs support from other companies, like solicitors and accountants, you may be entitled to claim the expenses back. The same goes for subscriptions, utilities, travel expenses and insurance covers.

Forgetting to Take Up Insurance

Starting a business can be overwhelming; there are so many things to do that it’s easy to forget taking up contractor insurance. You may also think you don’t actually need it in the first place. However, if something goes wrong due to your advice or services, your clients have a right to claim against you. As a contractor, you’ll have honed your skills until you can provide the best possible services to customers; nevertheless, no matter how good you are or how careful, mistakes can still happen. In order to protect yourself, make sure that you take out professional indemnity insurance, which can also cover any necessary compensation.

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Not Paying Taxes on Time

One of the biggest mistakes you can make as a contractor is to not pay your taxes on time. As a limited company owner, you have several taxes to pay on specific dates, such as corporation tax, PAYE, VAT, and National Insurance. By not paying HMRC on time, you can incur severe penalties and interest charges. While HMRC can suspend penalties if they find a mistake to be careless but not deliberate, this doesn’t happen often, so it’s crucial to get it right the first time around.

This becomes even more important when you consider the reputation of your business as well. Perhaps you’re not too bothered by having to pay a fine to HMRC, but what about painting a target on your back? Repeat errors and late submissions add up over time and tell HMRC you’re a high-profile target for an investigation.

Lacking Industry Knowledge

It’s always vital that you know the market you’re operating in, of course, but this is even more important when you’re a contractor. Make sure to research your industry thoroughly and keep up-to-date with the latest news and developments, as well as key skills. You want to be ahead of the curve, not lagging behind. In addition, seeing as you’re responsible for sourcing your own work and finding your own leads, being unaware of what is happening in the industry can harm your prospects.

Make sure you make the most of social media as well. Keep in touch with people, be it colleagues or potential clients, and use LinkedIn to stay on top of events and important news. This social platform is also ideal to build relationships with other professionals.

Still Thinking Like an Employee

Having no one telling you what to do is part of the reason why you became a contractor; however, this also means you have to do everything yourself. You have to be on top of it all, from marketing to payments and project managing, which means working the normal 8 hours a day is not feasible, at least not at the beginning; if you dream of working only half days and enjoying more time with family and friends, put in the work early on to reap the benefits later.

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As a contractor and business owner, you’re an entrepreneur, not an employee, so you need to let go of the 9-to-5 mentality and take advantage of ‘out of office’ hours to seek new opportunities.

Not Promoting Yourself

Selling your services and skills can be an art form. It might not come naturally to everyone, and it may take a lot of effort and energy, as well as confidence, but it’s still a very important step if you want to attract the right jobs. Promote yourself and your business by boosting your brand and building your reputation, so that you are never in the situation of having difficulty finding new contracts or losing enquiries. Attending industry events, sponsoring organisations, making full use of both traditional and digital marketing, and embracing technology to streamline your business are just some of the things you can do to get your name out there.

Giving Up

The worst mistake a contractor can make is, of course, giving up. Being a successful contractor doesn’t happen overnight and it’s important that you’re willing to put in the time and effort – and have the necessary determination not to give up. With practice comes improvement, so don’t let self-doubt get in your way or make you lose focus.

If you need a helping hand, Gorilla Accounting is here for you. We have many years of experience helping contractors make the most of their business. Our technology-driven accountancy solution allows you to stay organised and to submit your returns in an accurate and timely manner, and we can also help you to calculate your take-home pay with our contractor tax calculator.

Becoming a contractor and expanding your business may not be the easiest thing in the world – however, by avoiding the pitfalls and mistakes mentioned above, it won’t be as challenging as you believe either.


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