Planning Your Finances as a Contractor

Becoming a contractor and working for yourself can be an attractive career option for those who are looking for more flexibility, independence, and control over their work.

If you have a particular skill or expertise that you can provide a service for, you can find clients, determine your rates and working schedule, and earn money in a new way.

As with all ways of working, there are some challenges to becoming a contractor, and occasionally it might not always be your decision to become one. One sector that is increasingly becoming more and more contractor based is couriering.

Most recently, Just Eat is planning to shift back to a gig economy model for all of its 1,700 couriers, joining other companies of a similar nature.

In doing so, the takeaway delivery firm will scrap guaranteed minimum pay, sick pay and holiday pay, leaving couriers with more to plan when it comes to their finances.

Just Eat began offering worker contracts in 2020, with more than 3000 couriers employed across the country, however many have since moved on, bringing us to the 1700 remaining. Just Eat offered fewer couriers its new deal and riders were given six weeks’ notice with pay.

Previously, riders were entitled to more than the legal minimum in hourly pay, pension contributions and benefits including holiday pay and sick pay.

Challenges of becoming a contractor

If you are thinking of becoming a contractor or find yourself in a position where your role has become contractor based rather than conventional employment, there are several challenges to weigh up against the positives.

These include lack of benefits, meaning you are responsible for a retirement pot, insurance and the funds to be able to take time off and inconsistent income. As a contractor, you only earn if you work.

Becoming a contractor can be a rewarding career path for those who are looking for more flexibility and control, however, planning your finances is so important.

Contractors and Financial Planning

When you’re a contractor, managing your money is one of the most important things you can do. You need to make sure that you’re financially sound in the present but also in the future, especially if you find you cannot work for any reason.

Financial planning for the self-employed means considering pensions, taking out dividends, sorting out your taxes and putting aside what you’ll need to pay HMRC and making sure you have plans to take breaks throughout the year.

Here are our top tips for financial planning when it comes to contracting:

Have a rainy day fund

It’s even more important to have an emergency fund as a contractor than it is as someone in conventional employment that has the security of a monthly salary. You don’t want to be taken by surprise at any point, so it’s worth making sure you have a savings account or funds that you can fall back on should you need it.

Whether it be that work is a little quieter than usual, a client doesn’t pay you when they should, or that you lose a contract, you then know you have enough to get by until you bounce back.

It’s also important to make sure you have enough set aside to use should you take a holiday or need time off work. As a contractor, you’re not entitled to holiday pay, so you will not get paid for any days that you don’t work.

It’s said that you should aim to have enough saved for six months of expenses, be it your day-to-day costs or business expenses. In the current cost-of-living crisis, it’s probably not feasible to have that saved straight away, but if you’re currently working full time and looking to go into contracting in the future, it’s better to start the savings pot off as early as you can!

Get Insurance

Both contractors’ insurance and life insurance are crucial when you’re self-employed. They both provide peace of mind, but they can help if you experience a drop in income, as well as making sure your family is protected if something serious were to happen.

Depending on your line of work, it’s also important to have professional indemnity and public liability insurance too. These can keep your company afloat if the worst happens, since the policies can cover costs from third-party claims.

It’s also worth looking at income protection. Things can change very quickly, as we saw with the pandemic, and if you find yourself unable to work and without ample savings, you don’t want to be left with nothing. Covering your expenses and your daily costs becomes impossible without something in place to help you out.

Keep track of all incomings and outgoings

Another thing that is crucial for contractors is staying on top of your expenses. Make sure that everything is recorded and use that to guide your financial plan.

With Gorilla Accounting, you get full, all-inclusive use of FreeAgent MTD-compliant bookkeeping software. It allows you to keep track of all your business transactions, receipts, invoices and expenses in real-time, allowing you to manage your accounts from wherever you are.

It’s great if you find yourself on the go a lot with your role, as you can access it and add things in as and when, to save yourself collecting up a box of receipts to sift through at the end of the month!

Pay into a pension pot

If you’re self-employed, you won’t be automatically enrolled into a pension scheme, so you need to make sure you do it yourself and plan for the future accordingly.

Making regular contributions is so important so your pension builds up in a steady and consistent manner. Last year the state pension increased, and from April 2023, the lifetime allowance, which is the amount you can save in a private pension before having to pay a fee, was removed completely.

You can also make SIPP contributions from your company. You can pay up to 100% of your earnings into your SIPP up to £60,000 a year providing you have no other contributions in that tax year.

Have several projects on at once

Ensuring you won’t run out of work is simple if you diversify your contracts and make sure you have more than one on at a time. It will mean managing your time accordingly and ensuring you are as organised as possible, but it can help in times of uncertainty.

This way, if a contract were to end, you wouldn’t have to find something new from scratch, you will have other projects or contracts ongoing to see you through until you find your next piece of work.

Planning your finances with Gorilla

Making sure your finances don’t dry up is so important as a contractor, and it’s important to have an accountant to ensure your books are balanced and your taxes are paid on time, allowing you to budget for the rest of the year.

It is so easy to switch or sign up to Gorilla. We’ll even deal with your previous accountant to obtain all necessary financial records and information.

Give us a call on 0330 107 9676 to speak to an accountant, request a call back here or fill in our online application form here.

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