As a contractor, saving money is a priority. Finding ways to cut costs and to keep expenses down is a must for limited company owners, no matter whether you’ve just set up a company or you’ve been trading for many years.
Staying on top of your cash flow, figuring out ways to optimise it and still having to run your day-to-day can be a challenge – but, as contractor accountants, we can help. We’ll handle your accounts so you don’t have to, freeing up time you can use to grow your business.
Take a look at our money-saving tips that will help you to save for the future.
How Big will My Pension Pot Be When I Retire?
One of the most commonly asked questions about self-employment and retirement is the size of the pension. There is no straight answer for this since each pension pot will be different depending on your circumstances and how much you’re able to put away into your pension scheme.
Other factors that will impact your retirement money as a contractor include:
The years you’ve been saving money for
The amount of money you’ve contributed to the pot
If you have pension investments (and how well they did)
How much has left your pension pot to cover provider charges
Pay into a Pension Scheme
It goes without saying that you should start paying into a pension scheme as soon as you can. Starting early is important for everyone, but even more so for contractors because you’re the one responsible for everything, including choosing the right scheme and regularly making contributions.
It can be difficult to make regular payments because contractors may not have a steady income, so committing to a specific figure can be challenging. This is another reason why you should start as soon as you can since you can make more modest contributions over time. There’s also more time for investment growth.
For the tax year of 2021/22, the state pension will get a boost of £228.80 per year. The lifetime allowance – which means the total you can save into a private pension before having to pay a charge – is still set at £1,073,100, and will remain so until 2026.
Another thing to keep in mind is that you can make self-invested personal pension (SIPP) contributions from your limited company. You can pay up to 100% of your earnings into your SIPP up to £40,000, which is the current yearly allowance.
Additionally, dividends are not classed as relevant UK earnings, so if you’re paying yourself a larger amount of dividends, you may not see as much pension tax relief. If you’re interested in increasing the amount going into your pension scheme, you can raise your salary or make an employer contribution.
If you’re unsure how to go about this, don’t hesitate to speak to us. We can help you navigate the complexities of UK pensions and taxes and help you get the most value out of your business.
Maintain the Same Income
Keeping to a fixed income even as your business grows can help you to save money for the future. While it can be tempting to increase your salary, being able to set aside more money can help you reach your retirement goals faster.
This will depend on your lifestyle and what you wish to achieve when it comes to your business – do you want to be able to travel more? Do you want to buy a new house? It’s important that you identify the goals that are most important to you and decide where you want to invest.
Of course, once your business picks up even more, you can both boost your salary and put more money aside.
Diversify Your Strategies
If you’re looking to make and save money every month, it’s best to have several different strategies in place. So, if one doesn’t work, the others will, allowing you to keep growing your nest egg.
For example, have an automatic deposit set up into a savings account, so that you don’t need to worry about putting money aside every month manually; invest your money in your business or in the stock market; purchase property. There are many ways to both make and save money, even if you can only start small, so don’t rely on just one strategy.
Treat Your Business As an Asset You Can Build On
For many contractors, their business can be a retirement plan. If this is your case, it’s important that you treat it as an asset and build it up over time. This way, when the time comes to sell the company, you can make a decent profit and use that money to enjoy your retirement, in addition to the pension you already built up as well.
Put your profits back into the business and pay yourself a lower salary if it helps. You should also have an exit strategy – this means knowing what you need to do in order to sell the business when it’s best for you.
It can be easy to overlook insurance policies that are not mandatory by law. However, they can be incredibly useful in helping you save money. When you’re self-employed, you’re exposed to certain risks that don’t exist when you’re in full-time employment – you don’t have a fixed monthly income, for example.
There are many different covers that can help you protect your business and ensure you’re saving money by keeping you safe against third-party claims.
At Gorilla Accounting, we’ve partnered with companies that offer the best contractors’ insurance, which means we’re a one-stop shop for all your contracting needs. Get in touch today to learn more about the type of insurance you can get for your business.
Choose the Best Provider
When it comes to setting up and building a pension, it’s best to shop around until you find the right provider for you. As a contractor, you don’t have a fixed income, so it can be tough to get a scheme that accommodates this – but not impossible.
Search for flexible plans that let you increase or decrease your contributions depending on your income at the time, instead of opting for a scheme with a minimum payment. Consider aspects like potential fees, access to investment and how you can access the pension when needed.
Set Money Aside for Tax Purposes
As an employee, your taxes and National Insurance contributions are discounted for you, so you never need to worry about this issue. However, when you take the leap into self-employment, you have to do everything yourself and, considering it’s something you never had to do before, you may find it quite hard.
So, it’s important that you put aside some money to pay your taxes so that you’re not scrambling to find a way to pay HMRC what you owe. This way, you also don’t have to eat into your savings and can, instead, budget for retirement (when it comes to your savings, make sure you’re putting them in high-rate savings accounts to get additional money too).
Check Up on Your Pension Often
Don’t just set up a scheme and leave it out of your mind. By monitoring your pension on a fairly regular basis, you can stay on top of your savings – and know whether or not you need to increase your contributions. If the fund is not performing as you’d like it to be, you can make adjustments and even talk to your provider to figure things out.
Increase Your Rates
A sure-fire way to make more money every month and, therefore, being able to raise your pension contributions as well, is to negotiate your contractor rates. You don’t have to stick to the same starting rates – or be afraid to ask more of your clients. While it can be daunting to increase how much you charge, your clients will surely understand that your rates must reflect ever-changing living costs and monthly expenses.
In addition, it’s important for contractors to value themselves. You have key skills you can offer clients, so don’t be afraid to set daily or hourly rates that showcase this. Also, if your rates are too low, you may not make enough money for everything you need, including saving for retirement.
Hire an Accountant
Accounting takes time and effort, so it’s only natural you’d rather be focused on your business than on sorting out your accounts. This is where we come in. As limited company accountants, we work hard to help you maximise your tax efficiency and save money for the future, not to mention we can take on the admin burden.
And, with FreeAgent accounting software (which every Gorilla client gets), you have 24/7 access to your financials, meaning you can manage your business on the go and from any device. You can also count on us to answer your most pressing queries, as your accountant will give you a same-day answer when you contact us by 3pm.
So, get in touch with us on 0330 024 0406 today and we’ll be happy to discuss your accounting needs with you, be it regards to setting up a limited company or help submitting a self-assessment tax return.