If you’re thinking about becoming a contractor, or have been contracting for a number of years, the financial benefits of setting up on your own are quite obvious. The average contractor will at least double the incomethey got through permanent work, and in many cases your earnings could be even more than. However, it’s now up to you to mange your money. This section details the key components of contractor finance; the pitfalls and the benefits.
As a new or established contractor it’s inevitable you’ll need access to financial service products. In permanent employment, you’ll get additional benefits such as sick pay, company pension scheme, medical and life insurance, to supplement yoursalaried income.
You may take these for granted, but remember, theyprovide vital protection from hardship and are something you won’t get for free when you’re contracting.
Depending on your circumstances, you’ll need to cover the costs of replacing all or part of this safety net. Thanks to your new, higher income, you won’t feel the pinch too much, and much of this package can also be provided very tax efficiently through your limited company.
You need to make the most of your decision to contract, so it’simportant you set your money to workas efficiently as possible. Maximise those company and personal tax breaksso the Inland Revenue doesn't end up as the real beneficiary of all your hard work! You can achieve this through careful structuring of your finances and tax efficient investment of any surplus income.
There are a bewildering number of insurance companies, banks and other financial service providers, but many of their products won’t suit they way you operate. Look for pensions and investments that have low setup costs and have complete flexibility of the number and level of contributions you need to make.Mortgages must take into account dividends with competitive interest rates and protection products must be tailored to your particular circumstances.
Talk to an independent financial advisor (IFA) that specialises in the contractor market. They’ll understand your unique situation and will be able to scan the market for the most suitable product at the best price . You should structure your affairs so you have flexibility in case you return to permanent work, go abroad or need to react to the unforeseen, such as IR35.
For further information on making the most of your money, and how to manage late payers see Contractor UK's Money section. You will also find more information on contractor mortgages, pensions, free bank accounts and many other financial services that specialists in your field offer.
Further links:
- Contractor insurance
- IR35 legislation
- Section 660a
- Setting up your company
- Find an IT job
Disclaimer: the information on these pages is provided for your information and reference only. Before making any important decisions regarding your employment or any legal matter, you should consult a qualified professional adviser who can provide specific advice based on your individual position.
