5 Mistakes to Avoid When New to Contracting
When you’re just starting as a professional contractor or freelancer, it can be difficult at first to find a good work-life balance and decide what to prioritise. To help you Start out Strong, we’ve developed a list of 5 contracting mistakes and tips on how to avoid them.
1) Ignoring your personal financial arrangements
When you’re leaving the security of employment and investing time and money into starting your own limited company, it can be easy to push your personal finances to the side lines while you focus on maximising your business income.
Don’t make this mistake. Remember, as a self-employed individual, you don’t receive the same benefits that you would if you were employed by an organisation, such as holiday pay and auto enrolled pension contributions.
Make sure that before you set up or while you’re in the early stages of self-employment, you make suitable private pension arrangements. You should also consider whether you will require a mortgage in the near future as self-employment can impact your mortgage eligibility.
When you join one of our Limited Company Accountancy packages, you’ll receive access to our trusted financial advice partners, St James’s Place and City Capital Financial Planning and our expert self-employed mortgage partner, CMME. These trusted experts are always on hand to provide tailored advice for self-employed individuals to ensure your personal finances are managed just as well as your business ones.
2) Being shy about networking
It can be difficult when you’re searching for your first contract to make new contacts and find new work. The best thing you can do when you’re first starting out is to invest time into regularly building your network – whether this is scheduling an hour a week to send LinkedIn requests to mutual connections or taking an afternoon to reach out to old contacts.
Don’t be afraid to put yourself out there and send pitches/proposals to people you know so they’re aware you’re searching for a new position. Often, the most experienced contractors aren’t using job boards or ads to find new roles, but are sourcing great assignments through word of mouth and online connections.
Our top networking tip? Make sure your LinkedIn is always up to date with your latest experience and you stay active on social platforms that are relevant to your line of work. Schedule time that you’ll spend networking, contacting old colleagues, getting in touch with recruiters, and making new connections – if it’s part of your routine from the outset you’ll find you never slack on networking and finding new work becomes much easier.
As the saying goes, it’s not what you know, it’s who you know.
3) Not planning for VAT and Tax payments
Running a limited company as a director can be a very lucrative way to work. Your company will be required to pay Corporation Tax on its profits (rather than Income Tax) and you can then pay yourself a mixture of salary and dividends – we can advise you on the most tax-efficient way to do this, depending on your unique circumstances.
If you’re VAT registered, you must collect VAT on your invoices and pay this to HMRC. It’s important you monitor and carefully track how much tax you owe to ensure you can always find this money when you need it, as not being able to do so could put your organisation at risk of insolvency.
With the help of our expert accountants and online accounting software partner, FreeAgent, you’ll have 24/7 access to your finances, can easily track income and expenditure, and work with us to make use of cash flow forecasting to make sure your business is always healthy and you’re not taking out more money than you can afford.
4) Failing to set a routine
Establishing a working routine is something individuals new to self-employment often struggle with – you have a lot of extra freedom and may be unable to easily distinguish between work and personal time.
It’s important, especially when you’re just getting started, that you establish a pattern you can stick to and set out your working hours. It can be tempting to work extremely long hours when you’re freelance because you’re dedicated to making your new venture a success – but this can be damaging to your mental and physical health and lead to a decline in efficiency and output.
Whether you’re a morning person or a night owl, it doesn’t matter, providing you have set hours to work each day and a quiet, designated workspace to ensure you’re in total “work mode” during those hours. For some, it can be helpful to make use of flexible workspaces or local cafés, depending on your line of work.
Whichever hours work for you, make sure you stay organised and set regular breaks so you don’t get overwhelmed.
5) Missing filing deadlines
There are various accountancy and administrative responsibilities you must meet as the director of a limited company. For example, when you first get started you must register for Self-Assessment Tax, work out whether to register your business for payroll and VAT, and work with Companies House and HMRC on our company affairs. You also need to set up systems or select software to create a balance sheet, profit & loss statement, and maybe even a cash flow forecast to ensure you have total control and awareness over your finances.
Similarly, from the outset, you’ll need to keep on top of weekly tasks like invoicing clients and keeping expense records, and monthly responsibilities like paying Employers’ and Employees’ National Insurance. Quarterly, you may have VAT to prepare and submit. Once a year, you’ll also be required to submit a confirmation statement, and accounts to Companies House and year-end accounts to HMRC as well as completing your Self-Assessment Tax Return.
You must be aware of the deadlines for all your administrative responsibilities so you prepare for them appropriately. With the support of an expert contractor accountant, like JSA Group, you can have peace of mind we’ll always keep you on track with regular check-ins, alerts when you’re approaching important deadlines, and support submitting your tax returns and other bookkeeping requirements on your behalf – so you can focus on growing your business.
Here to help you Start out Strong
Whether you’re concerned about the admin and accountancy responsibilities of self-employment or procrastinating due to pension or mortgage queries, we’re here to help.
We have a range of resources dedicated to helping individuals who are new to (or in the early stages of) self-employment get started the right way, including our Limited Company Accountancy Set up Checklist, key accountancy dates, and mortgage advice from our trusted partners.
If you’d like to speak to us about your options, don’t hesitate to get in touch on 01923 257257, our friendly team will be happy to help you decide if contracting is right for you.