Tips for Taking Holiday as a Limited Company Contractor (PSC)
How to take holiday – guidance for limited company contractors
In the lead up to summer, it has been touch-and-go as to whether we’ll be able to fly abroad for our holidays. Even if you’re not travelling far, it’s important to take a break and make the most of the flexibility of contracting. And, when you do, we suggest you follow some of our tips below to manage your finances and holiday while keeping your end clients happy.
One of the major appeals of contracting through your own limited company is the flexibility and freedom to govern your own working patterns and practices. While this means that there are no strict rules that dictate when you take time off or for how long, there are still a few guidelines that are useful to follow when taking days off work.
Be disciplined & organised
Your time off is not paid by your client, so you are in complete control of when you take days off throughout the year. Just ensure that your project doesn’t suffer as a result of time you spend away from work, and you remain on track to complete your assignment by the target date.
Although your client has no right to object to your time off, it’s still important to be upfront with them about your desired holidays so they know when not to expect your immediate attention. Contracting is all about keeping your clients happy, so communicating clearly and keeping them updated on your availability, whether you’re on holiday or not, will strengthen the client-contractor relationship.
Avoid using client booking systems
While you should always be open with your client about when you plan to take days off, as a PSC contractor you’re not required to ‘apply’ for holiday or ask for consent from your client. Instead, simply notify them as a courtesy of the days you plan to take off, so that they’re aware you won’t be available.
This is essential to continue operating ‘outside’ IR35 compliantly. If it appears that you’re seeking consent from your client, it can indicate that you’re more towards the controlled end of the spectrum, and acting as a “deemed employee” – meaning you are more likely to be ‘inside’ IR35. If that’s the case, and you haven’t treated your situation appropriately, you could potentially face fines from HMRC or changes to the amount of taxes you will have to pay. For more information on IR35 visit our hub.
Taking holiday will not affect the length of your contract
When you enter a contract with your client, you’ll agree a start and end date which will not change if you decide to take a few days off. (On an extremely rare occasion, a client may ask you to extend your contract to cover for holiday periods – this would be classed as a contract renewal and you would have to sign a new contract on this basis.)
It is unlikely that a client would be happy with you taking more than two consecutive weeks off while on a contract because this could affect delivery times. However, as an owner of your own company and your own boss, you can decide when you want time off. So, while having long periods away from work in the middle of a contract isn’t advisable, you can still take extended time off if you choose to as long as you deliver on time.
Nevertheless, we advise that the best time to plan for long holidays is before a contract starts or during the contract renewal process. This way, you can notify your client of your availability from the outset and agree contract start and end dates accordingly.
If you’re taking holiday at the end of a contract, be aware that when you return from your break it could take a few weeks to secure a new contract, so you’ll need to have the finances in place to account for this potential period without work.
If you require extended holiday, consider substitution
The freedom and flexibility of contracting is one of its main attractions, and part of this is making sure you’re also flexible with your clients’ needs. If your contract is longer than a month, it’s rare that you would need to work on their assignment every single day of the contract period, so taking some days off shouldn’t be a problem – especially in quiet periods.
But remember that taking extended holidays in the middle of a contract is likely to affect your assignment delivery time or quality, and this could lead to a negative reputation with your end client. However, if you require an extended holiday during an assignment, discussing substitution with your end hirer is a great option, and a huge benefit of being a contractor. Substitution can also be key in maintaining an ‘outside’ IR35 status, so there are multiple benefits to this method of arranging time off.
Organise your accounts
Since you’re not an employee, you’re not entitled to holiday pay from your clients. However, as a limited company contractor, you’re in control of your salary and dividends. This means you can organise your accounts around your holidays.
As the owner of your own limited company, you can maximise your annual allowances by arranging for dividends payments to support you throughout the year, including periods where you may not be generating regular income. You can contact one of our expert accountants for more advice on managing your salary and dividends.
Our tips for best practice
- Plan your holidays in advance and set aside some money to cover your time off work. As you’re not a traditional employee and won’t receive holiday pay like an employee, the money you save will need to cover any loss of income as well as the costs of the holiday itself.
- After receiving a contract offer, agree your delivery schedule with the client before signing. If it’s agreed that you’ll be unavailable between certain dates, ensure this is written in the contract but don’t call it holiday. Instead, ensure the terminology states that there will be a break in services.
- Most clients hire contractors on very short notice. If you do take a holiday after you’ve finished a contract, be mindful that you might not be able to line one up for the exact time your holiday finishes, and you may be out of work for a few weeks. Ensure you plan your finances to accommodate this period.
If you follow this guidance, you can enjoy the flexibility and freedom of limited company contracting. Just remember that the key to contracting is keeping your clients happy and maintaining a great relationship, so always be respectful of their needs and balance these with your own. However, it is important that you’re not controlled by your end clients, as you have the power to decide your own working hours and methods, provided you deliver your project by the agreed upon date.
For more advice on managing your accounts and making the most of your PSC, contact one of our specialist accountants on 01923 257 257.