The world of agency contractor work can provide you with an array of benefits including choosing your own working hours, being your own boss and choosing to charge more for your contractor work.
Although, this doesn’t mean there aren’t things you should be wary of. This post will help identify some of the common mistakes agency contractors make, giving you a head start to avoid these mistakes on your path to becoming an agency contractor.
At Evolve contract services we endeavour to always provide as much information as possible to agency contractors. This will ensure agency contractors can make informed decisions to help them when choosing an umbrella company.
Here are our top five common mistakes made by agency contractors:
IR35 for Self Employed and Getting Caught Inside
IR35 is a tax legislation designed to stop tax avoidance triggered by ‘disguised employment’, known as a process of manipulating taxable income through supply of services via a third party like a limited company. A ‘disguised employee’ is not seen as self-employed by HMRC and is eligible to be taxed the same as a permanent employee.
Agency contractors receive tax advantages, this is due to not receiving the same benefits as other employees, like holiday or sick pay.
If an agency contractor is caught inside the IR35 legislation, then they could be liable to pay fines against unpaid taxes. This is why it is crucial to get the right advice regarding IR35 for self-employment, to make sure you’re IR35 compliant. This is what evolve contract services are for, we can assist you with your queries on IR35 legislation to ensure you’re up to date with any IR35 changes and compliant.
Keep Up-to-date with Your Taxes
One of the most common and obvious mistakes as an agency contractor is to miss your deadline to pay taxes on time or file your accounts incorrectly. As an agency contractor you will be registered as a limited company owner, with several taxes to pay on specific dates throughout each tax year like corporation tax, PAYE, VAT and National Insurance.
If you’re late paying your taxes it can prove costly and you will almost certainly incur a severe financial penalty plus interest charges all the time you continue to be late submitting your accounts and making tax payments. HMRC can suspend penalties if they consider your mistake to be careless rather than deliberate, although this is a rare thing, so it is best to be accurate and punctual when submitting your taxes.
Even more crucial when it comes to the reputation of your business, even if you have no issues affording a fine it is more about the mark against your business name. If you then repeat these errors it all mounts up and will increase your chances of being investigated which becomes a timely process and time costs money.
Not Insuring Yourself
With there being a whole list of things to do when starting a business, it is easy to say why many contractors may forget to insure themselves or in some cases actually think you do not need to bother in the first place.
However this is a risky approach, make sure you have insurance as a top priority. Just think if your advice or services come into question by a customer, they are within their rights to make a claim against you and without insurance, it could cost you a lump sum you don’t have readily available. It doesn’t matter how skilled you are at your job or how much experience you have, we’re all human and mistakes are still a part of life and something you’re susceptible to.
Therefore we recommend that you cover yourself, it is best to take out professional indemnity insurance, this will cover any necessary compensation claims put in against you or work.
Leaving Business Expenses Unclaimed
When working as a contractor through your own private limited company, you will be entitled to claim business expenses. It will be important to know what you can and can’t claim as expenses through your business, as it will contribute towards reducing your taxes.
It is a lot easier than you may think to claim for expenses, basically anything you need to run your business counts as a business expense. Common expenses are things like items and equipment like stationery, office equipment like seats, desks, IT equipment, work clothing. Some services are also allowable expenses, for example if your company needs professional support from other businesses to run your business like solicitors, accountants, electricians you could possibly claim these expenses back. This also includes travel expenses, insurance cover and utilities.
The top umbrella companies in the UK will be well versed in advising you on what expenses are allowable and which you cannot claim against. It will be beneficial to speak with an umbrella company and gain the best advice on claiming expenses for your business.
Not Using a Business Bank Account
When you set up a limited company, you as a contractor and your limited company are separate entities. This means you must have a business account as well as your personal bank account. Your company account should only be used for business transactions and vice versa. Otherwise, things can become very messy and complicated and it will make tasks such as submitting taxes and end of year accounts to HMRC a lot more difficult.
Now we have run through some key mistakes a lot of contractors make, this way it should help you put your best foot forward in the world of freelance contracting. If you want further advice and support on contracting, contact Evolve CS Group to discuss in more detail.