Monday, 11 June 2018

Contracting - Thoughts on getting set-up

Independent IT Contracting is a mixed experience. Some of it is good for sure, some of it is just a grind but you can get on with it and other bits are definitely a pain in the ass.

The Good
One great aspect that I never expected from going contracting was the sense of becoming an entrepreneur. Once I set up my own business (Ltd company via Companies House in the UK), it was a fundamental shift in mindset. Like others I'd spoken to, I was struck with the idea that I had full control over my financial destiny. That my time and effort, focus and interests were all now a way to generate revenue and in turn generate a profit. Every £$€ earned and spent was relevant.

No more coasting from pay cheque to pay cheque with the hope of a small percent pay rise each year and possible bonus. No more just paying the bills and tick-tocking along between pay day, bills and whatever saving I could make until retirement. Now it was all to play for. Win or Lose, it was down to me.

The Bad
Along with registering a business of course came some other administrative burdens. Registering for VAT, getting business insurance, hiring an accountant, keeping the books and doing quarterly accounts, annual returns and tax declarations. Sounds like a burden and hey, it's not exactly exciting, but it keeps you in touch with what is really happening in the business. This is absolutely key.

A few things I learned from hard won experience regarding these points:

  • Never miss any filing dates for HMRC, ever
You can be late paying your VAT or Business Tax, but file late and you'll be fined. You'll also be on the taxman's radar - and you definitely want to stay off that! Get your filings done on time every time.

  • Get an accountant to do your end of year accounts
As above, you need to make sure everything you put through the business is a legitimate expense, every invoice to clients, every payment into the business and every aspect of your financial accounts is spot on. Then wrap all of this up in a set of reviewed and approved accounts that get sent onto HMRC. That way there's no concern you made stuff up or made mistakes. Keep HMRC happy and off your back or it's yet more admin for you to do.

  • Never, ever use any umbrella, loan scheme, 90% income scheme or similar
Just avoid these like the plague. Yes, even umbrella companies. The simple reason is you lose control of what your income 'means'. It has to mean income - revenue from invoices, minus expenses for running the business (costs, tax, etc.), which leaves you profit from which to pay yourself director's dividends and salary. That's it no confusion, no sudden discovery HMRC don't like the scheme you're using, no accusation it's a tax avoidance scheme or even worse, outright tax evasion.

  • Do avoid paying as much tax as possible, legally
You have an absolute responsibility as a director of a business to save all costs and maximise all profits for the business, in any legal way possible. This is your new responsibility and you must be focused on it. Stop thinking like a salary slave and start thinking like an entrepreneur. Having your own business affords you so many opportunities in this regard you'll save literally thousands per year that non-business owners cannot save.

The Ugly
If you want to keep earning in IT contracting - you must keep learning. If you don't like the idea of being a lifelong learner, this may not be for you.

If you don't keep learning what's new in the marketplace, what is being asked for in contract job postings and what are the emerging practices or technologies - you're going to be un-hirable sooner than you think.  Almost every single time I got into a contract I watched as the world moved on outside of the domain I was working in, which meant I had to sit courses, watch YouTube videos and do hands on practice just to keep up to speed. Even with my ability and focus on this, I still got behind. You cannot sit on your laurels when contracting.

Until next time.

Mark



0 comments: