Self-employment as a contractor can seem like an easy way to keep your costs down: low overheads, no wage bill, perhaps a home office to save on commuting costs. However, the reality is that even experienced contractors can get caught out by all sorts of unexpected expenses. Here’s our list of the top unanticipated spends that contractors and freelancers face ? and some tips on how to prepare for them.
Taxes
Now, in an ideal world, contractors are putting aside funds for their taxes as they go along, supported by a good accountant or tax advisor. However, as recent high-profile cases on issues like the Loan Charge and IR35 working have demonstrated, there is always the possibility of a hefty and unexpected bill from HMRC dropping through the door. A business can quickly turn from profit to ruin on based on how much you owe the public coffers.
Top tips:
- Keep your books up to date.
- Engage a good accountant and/or tax advisor and check in with them regularly.
- Keep yourself up to date with the latest tax legislation.
- Protect yourself with insurance
Kingsbridge’s Legal Expenses cover add-on offers tax protection including IR35 coverage.
Illness and injury
Nobody wants to get sick, and there’s never a good time to be ill. This is especially true if you are a contractor or freelancer, because with no entitlement to statutory sick pay, no work means no money. Consider how you would manage if you had to stop work for a while to recover.
Top tips:
- Try to build up a contingency fund to get you through times when you can’t earn.
- Have a substitution clause in your contract (and a suitable substitute lined up) so that you don’t lose clients during your recuperation.
- Kingsbridge’s contractor insurance package includes personal occupational accident cover as standard. This means that if you are injured as a result of an occupational accident and are unable to work, you’ll be paid a weekly benefit whilst you recuperate.
Quiet spells
Some months are just like that. The phone doesn’t ring. You wonder if maybe your email server is down, because refreshing it constantly doesn’t seem to do anything. As a contractor, quiet spells are agony, because, again, no work means no money coming in. The good news is, it will almost certainly pick up again soon, especially if you use this down time to do a big marketing push.
Top tips:
- That contingency fund again!
- Good work planning can help you minimise downtimes, particularly if your clients are flexible about what gets done when.
- When seeking new business, weigh up the risk/benefit of regular engagements vs. well-paying but one-off assignments.
- Pay particular attention to seasonal patterns within your line of work. You may find there is an annual cycle to busy and down times, which can help you plan your work (and, on the brighter side, your holidays!).
Legal bills
This is the expense that every contractor thinks will never happen to them. It’s also, potentially, one of the most cripplingly expensive costs that a contractor can face. A legal challenge can present itself in many different forms: a complaint about your services; an accusation of a breach of company law; or an injury sustained by a client tripping over your equipment.
Top tips:
- There’s only one real way around this one: Choose from a range of business insurance that covers a comprehensive range of potential problems and issues.
As a minimum, we recommend contractors hold the following insurances:
- professional indemnity insurance
- Public liability insurance
- Directors’ and officers’ insurance
- Employer’s liability insurance.
That’s why all of these are included as standard in Kingsbridge’s package, which is tailored specifically to the needs of contractors like you. To get your cover going, give us a call on 01242 808740
