Contractor’s Guide

Which self-employed route should I follow?

Each self-employed structure will have pros and cons and there will usually be one that is better suited to you and your lifestyle and career goals.

For example, the limited company route is best for those who wish to have complete control over a business and their career, are in it for the long term, expect to earn over £25,000 per year and are happy to take on the additional responsibilities that come with running a company.

A sole trader will have fewer responsibilities compared to a limited company contractor, however, it’s also a less tax efficient route.

For many people, becoming an umbrella company contractor can seem less daunting compared to other types of self-employment; it comes with the least amount of responsibility and you’ll still have some employee rights and benefits too, such as holiday pay, annual leave and not having to file your own taxes.

However, you also won’t be entitled to certain self-employed benefits, like business expenses.

Our Choosing a company structure page will provide more information on the different types of contracting.

What are the benefits of being self-employed?

There are a number of benefits that come with self-employment.

These include:

• The potential to take home higher rates of pay.
• Taking advantage of being able to claim back on business expenses, which can help to reduce your tax bill at the end of each year.
• Having more freedom and flexibility.
• Gaining more skills and experience.

Our Benefits of Contracting page will go into more detail about this.

Are there any downsides to contracting?

While there are by far more pros than cons to contracting, it’s worth being aware of any possible downsides.

The main one for most people is the fact that it’s unlikely you will have a regular income. Some months you may earn more and others you might not have as much work on – this is unfortunately the nature of self-employment.

You also won’t be entitled to the same benefits you once were as an employed worker.

So, while you will still have certain legal rights, such as health and safety in the workplace and protection against discrimination at work, you won’t be entitled to things like sick pay, annual leave, parental leave or the National Minimum Wage.

To learn more about this, read our What employment rights are freelancers not entitled to? page.

Do I need to hire an accountant?

Any limited company contractor or sole trader can benefit from hiring an accountant.

For example, an accountant will be able to:

• take care of certain tasks, such as filling in and filing forms, leaving you to concentrate on running your business.
• ensure you remain compliant with all your financial liabilities and keep on top of important deadlines.
• provide useful financial advice that you might not have been aware of, which could potentially save you money in the long run.

You just need to ensure that you choose an accountant who you can trust completely.

Here are our top tips when it comes to looking for a good accountant:

• Do they specialise in contractor tax? To ensure you’re getting the right type of help and advice, you need to check that your accountant knows how contractor tax works. There will be a number of taxes and legislations that will only apply to self-employment so your accountant must understand this area completely.
• Will I have my own dedicated accountant? Having just one point of contact will be beneficial for you and your business, as it means you’ll receive personalised advice instead of being passed around a team.
• Are they qualified? It might surprise you to learn that an accountant is not required by law to have official qualifications, however, it might give you more peace of mind knowing that your accountant is qualified.
• Do they have a fixed monthly amount? Not every accountant works on a fixed monthly fee, so it’s worth finding out if yours does – otherwise, you could find yourself with a surprise bill at the end of the year. Check that their package includes everything you need, such as tax returns, VAT returns, payroll etc.
• Do they have a good reputation? It’s really important to do your research on any potential accountant to make sure that they are professional and can be trusted. Look for reviews and forums and speak to other self-employed workers.

If you want to change your current accountant, our Is it Easy to Switch Accountants? page provides in depth information on this.

We hope you found this page helpful. Our team of experts are available to answer any questions you may have, so either contact us via online chat, call us on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.