If you are thinking about becoming a contractor, or have been contracting for a number of years, the financial benefits of setting up on your own are quite obvious. The average contractor will at least double his or her income on leaving permanent work, and in many cases the rewards are much greater than this. However, management of your money is now up to you. This section details the key components of contractor finance; the pitfalls and the benefits. As a new or established contractor it is inevitable that you will require access to financial service products. In permanent employment, a lower, salaried income is enhanced by additional benefits such as sick pay, company pension scheme, medical and life insurance. These benefits are largely taken for granted but provide vital protection from hardship that disappears the day that you start contracting.
Depending on your circumstances, you will need to replace some or all of this safety net and must now find the costs personally. You will have the means to do so thanks to your newly enhanced income and much of this package can also be provided very tax efficiently through your limited company. Additionally you must make the most of your decision to contract and it is important that your money is set to work as efficiently as possible. Company and personal tax breaks must be maximised so that the Inland Revenue doesn’t end up the real beneficiary of all your hard work! This can be achieved by careful structuring of your finances and tax efficient investment of surplus income.
There are a bewildering number of insurance companies, banks and other providers of financial services but many of their products will be poorly suited to the unique position in which a contractor operates. Pensions and investments must have low set up costs and have complete flexibility of the number and level of contributions required, mortgages must take into account dividends with competitive interest rates, and protection products must be tailored to your particular circumstances.
We advise that you seek a financial adviser who specialises in the contractor market. Only an adviser will be able to scan the market for the most suitable product at the best price and only a specialist will properly understand your situation. You should structure your affairs so that you have flexibility in case you return to permanent work, go abroad or need to react to the unforeseen such as IR35.
We have partnered with sister company Contractor Wealth.
Contractor Wealth are specialists in their field offering tailored advice for contractors and freelancers. Their extensive knowledge around how contractors and freelancers work will ensure your financial needs and remuneration structure are understood fully.
The value of investments may fall as well as rise and past performance is not a guide to future.
Financial advice is given by Contractor Wealth Management Limited which is an appointed representative of Intrinsic Mortgage Planning Limited and of Intrinsic Financial Planning Limited who are authorised and regulated by the Financial Conduct Authority. Intrinsic Financial Planning Limited and Intrinsic Mortgage Planning Limited are entered on the FCA Register (http://www.fca.org.uk/register)under reference 440703 and 440718.