What is IR35?

IR35 rules were introduced by HMRC to close a loophole allowing ‘disguised employees’ to slip through the tax-paying net. The initiative is part of broader efforts to tackle the problem of tax avoidance.

These regulations help identify somebody’s employment status for tax purposes so that businesses, freelancers and contractors are all paying the right amount of tax and contributions.

Fun fact: The term ‘IR35’ comes from a combination of Inland Revenue (IR – now HMRC) and Section 35 of the Finance Act 2000, which is responsible for the legislation.

Who qualifies as a disguised employee?

A disguised employee is a contractor who has been hired on a self-employed basis, but the nature of the working arrangement is actually more like permanent employment.

The reason this happens is because employers hire contractors and ask them to work like permanent employees, but pay them as self-employed professionals and keep them ‘off-payroll’.

This means the employer gets to avoid paying National Insurance and other contributions (such as into a workplace pension scheme) and doesn’t have to provide the contractor with any other employee benefits.

The mutual benefit for the contractor is that they can create a limited company and work through that to pay themselves in a more tax efficient way.

Non-compliance can sometimes be the result of a genuine lack of awareness, but the IR35 rules are designed to penalise failure to comply regardless of the reason.

What does it mean to be ‘inside IR35’?

Before a contractor can establish whether or not they are within IR35, it’s important to understand what it actually means to be ‘inside IR35’.

Someone working inside IR35 has basically triggered the rules by working for an employer as if they were self-employed.

What happens if a contract is inside IR35 rules?

A contract falling within IR35 means that the client must add their contractor to their payroll, and pay them through PAYE as if they were any other employee.

Who decides if I’m inside IR35?

You might think that it’s up to you as the contractor to decide, but it’s actually the client’s responsibility to work out your IR35 status unless your client has:

• An annual turnover which is more than £10.2 million
• A balance sheet total more than £5.1 million
• More than 50 employees (on average) during an accounting year

For small private companies, the contractor is still the one responsible for determining their own employment status for tax purposes under IR35.

Key indicators that a contractor should be considered as being inside IR35 include:

• There’s an obligation for the client to provide you with ongoing work and an obligation for you to do it
• You’re a valuable part of the permanent team and you can’t be easily replaced within the role without recruitment efforts
• You aren’t invoicing the client directly to get paid for your services
• The client has control over things like where you work, your working hours and your time off
• You aren’t in charge of your own insurance policies (such as Public Liability and Professional Indemnity)

Whether you’re a contractor or end-hirer, you can use HMRC’s handy online employment status tool to check where somebody stands under IR35. You can also challenge the decision with your client or escalate it to HMRC’s Alternative Dispute Service if needed.

IR35 non-compliance penalties

If HMRC runs an investigation and the end-hirer has not declared applicable contractors inside IR35, they can be liable to pay all the unpaid tax and the outstanding National Insurance Contributions.

Further financial penalties will also be applied on top of this according to the extent of non-compliant activity. The rates of penalty can be broken down into three categories:

• An additional 30% of the unpaid tax: If the end-hirer wasn’t aware that they were in the wrong but HMRC still deems them careless for the error regardless
• An additional 70% of the unpaid tax: If the investigation reveals that the end-hirer was aware of the mistake they were making and chose to deliberately not comply.
• An additional 100% of the unpaid tax: Should the investigation show that the end-hirer actively concealed the employment status of the contractor and therefore evaded paying the necessary tax.

If the investigation is extensive or lengthy, there are also pretty hefty legal costs to consider as part of the non-compliance consequences.

IR35 and the Construction Industry Scheme (CIS)

It’s important to note that IR35 is different from the Construction Industry Scheme (CIS), which only applies to self-employed contractors working within the construction industry.

If you operate in the construction industry, it’s equally important to ensure that you’re up to speed with the rules and responsibilities for contractors and subcontractors under CIS too.

That said, while IR35 and CIS are separate tax schemes, they can sometimes overlap for contractors in the construction industry. Contractors who fall within IR35, for instance, may also be subject to CIS if they are subcontractors working for another contractor in the construction sector.

We promise it’s not as complicated as it sounds, but if you are feeling stuck, speak to your accountant who will be able to steer you in the right direction.

Looking for more expert business support? Head over to our info hub for more news and helpful resources.

The post Am I Inside IR35? appeared first on The Cheap Accountants.

Learn more about CIS tax responsibilities for contractors and how to stay on the right side of HMRC when working in the building trade.

The Construction Industry Scheme explained

The Construction Industry Scheme was introduced to standardise the way in which contractors pay their subcontractors, and reduce the risk of tax evasion in the construction industry.

Under CIS rules, contractors are required to deduct tax from the payments they make to subcontractors they work with. As a contractor you’ll be responsible for reporting these deductions using a CIS Return, and paying them on to HMRC.

What does this mean for contractors?

For contractors, all this really means is a bit more admin. CIS returns have a more substantial impact on subcontractors because the tax rate at which CIS deductions are calculated is based on whether or not the subcontractor is CIS registered.

The calculation also doesn’t factor in the tax-free personal allowance, so the tax that’s deducted might not be completely accurate (but this will be corrected once the subcontractor submits their own tax return).

Who does CIS apply to?

The scheme applies specifically to contractors and subcontractors in the construction industry. This primarily includes builders, property developers, labour agencies and gangmasters.

There may also be times when the definition includes housing associations, government departments, arm’s length management organisations (ALMOs) and local authorities.

Do I need to register as a CIS contractor?

As a contractor, you must register for the Construction Industry Scheme if:

• You pay subcontractors to perform construction work for you
• You’ve spent more than £3 million on construction in the 12 months following your first subcontractor payment, even if your business doesn’t fall under the category of construction

CIS covers building works such as site preparation and decoration but not things like scaffolding hire, carpeting, delivery of materials, surveying, or the management of site facilities (such as on-site food provision)

How do I register as a CIS contractor?

CIS registration isn’t an automatic process, and contractors are responsible for registering themselves at the appropriate time. To sign up as a contractor you’ll need to follow the same process as if you were registering for PAYE as an employer.

Make sure you register for CIS as a contractor before making your first payment to a subcontractor!

Requirements for contractors under CIS

There are certain regulations you need to follow as a contractor working under the Construction Industry Scheme:

• Check whether or not any subcontractors you hire are registered for CIS. You can do this on the HMRC website using their UTR number
• Confirm that you can actually recruit somebody as a subcontractor. In some cases, a person might need to be contracted as an employee. This kind of mistake is easy to make without thorough due diligence but can lead to costly fines from HMRC.
• Submit monthly CIS returns and maintain up-to-date CIS records for HMRC, even if you don’t intend to pay subcontractors all the time
• Keep a record of the gross amount of any payments you make to subcontractors (excluding VAT) and the sum of CIS tax deductions from these payments

You will also need to make sure that the CIS records you keep are up to date and accessible to HMRC for a minimum of three years.

Do CIS contractors still need to submit tax returns for their business?

Yes, you’ll still need to submit tax returns for your business, even if you need to register for CIS to tell HMRC about your subcontractors. Your tax return tells HMRC:

• How much money the business earned in a tax year
• How you earned it (i.e. through your contractor business and any other form of income)
• The allowable expenses you want to claim tax relief on (e.g. equipment, tools, work-related travel costs, etc.)
• Any tax you have already paid (to prevent you paying double tax)

Don’t forget to consider IR35

If you’re a contractor or setting up a contracting business, you’ve probably already heard of IR35. It’s an initiative designed to clamp down on contractors who operate through their own limited company but are technically an employee for all intents and purposes.

Some contracts will be ‘within IR35’ and some won’t – it depends on the client you’re working for and the nature of the contract.

Generally, the end client is the one responsible for figuring out the IR35 employment status of a contractor. However, if you’re providing contracting services to a small client outside the public sector, an intermediary may be responsible for deciding your employment status and if IR35 rules apply.

If the rules do apply, your client should deduct income tax and National Insurance from your invoice before they pay you and send these deductions to HMRC on your behalf – just like they would if you were a regular employee.

This means the payment you receive from the client is the ‘after tax’ amount, so you’ve already paid tax on it. Make sure to document this accurately on your Self Assessment tax return so you don’t end up paying tax on it twice.

Looking for more support with your contractor business? Head over to our info hub, and learn more about finding the right accountant for you.

The post Do I Need to Tell HMRC I’m a Contractor for CIS? appeared first on The Cheap Accountants.

The scheme sets out rules which deal with paying construction subcontractors, so if you’re not sure how it all works, we’ll help you get up to speed so you can ensure that your business is compliant.

• What is the Construction Industry Scheme?
• How does CIS work?
• Who does the Construction Industry Scheme apply to?
• When do you need to register for CIS?
• How do I register for CIS?
• What are my obligations as a CIS contractor?
• What happens if I don’t register for CIS

What is the Construction Industry Scheme?

The Construction Industry Scheme, or CIS for short, is an initiative put in place by the government to standardise the way contractors pay their subcontractors, and reduce the potential for tax evasion within the construction industry.

Under the rules of the scheme, contractors must deduct tax from the payments they make to subcontractors. These deductions are known as CIS tax, and contractors will report and pay them to HMRC using a CIS return.

The payments are then recorded towards the subcontractor’s tax and National Insurance (NI), a bit like the way that employers deduct tax for their employees.

How does CIS tax work?

In a nutshell, the scheme determines how a subcontractor pays their tax and National Insurance contributions. Registered contractors deduct these payments from their subcontractor’s earnings and send it directly to HMRC, meaning this portion of the subcontractor’s income is taxed at source.

So how much do contractors deduct under CIS? Well, this depends on whether or not the subcontractor is registered for CIS.

• 20% if the subcontractor is registered under the scheme
• 30% if they’re not
• 0% if they meet the criteria for Gross Payment Status. Eligibility for this depends on strict criteria, such as minimum turnover and the size of the business.

When a subcontractor is eligible for gross payment status, the contractor will pay their invoice in full without making any deductions. Instead, the subcontractor will pay all of their tax and National Insurance at the end of the tax year.

Checking a subcontractor’s CIS registration

Because their CIS registration status determines how much tax they must deduct from the invoice amount before paying it, contractors must check whether or not a subcontractor is registered for the scheme before they start work.

So that the contractor can verify them with HMRC, the subcontractor will need to share their details, depending on what sort of business structure they operate:

• Sole trader: Unique Taxpayer Reference (UTR) number (this is the unique reference that HMRC issues to identify a business’s tax records) and National Insurance (NI) number
• Limited company: The company name, registration number, and UTR
• Partnership: The partnership’s name and UTR, and the details of the nominated partner

The contractor can then use this to verify the subcontractor, and tell HMRC that they plan to take deductions from the subcontractor’s earnings under CIS.

It’s important to note here that subcontractors are different from employees, even though contractors will make deductions from both!

Always double check that deductions are being made and reported through the correct scheme.

Does CIS tax have any benefits for subcontractors?

It might seem like being part of the scheme is just another hassle that you could really do without, but registering for CIS can actually bring a number of positive benefits, including:

• Deductions will be made at the lower rate, so it’s easier to manage and plan cash flow
• More security that you will get paid by contractors for work you carry out
• It helps you manage your tax and National Insurance payments in advance

Who does the Construction Industry Scheme apply to?

The Construction Industry Scheme applies specifically to contractors and subcontractors working in construction-based jobs or within the construction industry.

This includes sole traders, partnerships, or companies and encompasses things like labour agencies, property developers, builders and gangmasters, but it doesn’t apply to every type of job.

When do you need to register for CIS?

If it isn’t clear by now, the Construction Industry Scheme only applies to contractors (and subcontractors) offering applicable services in the construction industry. So, if this doesn’t apply to you, you won’t need to worry about anything related to CIS.

• As a contractor, you are legally obliged to register for the Construction Industry Scheme before you start paying subcontractors for construction-related work.
• Subcontractors don’t have to register for the scheme, but those who don’t will have deductions made at a higher rate.

Some businesses that aren’t in the construction industry are also required to be CIS-registered too. This applies to any businesses or organisations that spend over £1 million annually on construction work within any given three-year period.

This could be a housing association, an arm’s length management organisation (ALMO) or a local authority, for example.

How to register for CIS

You can register as a CIS contractor on the gov.uk website and you’ll need the following pieces of info to hand in order to complete the registration process:

• Legal business name and/or trading business name
• The business’s UTR (Unique Taxpayer Reference)
• National Insurance number
• VAT number if you are VAT-registered

It’s important to point out here that you will need to register your business as an employer before you can register for CIS, so make sure you’ve got that all sorted first.

The way that you register depends on whether you’re a sole trader, a limited company, or another kind of business such as a partnership.

If you are already registered as a sole trader, you can simply log in with your Government Gateway ID and go through the CIS registration process via that. If you’re not yet registered as a business, you can register for Self Assessment and CIS at the same time during the setup process.

Other useful points to consider

• If you live overseas but complete construction work in the UK, you will still need to register for CIS.
• If you are both a contractor and a subcontractor, you will need to register as both separately in order to correctly comply with the scheme’s regulations.
• Subcontractors aren’t legally required to register for CIS, but it’s recommended to do so before completing work for any contractors.

Subcontractors register for CIS online using a similar process and again, which form you use depends on the legal structure of the business.

What are my obligations as a CIS contractor?

As a contractor taking on subcontractors in the construction sector, you’ll need to register for CIS before making your first payment (and deductions) to a subcontractor. You must also:

• Make sure you treat the person working for you in the right category (that is, as an employee or as a subcontractor). Getting this wrong is an easy mistake to make, but it can lead to issues and penalties later on if you aren’t accurate.
• Check whether or not the subcontractor is CIS-registered using the HMRC website, and then make deductions at the correct rate.
• Submit monthly CIS returns to HMRC and maintain thorough CIS records. These run from the 6th of each month to the 5th of the next month, with a deadline of the 19th to submit and pay.
• Report the gross payment made to all subcontractors (excluding VAT) and the sum of related deductions, and make sure this information is available for a minimum of three years.
• Provide your subcontractors with statements showing the payments and deductions you make. They’ll need these for their own accounting and record keeping.

What happens if I don’t register for CIS?

Failure to register for CIS as a contractor when you should will result in hefty financial penalties from HMRC. In fact, HMRC can request to see CIS records at any time, and if a contractor is unable to produce these, they could face a fine of up to £3,000, plus additional late filing fees.

Subcontractors aren’t legally obligated to register with CIS, but it can be useful, particularly to avoid deductions being made at a higher rate. You’ll be able to reclaim any tax overpayments at the end of the year, but for some people it’s simply easier to manage it as they go.

Need more help with your business finances? Head over to our info hub, or learn more about finding an accountant.

The post The Quick Start Guide to the Construction Industry Scheme appeared first on The Cheap Accountants.

Rather than one single employer taking on a variety of staff, there’s normally an overall project manager who takes on contractors. In turn, they’ll often use subcontractors to help deliver the work they’re contracted to do.

This hierarchy means that contractors and subcontractors often have different responsibilities; both on site, and in terms of reporting and paying tax.

What’s the difference between contractors and subcontractors?

As the name suggests, a contractor is a person or business who carries out work for an organisation without being employed by them. This is normally for a particular project (known as a contract), on a temporary basis and for a specified length of time, rather than on a permanent basis as an employee.

A subcontractor is similar, in that they also work as an independent person or business, rather than as an employee of the contractor. A contractor will often hire in a subcontractor to help them fulfil the terms of a particular contract that they’re working on. For example, if they need more people power, or a particular skill or trade.

Contractors, subcontractors, and tax

Contractual and sub contractual work is most commonly found in trades such as electrics, plumbing, decorating, and gardening. It can also be found in creative capacities such as photography, videography, graphic design, and copywriting.

Where the latter is concerned, contractors and subcontractors are generally responsible for managing their own tax payments and submitting their own Self Assessment return.

More specifically where construction is concerned though, something called the Construction Industry Scheme (CIS) comes into play.

What is the Construction Industry Scheme?

The Construction Industry Scheme (CIS) is an initiative which deals with the way subcontractors pay tax. The scheme encompasses the majority of construction workers involved in site preparation, decorating, and refurbishment.

However, it doesn’t cover some related jobs such as carpeting, material delivery, managing site facilitates (e.g., an on-site canteen), scaffolding hire, architecture, or surveying.

It covers mainstream contractors who fall under the criteria of builders, property developers, labour agencies and gangmasters. In some circumstances, it might also cover housing associations, arm’s length management organisations (ALMOs), local authorities and government departments.

How does CIS work?

Under CIS, a contractor deducts money from a sub contractor’s payment, and then passes this onto HMRC towards what the subcontractor pays in tax and National Insurance. It’s a bit like the way that an employer deducts tax and NI from an employee’s wages before paying them.

These CIS payments are due to HMRC by the 22nd of every month (or by the 19th if you’re paying by post) and there are late payment penalties of up to £3,000 if they go overdue.

Before all of this can happen though, the contractor will need to register for the scheme.

You’ll be required to register under CIS as a contractor if:

• You pay subcontractors to carry out construction-based work.
• Your business doesn’t fall under the category of construction work, but you’ve spent more than £3 million on construction in the 12 months since making your first subcontractor payment.

If you meet these criteria, there are specific regulations that you must adhere to:

• You’ll need to register for the scheme before you make your first subcontractor payment.
• You must make sure that you’re right to use this person as a subcontractor, rather than as an employee. Making this mistake can come with a penalty (under disguised employment rules).
• Establish whether or not the subcontractor is registered under the CIS (known as verifying a subcontractor).
• Remember to file monthly returns and maintain comprehensive CIS records. Again, this can incur a penalty from HMRC if you fail to do so. Even if you haven’t made any subcontractor payments that month, you must still send your CIS return to HMRC!

You’ll need to tell HMRC the gross pay of each subcontractor, and about any deductions that you make (and keep this information for a minimum of 3 years).

Where do subcontractors stand on tax and CIS?

So, we know how the scheme works for contractors, but what about from the perspective of a self-employed subcontractor?

It’s worth noting here that subcontractors aren’t legally required to register for the scheme. However, should they choose not to, their deductions will be calculated at a higher rate than those who are registered.

When you start working with a new contractor, they will ask for your Unique Taxpayer Reference (UTR) number. This will then allow them to inform HMRC that they plan to take deductions from you. Using your UTR, HMRC can then let the contractor know what rate of deduction to apply to your payments.

The rate of tax that a contractor deducts from a subcontractor’s pay depends on whether or not they’re registered under CIS:

• Registered: tax deduction of 20%
• Not registered: tax deduction of 30%

The good news is that subcontractors who pay the 30% rate are usually able to reclaim the difference between that and what they would have paid at the 20% rate, once they submit their Self Assessment tax return.

It’s one of the reasons why getting your tax return in earlier is particularly important for subcontractors: the sooner you submit, the sooner you get your rebate!

Need more help with your contractor accounting? Get an instant quote for contractor accounting services, or ask a tax question for free.

The post Rules and Responsibilities for Contractors and Subcontractors appeared first on The Cheap Accountants.

Either people don’t understand what you do all day and how you do it, or they’ve bought into freelance myths and you’re about to be the butt of their long-lunch-pyjama-working jokes.

To prepare you for the onslaught, here are five myths about freelancing – and the ammunition to bust them:

1. You can work at whatever you want

Ah, if only that were true. I’d give brain surgery a go on Mondays and save Fridays for caring for cute puppies. Sadly, the only way to make money freelancing is to do something you’re good at and work on projects that pay a decent fee, even if this sometimes means doing things you find boring or repetitive.

While you do have the freedom to say no to as much work as you want, sooner or later you will have to say yes to something (or find an alternative way to pay for food and bills).

 2. You can work at whatever time you want

While freelancing can offer flexible working hours in a way that traditional employment rarely does, there are restrictions. Most freelancers have other time-sensitive commitments in our lives, whether that’s family commitments, another form of work or trying to adhere, roughly, to the timescale on which our nearest and dearest eat and sleep.

There’s also those pesky clients to consider; some expect you to be contactable in standard office hours, some may be based in a different time-zone, and others may want to video-call you on Skype first thing in the morning and be less than impressed by your Winnie the Pooh pyjamas, half-eaten breakfast bap and bed hair.

So, can we freelancers work at whatever time we want? Not really, no.

3. You can work as few hours as you want: long lunches, spontaneous short breaks, days off whenever you want

How freelancers are supposed to pay for those short breaks and long lunches is a mystery, given that apparently, we waft to our desks on a whim, work for half an hour and then waft off again.

Of course, there are some highly successful and experienced freelancers who get paid such high rates that they don’t need to work full-time. Equally, there are freelancers who choose not to do it full-time because they have other commitments (or jobs, like me!). But freelancers only get paid for producing the work – and producing it on time.

You could stand by the water-cooler talking to yourself, but as you are also your own boss, you would probably notice this slack attitude. It’s hard to get things by the boss when you are the boss.

Also, slacking off is self-defeating. Can we work for just a few hours a week (providing we hit our deadlines)? Yes. Can we live on the money we will earn? Probably not.

4. Freelancing isn’t real work – especially if you do it from home!

It’s amazing how ‘working for yourself’ seems to magically transform into ‘getting the work fairy to do your work for you’ in the minds of some people.

It doesn’t matter how much you discuss your projects, deadlines and clients; they still don’t seem to think you do real work.

My other job is as a term-time employee, and as every academic holiday approaches, I wait to hear someone close to me utter something like: “Lucky you, having no work next week.” When I point out that I will still have plenty of work, they almost tut as they say dismissively, “Oh yes, of course, that work,” as though my freelance work doesn’t really need to be done – and will mystically disappear.

This is despite the fact that usually, freelancing represents the majority of my working hours and earnings. Yet if I were doing the same work in an office, with a boss, I know that same work would suddenly become real again, and people would appreciate that it required time, effort and completion!

The only tip I have here, for when you encounter this attitude, is to always make sure you take your work seriously. Ensure people know you have work on and never treat it like something that can be pushed aside, squeezed in or considered less important.

5. You are instantly available to everyone

The problem of this ‘unreal’ work is that people think it can supposedly be done at some unspecified, mythological, ‘other’ time. This means they believe you are always instantly available to them, whether they want a chat, a coffee, help with their house move or their child picked up from school.

Again, make it clear that while you can often be more flexible than most employees can, you do still have clients to please, work to do and deadlines to meet. You can’t just drop everything at a moment’s notice. Say no to things you can’t fit in and when you do say yes to someone, make it clear you’ve had to check your workload first. That way, they will be less surprised if the answer is no in future.

Ask people not to visit or phone in your working hours and/or just ignore the phone or doorbell. Constant disruptions will break your concentration and slow you down.

What freelance myths do you find yourself having to bust? Do you find it hard to get others to take your freelance career seriously? Let us know.

The post Five Myths about the Freelance Life appeared first on The Cheap Accountants.

Not convinced? Why not try. 

Delegating to others

In the workplace, delegation and defined roles are common. When we’re freelance, we’re tempted to do it all. Yet where’s the rule book that says we have to?

Try outsourcing. If a task is stressful, time-consuming or just plain boring, outsource it. Yes, it will cost you money, but you can spend the time it would have taken to do that admin or fill out that tax-return on earning money doing what you’re good at (and hopefully enjoy).

Some tasks are best done by others because they require expertise and those experts can do them quicker and better than you can. So, whether the task is web design, social media management, promotion, bookkeeping and accountancy, or anything else you can’t or don’t want to do, consider passing it to someone else.

Learning from others

There’s always something left to learn and always someone who can teach it to you or talk you through it. Formal and informal training, longer courses, mentoring, networking, conferences, workshops, local business consortiums; there’s a whole bunch of ways you can access learning to improve and broaden your skills and increase your contacts.

Subcontracting to others

I’ve written dozens if not hundreds of articles on different ways to manage your time, workload and work/life balance. But even if you’ve followed my sage advice to the letter, there may be times when life throws you a curveball and you end up with an impossible amount of work.

Spookily, I’m there myself right now; usually, I’m a very part-time employee as well as a freelance writer. Over the last few weeks, though, I’ve been a nearly full-time employee because one colleague suffered a completely unpredictable tragedy, and another had to take a fortnight off because of serious illness in her family.

Currently, my curveball solution has resulted in finishing this article at 6.30 in the morning before heading off ‘to work’ – and consuming the number of takeaways and ready meals I’d usually have in a year. An alternative (and, I will admit, better) solution is to hire someone else to help, whether that’s for specific tasks or a few hours/days.

Subcontracting can also be a great idea if you have work you don’t particularly enjoy but want to retain. The pros, cons and cautions of this could be a whole other article, but here, let me just warn you to consider who you hire for how much, and on what terms.

If for instance, you’ve hired someone to write articles for you, you will need to consider how much they will expect to be paid if they’re good – and how much of your time will be taken up editing their work if they’re not so good. Is it still worth it for you in terms of money and stress?

Working with others

Freelancers spend half their time being advised to specialise and become an expert in their niche and the other half being told to add to and broaden their skills and services. It’s true that some skills are often required in tandem. I lost a contract to write the content for a hefty leaflet because a competitor could write the content and design the leaflet using a specific design package that the charity used.

One way to offer additional services (without risking becoming ‘a jack-of-all-trades, but master of none’) is to partner up with someone else who has the skills often required alongside yours. As always, if you do this, ensure the obligations, expectations and financial implications of the partnership are very clear and formalise them with a written contract.

Working around others

Freelancing can be lonely and working at home by yourself isn’t usually the most stimulating of environments. Co-working spaces, cafes, pubs and ‘work dates’ with other freelancers can all help to prevent isolation and provide the socialisation you lack – and the motivation and inspiration that can dwindle when you’re by yourself staring at the same wall every day.

Working by yourself all the time isn’t always the best solution for you, your workload or your business, so why not try one or two of these ways to interact with others?

How do you work with others, and how do you ensure you retain your expertise and motivation? Share your tips!

The post Why Working for Yourself Doesn’t Mean Working by Yourself appeared first on The Cheap Accountants.

How do I get approved for a mortgage?

Keep detailed records

This is the most important one on the list. Make sure you’re keeping detailed records of your income for the last two to three years.

Unfortunately, if you’ve just started a business or gone freelance in the past few months, you’re probably not going to get approved unless you can provide evidence of a consistent income.

Lenders have no idea what your finances are going to look like in another month or year. It’s common enough for business owners themselves to not know how much they’ll be earning after a couple of months, never mind years to come.

So for lenders, it’s simply too risky for them to approve a mortgage if you’re at that stage. Some lenders are a little more laid back than others and will accept details of only the past year of trading. Even so, it’s worth having a few years of records behind you before you start an application. Consistency and stability is what you’re aiming for here.

Gather a big deposit

You’ll be doing this anyway but if you’re self-employed, you might want to save up for longer to ensure you’ll be approved with a larger than usual deposit. This will help lenders look more favourably on you as it’ll show you’re financially stable enough to make repayments.

Maintain or build good credit

This may go without saying but a good credit history is crucial to being accepted. If you know your credit score isn’t particularly healthy, then you might want to hold off applying for a mortgage as you may not get accepted.

Instead, spend this time trying to boost your credit score by paying off outstanding debts and using your credit card wisely. You’ll have more time to save for a deposit and as a result, your mortgage rates will be better.

Hire an accountant

Having an accountant on board will help you to keep immaculate records that lenders will want to see. Lenders tend to prefer to deal with borrowers who have an accountant on board to prepare accounts as they know they’ll be accurate and done to a high standard.

The post How to Get Approved for a Mortgage if you’re Self-Employed appeared first on The Cheap Accountants.

You get tons more free time

You may have more flexibility in how you use your time but that doesn’t mean you can take time off whenever you want and let everyone else run the business. Being a business owner is a full-time job and more. You’ll always have something to do so don’t count on unlimited holidays.

It’s more stressful than being an employee

This can certainly be true for some people but it doesn’t necessarily apply to everyone.

According to research from AXA Business Insurance, 78% of self-employed people describe themselves as stressed to some extent. While this may seem like a high percentage, it’s not compared to the 90% of people who say the same while working for someone else instead.

The best thing about being in charge is that if a problem is stressing you out, you can do more about it. Gareth Howell, managing director of AXA Direct said:

“I do feel there is something here about how much control an individual feels they have over their destiny. When we asked people about their motivations for starting a business ‘control’ was the word that came up time and again.”

You will make lots of money

You certainly have the potential to earn a lot of money. The great thing about being self-employed is that there’s no real cap to the amount you can earn like there is with a salary. However, it’s going to take a lot of work and even then you’re at the mercy of the market.

Overall, the earnings gap between employees and self-employed people isn’t as dramatic as you might think. The average self-employed person earns around £33,000. That’s £6,000 more than the average employee.

Being self-employed is too risky

There’s an element of uncertainty when you go it alone but this risk can be managed. It all depends on how much work you put in, whether you address the needs of your market and how well you team works.

In many cases, being employed isn’t any safer than being self-employed. Redundancies and cut backs are now common and have become one of the driving forces behind people starting their own ventures.

Having a good product is enough

While this is the first step in any business, finding a good product or service, it’s not the only thing to think about. It doesn’t matter how new and inventive an idea is if there’s no real market for it. If no one wants to buy from you, then you’re going to struggle to keep going. That’s why it’s important to listen to what customers need.

You need a business education

Think only people with MBA’s get ahead? Think again. Plenty of the world’s biggest entrepreneurs got ahead without any higher education. In these cases drive, passion and common sense count more. That doesn’t mean jumping into it without any knowledge or experience is a good idea. The more you can teach yourself about business the better, and experience can teach even more.

You only do work you love

Now that you have the freedom to work how you want, you may think that your time is going to be filled with stuff you love to do. Unfortunately this is just not the case. There are always going to be tasks that aren’t much fun alongside the stuff you enjoy.

This is why it’s important that you’re passionate about your business. Not just because it’s more fun but because when you come to spend time on inevitable tedious or stressful tasks, your passion will keep you going.

You don’t have to answer to anyone

Even if you’re at the top, you still have people to answer to. This could be your employees, your customers, the Government or investors. Businesses are made of people so it’s important to be open to new ideas and advice, especially if you’re just starting out.

You have to do everything yourself

In the early days, being able to wear many hats is a good thing. You’ll often have to take up several responsibilities to get going without forking out for lots of new staff.

However, you have to eventually let go of the reins. When your business grows and you hire people to take over the kind of tasks you didn’t want to be doing long term, you need to let them get on with those jobs. Learn to delegate and give up some control as this will create a more productive office and make your life less stressful.

You have to do all of your accounting

Following on from the previous point, you don’t need to do everything yourself. This means that no one expects you to be hunched over a calculator, working with tons of receipts to work out your tax every year.

Having an accountant can take a huge weight off you as a business owner. It means you can keep your focus on what you’re best at, running your business.

For a quote on accountancy services, you can follow this link here.

Have you heard any other myths you’d add to the list? Have any ever made you had second thoughts about going into business? Let us know your thoughts.

The post Want to Start a Business? Here are Top 10 Myths about Self-Employment appeared first on The Cheap Accountants.

What is the average IT agency margin?

There has always been a push and shove attitude with contractor and agency. Contractors wanting to know what ‘margin’ an agent is getting and the agency wanting to know a contractors lowest acceptable daily/hourly rate so they can leverage what they can in between pay & charge. There is a few myth bubbles that need to be burst around agent fees’. It’s no longer the 90’s the days of a 25% – 30% agent fee has long gone. If an agency is a preferred supplier to a client, they could be on anything from 10% to 14% margins. Take into consideration the amount of budget that goes on advertising jobs across online job boards, added in with hours resourcing and account management, it’s really not the high.

A contractors biggest gripe is that an agency margin is money that they are losing out on, an hourly or daily rate could be higher without an agency involved? All probability is that the contract wouldn’t have been found without the call from the agency or that job alert you got emailed from monster.com.

IT Contracting via an IT agency

As well as IT contractors having to accept that an IT agency is part of the process when securing contracts with Blue Chips or larger companies, an agency also has to realise that a good IT contractor is someone they need to run their business and keep clients happy.

All of the good agencies employ agents who don’t just call a contractor when they have work in, but will check in on them on a regular basis to see if they are looking for a different type of contract or if they have learned new skills. They will meet up with them face to face and build a business relationship. Too many IT agencies are tarred with a brush that paints a picture of a ruthless sales house just looking for that contractor placement; they do exist but not like in the past.

Can an IT contractor and an IT agency get along? The fact is they have to, and in most cases they do learn to work together and take advantage of a market that demands the best.

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