Be disciplined in your record-keeping, he adds: “You’ll experience new timing issues around the payment of various taxes.” This includes corporation tax if you’re a limited company, “usually paid nine months after the company year end”, and VAT, normally paid every three months when your turnover is greater than £85,000 a year.
Avoid nasty surprises
With the above in mind, “use a ‘live’ (ie cloud-based) accounting system that your accountant can look at to help you on an ongoing basis”, James says. “If this is too 21st century for you then at least keep records right up to date so that if someone else needs to prepare a forecast of your future tax liabilities, this isn’t held up by you having to do basic record-keeping. Good online systems will automatically forecast your future liabilities.”
Ensure you bill and collect promptly…
Problems with cash flow can cause up to 29% of start-ups to fail. “One of the biggest challenges for small businesses is getting paid on time,” James says, “so make sure you bill as soon as you’re allowed, and try not to get taken advantage of by large customers who aren’t in your situation – you may need to get paid to pay your bills at home.”
… but allow for timings of payment
“You might finish work with a month’s money, and when you get a contract you could be paid weekly,” says Chaplin. “This will certainly help cash flow. But it might not always go so smoothly and having savings can help tide you over.” If you are paid monthly on your first contract, Chaplin adds, “remember you’ll have to work the 30 days and then invoice. Most agents pay within five days of the invoice, and shouldn’t drag it out for 30 days”.
Consider income protection
“As soon as you stop working, you stop earning,” says Seeley Harris. “Income protection can be costly, but you need to think about what would happen if a client defaulted on a large payment, or if you were ill.”
If the worst happens, James adds, “and you were incapacitated or even lost your life, your family would find it surprisingly difficult (and slow, and expensive) to get their hands on the money they need. For this reason, it’s worth considering setting up powers of attorney when you establish a business, and refreshing your will”.
April’s IR35 changes will have a big impact on contractors working for large companies. “Look for opportunities outside IR35,” says Chaplin, “and if you are considering an inside IR35 engagement under the new legislation, understand the financial impact of the new rules on your income.”
You can use an off-payroll calculator to assess this. Chaplin adds: “Including how much you would need to increase your rate by, for an ‘inside IR35’ engagement to be net income-neutral.”
Think long term
When you work for yourself, you have to provide things that might previously have been benefits – pension payments, employment rights like sick pay, and perhaps private healthcare. “Pension contributions are a useful and tax-efficient way to save,” says James. “But once money is in a pension, it’s very hard to get out in an emergency.” Speak to a financial adviser about what’s possible, and how much things will cost.