Contracting comes with many benefits but it’s not all rainbows and butterflies!

Businesses are becoming more open to different employment methods, and cloud computing largely supports this change (especially when it comes to contractors). Contracting can offer greater independence and a better work/life balance – however, if you don’t keep your financial ducks in tidy a row, when it comes to the end of the financial year, the contracting dream may become a nightmare.

Accounting for sole traders and contractors

While contracting may allow you to earn more money and work hours that suit your lifestyle, you need to balance these benefits with some downsides – like not having the same employment rights as regular employees and being paid only for the work you do (ie: no rights to leave, stat days and sick days.) As a contractor, you won’t be covered by ACC nor belong to the organisation you’re contracting for and you would need to put money aside for your tax bills yourself. The good news is you can use accounting software to track your income during the year, and put aside the correct amount of tax and savings that would cover you for the above.

If you’re thinking about contracting, you need to choose a business structure that suits you – ie: a sole tradercompany, or partnership. It’s best to get in touch with your accountant to discuss what business structure is best for you, as this will affect the way you pay your tax and run your business

Business tax 

We’ve jotted down a few tips to consider before you start contracting:

         A good business plan will allow you to keep track of your rates, expenses and expected growth. An accountant can help you set realistic goals at this stage.

         Your accountant will recommend you separate your personal and business banking, and help you find the right accounting software to track your expenses, send out invoices and simplify yearend tax work.

         It may be good to have insurance like professional indemnity, public liability, and audit insurance as well – just to cover you for any nasties.

         You may want to ask your clients to sign your own non-disclosure and services agreements.

Once you’re a contractor, you’ll be responsible for your own administration, accounts, and marketing, but there are many tools out there to help you with the workload.

         You’ll need a good accounting package to support the day to day running of your business ie: a Xero package that allows you to manage bills, invoices and online banking.  

         A project management and time-tracker software will also track your project to ensure you don’t under or overcharge your clients.

         Online collaborative office software can save you money and time.

These tools can be cloud-based for your convenience.

Contracting involves the right drive, responsibility and ability to commit and take initiative. You may need to work in solitary at times and may not have the security of knowing where your next job will come from, but if you have the right attitude and skills, it can be empowering and liberating. Cloud-based software applications will help you with your
contracting journey.

Contractor accountants

If you need help with the above, don’t hesitate to give us a call! We’ll discover new strategies for your business and walk you through the whole process.

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