If you’re planning to start contracting, you might want to hold off and think about several important things first! There are many benefits to contracting, like greater flexibility and (possibly) better pay than a similar salaried job, but you’ll find some hidden costs as well.
As a contractor, you’ll be self-employed and you’ll choose what, how and sometimes where you work. You will also be responsible for paying your tax. Essentially, being a contractor means you’re in business for yourself. Your contracts can go for a few weeks or years, but depending on your field, there could be significant set-up costs you should be aware of and consider when deciding if contracting is right for you.
Before you start forking out on set-up costs, find out how long it will take to pay off any loans you would need to take out. If you lose a contract, would it be easy to find other contracting work and continue paying down this debt? How much capital would you need for set-up costs (if any)? Would you have enough cash flow to sustain your business?
Once you start contracting, keep records of your expenses and get an accountant to sort the tax end of your business. As a sole trader or contractor, you can claim business expenses when lodging a tax return.
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Transport costs and vehicle expenses for
business purposes
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Rent
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Depreciation on equipment and furniture
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Loan interest
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Insurance premiums
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Work-related reading materials
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Professional association memberships
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Home office expenses (ie: power, rates,
mortgage, rent, and insurance)
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Phone bills for business purposes
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Stationery
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Work uniform
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Accountant’s fees
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Legal fees
You can be a sole trader or a company when contracting. This would affect your tax structure, so give us a call, and we’ll point in the right direction of what structure would benefit your business.
Remember, as a contractor, you would have a “Contract for Services” with your client instead of an employment agreement and you won’t have tax and ACC taken from your pay or get any paid sick or annual leave. All of this needs to be taken into account before considering whether you’re better off as a contractor, or an employee. Before you sign any contract, remember to seek professional advice, and if you know a contractor in your industry, ask what they like and don’t like about contracting. Find out what the negatives are, if their earnings have met their expectations, or if there are any stressful financial aspects in contracting.
If you have questions about contracting, you’re in the right place! We have tons of contractor clients and we can confidently claim that we are experts in this area. Give us a buzz and we’d be more than happy to help!
Your Outside Team
Address: Level 2, 182 Vivian Street,
Te Aro, Wellington 6011, New Zealand
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