Originally posted by cojak
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Noobie Contractor Mistakes
1. Not doing some background research before you post. Look at the links on the right side of the page, start with the First Timer Guides. There is a load of clear, concise information there and it was written by experts not random people like you will find here on the forum. If you ask questions on the forum which are answered in one of these guides then you are going to get a kicking. For example, don't come along and ask what IR35 is, if it applies to you and how you can get a review done. However, if you've done your research and want to engage people in a discussion about the finer points of the IR35 rules then that's fine.
2. Not doing a search of the forum before posting. Read the stickies and understand how to use Google to search this forum. Many questions get asked repeatedly and your question may have been answered already. If, having read those answers you feel that your question has a new angle on it then definitely start a discussion about it. Just don't ask a simple question that's been answered already.
3. Starting work without a signed contract often ends in tears. Everyone will be anxious for you to start, that's good because it will focus their attention on getting the contract right. Don't start until it is right. It you do start without a contract in place then at best it weakens your negotiating position and at worst it constitutes acceptance of the contract offered even if you haven't signed it or you think you are still negotiating it. Also, verbal agreements are "not worth the paper they're written on". There could be a variation or dispute regarding fundamental parts of the contract like pay rate, notice period, duration etc which puts you in a difficult position. Having a clear contract up front is the best way to do business. Any agency or client which tries to do otherwise is being a bit of a cowboy. See Why have a contract
4. Not reading your contract properly or not having your contract reviewed by a professional. It's YOUR business that is entering into the contract so as the company director you alone are responsible for making sure the contract is reasonable. If you sign it without reading it properly then you've made a big mistake so don't expect sympathy from us.
5. Not clearing out the bank account and disposing with company assets BEFORE your company is struck off (either by not filing accounts or closing it down). If you do this then the company assets are passed to the crown as bona vacantia and you will have to apply for an administrative restoration so you can get the company restored and get the money (minus costs and fees for your stupidity).
6. Spending company money which wasn't yours to spend. You then find that your company has no money to pay it's VAT or Corporation Tax liability. HMRC are going to take a pretty dim view of this because you have potentially been trading while insolvent or taken dividends ultra vires when there was no profit to pay them out of. Most likely, the money will be allocated to your director's loan account and you will have to pay it back to the company. If you can't pay then HMRC could put the company into receivership and the receiver can come after you personally since you owe money to the company. Avoid this by having a proper book keeping system and keeping a day to day tally of how much profit is available for distribution as dividends and to satisfy HMRC's Business Records Checks if you get one.
7. Starting a LTD company without having an accountant. Accountant's cost money, that's for real and this cost reduces your company profit which means less cash in your pocket. You could wait till the company year end to engage an accountant but you will pay pretty much the same amount as paying one on a monthly retainer so there's not really any advantage. If you pay monthly then you have someone who can keep your company's books straight and deal with a lot of the admin and queries for you rather than asking dumb questions here and getting flamed or making mistakes and getting fined by HMRC for not doing things on time. There is a sticky listing Accountant Recommendations or get in touch with one of the helpful accountants who support the forum by posting or advertising here - you can identify then because they usually have an @ in their forum name.
8. Don't trust the net pay calculators from Umbrella companies. If all the LTD company stuff makes you nervous/stressed then an Umbrella is a good option - choose a good one and they are a simple structure with clear policies and low admin. Some umbrellas offer accurate take home pay calculators but others are skewed to try and make their umbrella look more attractive than the competition. The fact is that ALL umbrellas offer pretty much the same take home pay. There are lots of contractor calculators my favourite one is this calculator.
9. Misunderstanding expenses and thinking everything you put through the company/umbrella is "free" when it's not. If you are an employee on a permie job then it's true that business expenses that your employer reimburses cost you nothing. However, running your own business is different so don't go booking first class travel thinking "my company is paying, it doesn't cost me anything". Ultimately, you are the company owner so your expenses come out of your company profit and ultimately out of your pocket. The only advantage with claiming things as business expenses is that tax is not paid on that part of the company income.
10. Making incorrect expenses claims. There are lots of contractor expenses guides out there so READ THEM before you ask questions. Make sure you are claiming everything you are allowed to claim and not abusing the system by claiming for things which will be disallowed if (when) you get investigated.
11. Thinking you have job security. It's not guaranteed that you will actually get X months work offered to you when you enter into an X month contract. The contract duration is an indication of what they will commit to but they can generally give notice and terminate it at any time for any reason. Hardened contractors often say that your contract is only as long as your notice period and there is often no notice period at all.
12. Crying about your "rights" as a worker. You are supposed to be running a business and your employer is your own company, NOT the client or agency. You don't have permie style rights, if the client is mean or rude to you then suck it up. Smile and wave and move on. The only rights you have are the ones defined in your business to business contract with the agency or client. Furthermore, if we can't see what's in your contract, we can't tell you if {whatever thing that happened} is allowed or not. For example, the client terminates you with no notice, is this allowed? How would we know? Tell us what it says about termination in your contract and we can give an opinion.
13. Underselling yourself. Don't go taking a contract job on a "pro rata" permie pay. As a contractor you won't get any permie rights/perks/annual leave/sick pay/maternity leave/pension/bonus so you need to make sure the contract rate covers you for this and periods of unemployment between contracts. There is no hard and fast rule, but a formula which is often used is contracting hourly rate = permie annual salary / 1,000. So if you make £50,000 permie then you want a contract on £50/hour or £400/day. Don't undersell yourself - you are supposed to be a highly skilled professional.
14. Not having a war chest. As a contractor, you ARE going to hit lean times. If you are one of these people who "isn't good with money" and lives hand to mouth then contracting is probably not for you. Established contractors keep enough cash or liquid assets to cover at least 6 months worth of living expenses if anything should go wrong. You should do the same or you can end up in a pile of trouble. If you are a home owner then a flexible mortgage is highly recommended as you can over pay it in the good times and use it as a buffer if anything should go wrong.
15. Using a tax avoidance scheme. Pretty much everyone here works as a Limited Company or through an Umbrella and these are the tried and widely accepted trading structures. A few people are self employed but this is rare because agencies generally won't engage with workers on that basis. The other "schemes" that you see offering 85%+ "retention rates" from your contracting income (generally using some off shore or loan arrangement claiming to be fully HMRC approved and IR35 compliant) are widely considered to be high risk. Ask about them if you must but generally they get picked to pieces, umbrella or LTD are the way to go.
16. Believing anything an agency says. These people are pathological liars, they would sell their grandmothers if they could. Don't trust anything they say. OK, a bit harsh but we should probably have a separate thread to list all the stupid agency tricks....
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