There have been plenty of boundaries put in place as an effort to stop contractors from retaining significantly higher pay compared to permanent workers. For example, IR35 is the most obvious that comes to mind. However, despite recent changes to off-payroll, contractors can still benefit from high earning potential. Keep reading, and we’ll explain how to maximise your pay as a contractor.
Seek assignments outside IR35
Contracting outside IR35 through a personal service company (PSC) is still the best way to maximise pay retention. This is because you can pay yourself in a tax-efficient manner by combining salary payments with dividends.
The government may have taken the luxury of determining your IR35 status away from you (off-payroll working rules), but you can still work outside IR35! Many recruitment agencies are advertising outside IR35 roles, and end-hirers are better prepared for contractors than a few years ago. Providing you engage with clients and agencies that are up to speed – you could still benefit from contracting with a PSC.
Hire a trustworthy contractor accountant
Engaging with a specialist contractor accountant could help you retain more of your hard-earned money. However, first things first – make sure they’re compliant and operate ethically.
When you’ve chosen a contractor accountant you can trust, they’ll be able to help you legally maximise your pay retention. Accountants can do this by providing careful tax planning and expert knowledge on the contracting sector.
Accountants may offer you a load of extras as well – all included as part of their accountancy fee. These will include things like HMRC correspondence, payroll, VAT returns, bookkeeping, and more. It’s also become popular for contractor accountants to offer their clients free access to leading accountancy software, such as Xero and FreeAgent. Software could save you a tremendous amount of time by reducing your administrative responsibilities. For example, FreeAgent allows you to auto-generate documents (invoices, quotes, etc.), view live banking, create schedules, upload receipts, and more!
Should you opt to use a contractor accountant, we have a few suggestions. Make sure they:
- Offer exactly what you need in their accountancy package. You don’t want to pay for extras you don’t require.
- Are compliant.
- Are partnered with an umbrella company, or can provide you with a PAYE payroll service – should you need it at a later date (e.g for assignments inside IR35).
- Are competitively priced. Shop around and see what’s out there.
Seek a compliant umbrella with a low margin
If you’re inside IR35, you may decide to use an umbrella company for your payroll. You must choose a compliant umbrella – as well explain in the next section. But firstly, you must understand compliant umbrella companies process payroll in the same way – PAYE. Therefore, the only thing that’ll vary between umbrella companies is the margin they deduct for processing your payroll. It’s in your interest to find an umbrella with a low margin because this will help you retain more of your money. However, it won’t make a massive difference if you chose an umbrella with a £25 per week margin compared to one with a £30 per week margin, though.
Always choose a compliant contractor accountant or umbrella company
Whatever your IR35 status – make sure you use a compliant contractor accountant or umbrella company. Doing so will ensure you pay the correct tax and avoid the risk of facing an HMRC tax investigation in the future.
While tax avoidance is technically legal, HMRC has the power to retrospectively reclaim unpaid tax and National Insurance Contributions from those who engage with them – even if it was a complete accident. Therefore, if you use a tax avoidance arrangement now, you might be able to retain a few extra £ each payment frequently. However, down the line, you could be facing a surprise HMRC tax investigation where you’ll be presented with a tax bill that could change your life. Please – don’t take any risks. It isn’t worth it.
Don’t be afraid to switch providers
Changing companies can be a right pain. For example, who enjoys changing energy provider? However, putting in an hour or two of research could save you significant money in the long run. If you don’t think your getting value for money from your current contractor accountant or umbrella company – seek an alternative at your earliest convenience! Again – just make sure they’re compliant! Using an ethical scheme to maximise your pay as a contractor is not acceptable.
