Perhaps you’ve been part of a construction crew for a while or worked for an established business, and you know you’ve got the skills and experience to strike out on your own. Your ambitions are well placed as whether they’re working on traditional or design and build projects, construction contractors can pull in a formidable day rate, particularly if they manage to land a lucrative private contract.
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Another perk of the building contractor’s life is that you get to manage your working schedule. Like any industry, there are ebbs and flows affected by things that are out of your control, like the weather or a client’s budgetary constraints. Becoming a building contractor allows you to really capitalise when things are good so that you’re comfortable when jobs are thinner on the ground.
Should I join an umbrella company?
- Umbrellas manage your invoicing, tax and pay
An umbrella company makes life very easy for the beginner contractor. For a fee, your chosen umbrella will act as an employer would: invoicing and chasing clients, paying a weekly wage and deducting all the necessary tax and national insurance.
- Umbrellas will cover you under their insurance policy
As an employer, your umbrella company is legally required to hold employer’s liability insurance which will pay out if you’re injured on the job. That said, it’s worth checking out the extent of other insurance coverage as you will almost certainly have to take out some of your own, especially if you choose to employ subcontractors.
- Umbrellas give you access to certain jobs
There are some clients who prefer the ease of working with umbrella companies and won’t deal with limited companies. You may also find that certain recruitment agencies prefer that you work with an umbrella so it can be advantageous to join one, especially in the first phase of your contracting career, as it gives you a chance to meet a whole roster of new clients.
You can check out our preferred list of umbrella companies by getting a quote here.
Should I form a limited company?
The alternative to joining an umbrella company is to form a limited company of your own.
- You take home a larger percentage of your day rate.
There are various tax breaks available to contractors who run a limited company, largely because the responsibilities are much more demanding of your time and energy. You can pay yourself a limited monthly salary (to avoid higher band taxation) and top up your earnings with profit dividends, which are taxed less steeply. That said, HMRC are clamping down on this method and have consistently lowered the tax-free limit for dividends year on year. Even taking this into account, it’s still the most purely lucrative way to run your business.
- You can write off business expenses
When you run your own company, you can write off things like travel, overnight accommodation and work equipment as business expenses. This can potentially save you a great deal of money but it does require you to keep immaculate records. If you do choose to go down the limited company route, it is highly recommended that you engage the services of a contractor accountant so that you don’t miss anything that could save you money or land you in hot water with HMRC.