The world of work has changed. Many more of us are choosing to work on contracts rather than as employees. It can mean an improved work/life balance and much better rewards.
But there are drawbacks. The support and protection taken for granted as an employee are simply no longer there. As a contractor, you can forget about company health insurance, paid holidays, pension plans, or other benefits. Taking a day off sick means lost pay, and income can be worryingly variable if your workflow is not steady. It can also be more difficult to get a mortgage.
To be a contractor, you will need to find ways to replace the security taken for granted with traditional employers.
Arrange your own Life insurance
Many employers arrange life cover, or technically death in service benefits for staff.
Arranging your own life cover is important, and the good news is that you can replace an employer’s cover and get some tax relief if you operate a limited company. Relevant Life plans offer life cover, and in some instances, Critical Illness cover and if you arrange them through your own business, you can enjoy corporation tax relief on the premiums.
Protect your Income
As a contractor, you will no longer be able to expect any help from an employer if you were to become sick or incapacitated. However, as the proud owner of your own company, you could take advantage of plans including Executive Income Protection. Careful use of these plans could provide a financial safety net to help you through periods of illness or injury, and ensure an income until you were fit enough to work again.
Get help with a Mortgage
You may have already arranged a mortgage, in which case you will simply carry on making your monthly repayments. However, if you want to set up a mortgage as a contractor, things can be a little more difficult.
You will probably be getting paid through a salary, expense reclaims and dividends. You may be better off overall, but many high street mortgage lenders may struggle to deal with any circumstances that don’t meet their standard criteria. This makes obtaining a mortgage a little more challenging. However, although you will probably not be able to walk into your local bank or building society and walk out with a deal, many suitable products exist. The simple answer is to work with a mortgage adviser who can look at the mortgage products from many lenders to find the deal that’s right for you.
Look at your Pension
As an employee, you would almost certainly be a member of a pension scheme with your employer paying into the scheme. With no employer, it is essential that you look at your pension arrangements again.
Arranging a personal pension may be the most important of all the financial decisions you need to make when you become self-employed.
Pension contributions paid by your limited company should qualify for corporation tax relief whilst contributions paid by you as an individual can qualify for individual income tax relief. This allows you to build up your pension pot in a very tax efficient way. Getting expert advice is essential on the best way to manage both your existing company pension and any new arrangements you may make.
Getting help
Leaving the security of a corporate position and becoming a contractor can leave you feeling isolated. Fortunately, it’s simple to get the help and advice on all your new financial needs by talking to us at Continuum. Call us now on 0345 643 0770, or email us at [email protected]
The value of pensions and investments can fall as well as rise. You may get back less than you invested.
Your home may be at risk if you do not keep up repayments on a mortgage or other loan secured on it.
