Extra Contractor Costs
So, what are the extra contractor costs that new contractors have?
A reader said that contractors should pay their fair whack of tax. He criticised what he has called a scam and tax avoidance. We thought it would be a good idea to reply and to pass on to other people the extra expenses accrued in being a contractor.
Extra Expenses for Contractors
Here are some of the extra expenses that contractors have:-
1) Phone Bill – when a contractor is out of work the phone bills can be phenomenal. Many of them are phoning round various parts of the country every day for perhaps a couple of hours a day just to get work.
2) Travelling expenses – usually permanent employees take a job locally or move to the area where they have taken the job. Contractors often have to take long treks every day just to get to their client’s site.
3) Living away from home expenses – often contractors cannot get a job locally and have to live away from home, incurring greater than normal expenses in lodgings, travel and food.
Cost of Computer Equipment
4) Computer equipment – whilst a computer may be a nice to have for permanent employees it is a must for contractors. They have to look for contracts online on the various jobs boards.
5) Stationery – yes, contractors do have need for extra stationery. They may need to contact potential clients via snail mail. Also, they may have to send their CVs that way, or indeed brochures to market themselves with.
6) National Insurance – contractors have to pay the employers contribution as well as the employee contribution.
7) Pensions – contractors have to pay their own pensions and don’t get any contributions from any employers.
8) Sick Pay – contractors don’t get paid at all if they are off sick and they must allow for being sick for at least part of the year.
9) Holiday Pay – contractors don’t get any holiday pay and so aren’t paid at all when they take off on holiday.
10) Bank holidays – although Christmas, Easter and the other bank holidays are enjoyed by contractors as much as anyone, they are losing income during these periods.
Contractor Insurance Costs
11) Indemnity insurance – more and more clients are insisting nowadays on contractors having indemnity insurance. That’s in case anything goes wrong that is their fault.
12) IR35 insurance – contractors are being forced to take out IR35 and other tax insurance so that they may not incur huge expenses and also get legal backing if they come under tax investigation. This has happened to hundreds and hundreds of contractors in the last few years.
13) Accountant‘s Fees – contractors also have to pay their accountants once a year to prepare their taxes for them, and that is not cheap.
This doesn’t even mention the extra time that contractors may have to lay out to do their VAT records every 3 months and to do their annual Income Tax return. Of course, if they come under any kind of tax investigation, this could take years. It could take up a lot of their time and mental energy, as well as putting a major strain on them.
Extra Contractor Costs – Out of Contract Work for Long Periods
There are also other intangibles in that during periods when they are out of work for long stretches it happens that they often lose their partner and any children they might have.
There is also the strain and pressure of wondering where the money is going to come for to pay the mortgage or monthly car loan and even how to put food in one’s family’s mouths.
Many a contractors has woken up in the middle of the night in a cold seat at the thought of what the future holds when there has been no money coming in for a lomg time.
Contracting is not for everybody. To cap it all rates tumbled during the downturn eroding the differential between contractors and employees. It’s only recently they are rising again.
Differential Between Contractor and Permanent Employee’s Remuneration
So, why is there that differential?
Well, we’re usually not talking like for like here. Most code is written at a company by people with less than 2 years experience whereas contractors often have 10 or more years experience so are able to the job more quickly and produce work of better quality.
They are also often able to impart knowledge to permanent employees as well adding to their value to a company.
So, those thinking of becoming a contractor should bear all the extra contractor costs in mind. Also, any of those people criticising contractors as being overpaid and paying less tax than employees should bear it in mind too.
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