An Introduction to Financial Services for IT Freelancers
If you are thinking about becoming a contractor, or have been contracting for
a number of years, the financial benefits of setting up on your own are quite
obvious. The average contractor will at least double his or her income on
leaving permanent work, and in many cases the rewards are much greater than
this. However, management of your money is now up to you. This section details
the key components of contractor finance; the pitfalls and the benefits.
As a new or established contractor it is inevitable that you will require
access to financial service products. In permanent employment, a lower,
salaried income is enhanced by additional benefits such as sick pay, company
pension scheme, medical and life insurance. These benefits are largely taken
for granted but provide vital protection from hardship that disappears the day
that you start contracting.
Depending on your circumstances, you will need to replace some or all of this
safety net and must now find the costs personally. You will have the means to
do so thanks to your newly enhanced income and much of this package can also be
provided very tax efficiently through your limited company. Additionally you
must make the most of your decision to contract and it is important that your
money is set to work as efficiently as possible. Company and personal tax
breaks must maximised so that the Inland Revenue doesn't end up the real
beneficiary of all your hard work! This can be achieved by careful structuring
of your finances and tax efficient investment of surplus income.
There are a bewildering number of insurance companies, banks and other
providers of financial services but many of their products will be poorly
suited to the unique position in which a contractor operates. Pensions and
investments must have low set up costs and have complete flexibility of the
number and level of contributions required, mortgages must take into account
dividends with competitive interest rates and protection products must be
tailored to your particular circumstances.
We advise that you seek an independent financial advisor (IFA) who specialises
in the contractor market. Only an independent advisor will be able to scan the
market for the most suitable product at the best price and only a specialist
will properly understand your situation. You should structure your affairs so
that you have flexibility in case you return to permanent work, go
abroad or need to react to the unforeseen such as IR35.
If you would like help choosing the right financial products to suit your needs, please contact us for a timely and friendly response.
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