Common Contractor Issues and How to Avoid Them

 In Contractors

As a contractor, you will benefit from having flexible working hours, being your own boss, and potentially earning more money than your permanent counterparts. However there are also issues that you will likely face along the way, and you will need to be prepared to tackle these.

Here are the five most common concerns that contractors have and how to overcome them.

Spending time on the bench

One of the biggest risks you take when becoming a contractor is that you may have long periods of time spent without a contract, or ‘on the bench’ as it’s commonly known.

It won’t always be possible to keep going from one contract to another, so you should be prepared to sometimes have breaks in between contracts where you won’t be earning.

In order to prepare for any long periods of time spent on the bench you should always aim to build up your savings, keeping enough aside to tide you over in the event you are out of work for longer than expected.


Getting caught inside IR35

IR35 is a tax legislation which governs the taxable income of self-employed workers engaging in ‘disguised employment’ – a process of artificially manipulating your taxable income by working through an intermediary, such as your own limited company.  

If you are working as a contractor you receive tax advantages, because you don’t receive the same kind of benefits that employees do, e.g. sick pay, holiday pay and job security. Therefore if you are working as a contractor but are still receiving the benefits of a permanent employee, you are not entitled to these tax advantages and are required to declare yourself ‘inside’ IR35.

If you are caught working inside IR35 but have been receiving tax advantages that aren’t due – you could be stung for a huge amount by the taxman. HMRC will check both your contract and working practices if you are investigated, so it’s essential that both reflect that you are working as an independent contractor ‘outside’ IR35.

IR35 contract reviews and IR35 insurance are also highly recommended to help protect you against any IR35 status issues.


Not being paid on time

Unfortunately, not all clients will pay on time, and this can leave you out of pocket. However, there are measures you can put in place to try and minimise this risk.

Before you sign any contracts or start working with any clients you should perform a credit check on the companies you will potentially be working with. Whether that’s the end client, recruitment company and or/payroll company – check them all! This enables you to find out whether the companies actually have the money to pay you for your services.

Another way of making sure you get paid on time is by clearly stating your payment terms on all invoices, confirming them with clients beforehand and ensuring all documentation is correct first time round. This eliminates any excuses for them delaying your payment.

If the payments become increasingly late you can send payment reminder letters and final demands, and ultimately take them to small claims court if the payments still aren’t collected after this process.


Clients claiming against you

As a contractor you will be providing professional advice and/or services to your clients. Therefore if something goes wrong due to your advice or service and it causes the client financial loss, they have a legal right to claim against you.

Regardless of how good you are at your job or how careful you are, there is always the potential for you to make a mistake, we are only humans after all. Plus some clients have also been known to allege contractors have made mistakes or breached their contract when they haven’t.

If a client claims against you the costs can be huge; you could be sued for hundreds of thousands, and also lose money from not being able to perform your work whilst defending yourself against any allegations.

Professional indemnity insurance can protect you against these kind of claims and will usually cover compensation needed to pay to correct any mistakes and legal costs due to negligence. It also provides peace of mind for you, and reassurance to your clients.

Professional indemnity insurance is now often specified as a requirement in many contracts.


Not getting the right rate for the contract

The daily rate you charge as a contractor will depend on many factors including your skillset, number of years of experience, industry averages, and how much money you need to make to live on.

However, your rates are ultimately down to the client, which means they will vary depending on which industry you are in and are also likely to vary from contract to contract.

You can ensure you are achieving the right rate for the contract by comparing it to other similar contracts available at the time of applying, and by ensuring you are keeping your current skillset as up-to-date as possible.

As well as keeping your core skill set up-to-date, consider adding new skills to your portfolio by embarking on training courses – especially the skills that are in high demand and can get you the rates you want to achieve.


Avoiding these issues

Although there are these concerns associated with the self-employed lifestyle, there are also certain ways to avoid or work around them, and these tips should help you navigate through the negatives of contracting. While these concerns are not to be taken lightly, it’s also worth remembering that the benefits of contracting will almost always outweigh these issues for those who choose to work this way.


For more detailed contracting information visit ContractorUK

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