Working As A Contractor? Legal Issues To Watch Out For

Contract work is popular for all kinds of reasons. From the way it provides flexibility and independence, to the broad range of companies and projects that contractors come into contact with. It’s no wonder then that so many people are shifting to this mode of work. But there are some potential pitfalls too, and many of them are legal in nature. From making a mistake for a client to failing to declare a tax return on time, there’s a lot to think about.

Disguised employment

In the last few years, a common route for many employees to take was to become a contractor – even if it didn’t otherwise make sense to do so. The reason was simple, and it was tax-related. As a contractor with a limited company of your own, it’s possible to pay yourself a very small official salary to quality for certain National Insurance benefits – and then receive the rest of your income in dividends. Because dividends are taxed more favourably than normal income, the potential to save money is high.

Now, though, that’s beginning to change. Due to the arrival of the IR35 laws, contractors who would otherwise be employees are treated differently. In order to benefit from this tax treatment, you now have to be a genuine contractor in that you have several different sources of income from different clients. If you’re a “disguised worker”, (working continuously for one employer) you could be at risk if you pursue the contractor route.

Paying taxes

Related to the issue of disguised employment is the question of tax payments. Even if you’re a genuine contractor, you may find yourself struggling to keep up with all of the tax burdens. Umbrella companies which are HMRC compliant can take over the administration of your tax affairs, thereby allowing you to focus on your work. Most contractors don’t operate from their own business premises, however, if you do, then you may need to check whether you need to pay business rates to the local authority.

Being sued

Depending on what sort of work you do, there’s a possibility that you might be exposed to legal claims if you do something wrong. Say you’re a builder, and you make an error which leaves a job site vulnerable to catching fire. As a regular employee, you’d usually be covered by your employer, but as a contractor, you may need to cover yourself against the costs of any legal fees – and the main way to do that is through taking out public liability insurance. While it’s a pesky upfront cost now, it could save you and your business plenty of cash down the line.
Working as a contractor is a great life choice for many people, but it’s also the sort of situation that can cause legal stresses and headaches – especially if you struggle with deadlines, maths or thinking ahead. However, from insurance to expert help, there are plenty of options you can go for to help make the contracting process as trouble free and law-abiding as possible.

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