There are so many benefits to working for yourself! Setting your own hours, being your own boss, and endless cups of tea – what could be better? However, one of the major headaches for most contractors is having sole responsibility for you and your business’ financial affairs. Gone are the days of paid holidays, company pension schemes and a PAYE service to take the headache out of tax for you.
It’s understandable that the shift in how you control your finances can be overwhelming, especially if you’re new to freelancing! However, there are a number of financial products that you may not have heard of before that are really beneficial to anyone working for themselves. Let’s take a look at some of the essentials you may have overlooked.
Consider an offset mortgage
Irregularities in income can make it difficult for contractors to secure a good mortgage deal. What’s more it can lead to worries about successfully meeting repayments. It’s a regularly cited point of pain for most freelancers. However, there are flexible options available for the self-employed and offset mortgages are the perfect example of this.
This product works by offsetting any savings you have against how much you owe on your home’s mortgage. To simplify: if you have a £100,000 mortgage and £10,000 in savings, you only pay interest on the £90,000 difference with an offset mortgage. This leaves you in a position to pay off the interest on your mortgage far more quickly.
Offset mortgages are also not subject to early repayment charges. So, if you find yourself with the cash flow to pay a larger chunk of your mortgage off in one quarter, you won’t be financially penalised for this with charges.
Save for the future with a pension
The introduction of auto-enrolment into workplace pensions in the UK has brought pensions back into the spotlight. Many experts advise investing in a pension scheme as early as possible. However, it can quickly become something that gets shelved when you’re busy with your business. However, taking your pension options seriously is one of the smartest things you can do and the earlier the better!
Personal pension plans are the most well-known and anyone can invest in one. You can pay up to £300 per month, after that caps are triggered. You can use your limited company to fund your pension and contractors now have the option to select a ‘base year’ to base your investment on. That means your contributions will be calculated based on a specific year’s salary. That means you can choose a year when your salary was higher if you want to make sure you’re making sizable contributions to your future finances.
The executive pension is another good choice for contractors that work through their own Limited Company. HMRC works out your contributions based on a range of issues, including how long you’ve owned your own company, your marital status and pension history. This is a great option for those who’ve been contracting through a Limited Company for longer and who’ve left it later to start thinking about pensions.
Protect your income with insurance
One of the benefits of traditional employment that contractors miss out on is sick pay. If you have an accident or fall ill leaving you unable to work for a significant period your income will be heavily compromised. Protective insurance cover, such as life cover or income protection can protect your income in the event of long-term illness, or your family in the event of your death.
Take home more with a contractor accounting solution
For many, the financial pressures of freelance and contract work can bear down upon them, causing undue stress and sucking away precious free time. Investing in a robust, Limited Company accounting solution can mean that you not only save money, but also win back time.
If you’re a contractor or freelancer with an average annual salary of £50,000 or more you could be taking advantage of this opportunity a solution that helps you take home more money and saves you time. Take a closer look at contractor payroll solutions now and find a new way to take the stress out of tax!