Many new company owners find it takes some time to feel comfortable in the shoes of a contractor or consultant. While working for yourself and the flexibility is great, it can take some time to feel like a business owner after years as an employee.
There are two main reasons for starting off in the right frame of mind and exhibiting the correct behaviours from the outset; successful contractors and consultants need to be focused and if you act like an employee you can fall foul of IR35 regulations as a result.
Let’s look at these two points in more detail before getting into what the contractor and consultant culture looks like.
Success is a result of focus
Focus is one of the most important contributors to being a successful contractor and consultant. This doesn’t just mean concentrating on the project or contract at hand but being focused on your own business success. The most successful contractors and consultants are the ones that retain their focus on growing their business. That means delivering what you are contracted to deliver well while planning for the next project or contract. It’s a stark reality that delivery = pay. As a contractor you are not there to perform tasks to fill your time, you’re there to deliver specific outcomes for the client. You may be there as a core part of the delivery team, but you are not an employee; your stay there is finite and based on deliverables not length of service or loyalty. This is the most significant shift in thinking for the majority of those new to contracting.
If it acts like an employee, it is an employee
You can call yourself a contractor or consultant and have all the business kit & marketing to boot but you can fall foul of IR35 rules by slipping into employee ways. In short, if you act like and employee, or allow yourself to be treated as an employee, in HMRC’s eyes you are an employee and will be taxed as such. Setting the right tone with clients from the outset will go a long way to ensuring you don’t get into bad habits later.
The leap from employee to contractor or consultant life involves a change in culture; it involves a different mind-set as well as a change in working culture. So what does the contractor and consultant culture look like in reality?
IR35 legislation was developed in response to the growing number of employees leaving their permanent roles, setting up their own businesses and then returning to perform their old role as a contractor to avoid paying tax and National Insurance at the higher rates. It aims to ensure that contractors working essentially as ‘disguised employees’ and the employer pays the same level of tax through PAYE and national insurance as if the contractor were an employee.
It’s worth noting that the majority of contractors and consultants work outside IR35. Put simply, your IR35 status (which can vary from contract to contract) determines your tax position with HMRC. It’s important to understand the definition and your personal risk of being defined as a ‘disguised employee’ of your client for each contract you undertake. Our IR35 guide tells you more about the IR35 legislation and how it could apply to you, plus provides links to professional help on IR35 and ensuring you work outside of its remit. Read our detailed guide for more information.
Your cultural shift – getting into the mind-set of a contractor or consultant
The most successful contractors and consultants are a specific type of person. It could be said that some people are born to be independent workers, but we believe that the behaviours needed to be successful can be learned. Yes, it can take some time to feel comfortable behaving in a different way after years as an employee, but the success of your business is underpinned by this change in culture.
As an employee, you’re paid for service – your salary depends on you turning up to work at a prescribed time and your employer provides you with tasks and direction to fulfil the role you were employed to do. As a contractor or consultant, you’re paid for services you provide – your fees are paid by a client for a specific outcome or range of deliverables.
When you first start out as a contractor or consultant it is important to ensure you see yourself as a separate entity to your client. You are contracted to deliver, so don’t get sucked into office politics, doing tasks outside of what you’re contracted to do or using the employee facilities. This frees you up to be targeted in your efforts and focused on the skills that make you a great consultant.
The top 10 dos and don’ts of exhibiting the contractor and consultant culture
1. Focus on what you are contracted to deliver at all times. You can agree to deliver more, but ensure that it is added to the contract and your fees reflect the increase. If it doesn’t support the contract or act as business development, don’t do it.
2. Don’t allow clients to dictate how you will deliver – you need to control how and when you deliver to satisfy the contract. They are buying a product from you, so providing you meet the service level agreements, how you deliver falls firmly in your domain.
3. Don’t accept any employee benefits. Yes, you’ll need to use the desks if you are onsite, plus the restrooms but that’s it. Steer clear of the subsidised canteen, gym, hospitality, discounts and other items that could be considered as employee perks.
4. Don’t get embroiled with office politics or trying to fit in. You’re not there to become part of the team so don’t attend meetings that don’t concern the elements you are contracted to deliver, or spend time on teambuilding activities – you are there for a finite time and paid to deliver.
5. Act with professionalism at all times. You are the face of your business and the only visible asset. What you deliver and how you behave is the tangible part of your business. You are only as good as your last contract.
6. Keep your eye on the next contract. Don’t be seduced into extending your contract over and over. This can lead to you acting more like an employee. Ensure you line up new contracts that build your expertise and experience.
7. Don’t be a clock watcher. One of the best ways of exhibiting your distance from a company is to work to your own schedule. You need to ensure you are available to the client for core delivery times or meetings, but steer clear of doing 9-5, 5 days a week with a prescribed lunch break. Delivery is what matters, so if you want to burn the midnight oil and it fits with the client’s schedule, do it. That way you can spend normal office hours enjoying something else instead.
8. Be you. This may sound odd, but you should still be ‘you’ even when representing a client on a project. Ensure you retain an element of independence to third parties when fulfilling the contract for your client.
9. Be self-sufficient – you are your own boss and as such if you don’t work you don’t get paid, so sick-pay, holidays and flexible working are all something you need to budget for.
10. Keep scrupulous records. Ensure that you keep contracts and brief notes on expenses and deliverables for every contract for at least 6 years. This is how far back HMRC can investigate whether contracts or PART of contracts can fall within IR35.
Making the cultural shift is a critical part of being a successful contractor or consultant. Take the time to research contractor forums and contractor and consultant-specific blogs. This will enable you to learn from others’ experiences. In addition to this, ensure that your contracts are professionally written – this is the base from which you deliver so getting this right goes a long way to setting the scene with clients.
By keeping in mind that you are; independent and delivery focused; paid for your services and not for your presence; in control of how you deliver to a range of clients rather than just one employer – you can steer clear of the common pitfalls of morphing into a pseudo-employee.
Find out more about the day to day management of your new company in our most recent series:
- Part 1: Business essentials for your new company
- Part 3: Day to day management and record keeping
- Part 4: Your guide to business expenses
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