From working with independent professionals on a daily basis, we see that many have the opportunity to increase their earnings significantly when they make the move to contracting. Being a contractor does offer you the flexibility and independence to control your career path, but it also comes with the responsibility of managing your finances efficiently and also knowing your worth to establish your rate of pay. Achieving the maximum income potential as a contractor requires a combination of tax efficiency and a strategic approach to your career. In this blog, we will provide a comprehensive checklist of strategies and suggestions to enhance your tax planning, your rate and ultimately your income as a contractor.
How to Be Tax Efficient:
Know Your Tax Credits and Bands
Taxes can be complicated, but it doesn’t need to be. The foundation of tax efficiency lies in understanding your tax credits and tax bands available to you and what else you may be eligible to claim. For contractors, we simplify this process by providing each of our client with a dedicated account manager to guide them on this process and make sure they maximise their pay. All our contractors can contact their account manager at any stage in order to determine any changes that may be applicable to their tax credits and rates, as this may impact your take home pay. In addition, make sure to keep an eye on our latest and social platforms too. With Budget 2024 approaching and new reliefs commonly introduced in this, we will ensure to keep the contractor market up to date with the latest reliefs and credits available to them on these platforms.
Claim Business Expenses
Contractors can maximize their income by understanding eligible business expenses and claiming them. So what are business expenses? These are costs that contractors may incur in order to complete their contract work which they can get tax relief on. And what can these business expenses include? Portions of mobile and internet bills, business equipment, such as laptop and mobile phones, the small benefit exemption scheme, and training courses that are relevant to their contract work. And how can you get more information? You can access this on our knowledge hub, or you can always consult with your dedicated account manager at Icon Accounting to determine what you can claim, and to ensure you meet all documentation and compliance requirements for each expense claim too.
Utilize Tax Allowances in Your Income Tax Return:
Your income tax return can be used to declare tax allowances and further increase tax back with costs that may not be claimable on a monthly basis as business expenses. For example, you could look at claiming qualifying medical expenses and procedures as a tax allowance, or you could look at claiming the college fee tax credit on qualifying courses listed on Revenue.ie. To understand what you can claim further, why not look at our latest blog. Alternatively, Icon Accounting provides a comprehensive tax return checklist and an expert tax return specialist team to assist you in optimizing your tax return.
Plan for Your Future – Make Pension Contributions
It's crucial to plan for your retirement and incorporate savings into your budget. Start contributing to a private pension as early as possible and maintain consistent contributions. Contractors can make pension contributions and take advantage of tax relief through both Umbrella Companies and Personal Limited Companies. By contributing to a pension plan, you not only secure your financial future but also reduce your taxable income, leading to significant long-term benefits.
Considering Contracting as a career choice? Why not invest in your future! Setting up your own Personal Limited Company provides the ultimate flexibility and control over your contract funds, and you can still leverage our fully managed service and ongoing support from a dedicated account manager. For instance, many company owners which work with Icon Accounting, opt to receive a lower salary on a monthly basis than the income received into the company account. And what can be done with this income? You could look at the option of making pension contributions. Or alternatively, Entrepreneurial relief when planned properly and carried out efficiently can reduce a tax liability from 56% through a dividend, over 50% through salary to 25% - 30% after liquidation expenses.
How to Maximize Your Rate:
As an Independent Professional Contractor, you rely heavily on your own skills as an income generation tool. It is a major part of what differentiates your work from others. Your skill set is your greatest asset as an independent professional. Markets evolve, so invest in upskilling to stay competitive. Take courses, read industry-related books, and build a strong network by connecting with fellow contractors. Becoming an expert in your field can command higher rates.
Network and Engage in Your Industry:
Networking is key to success in any industry. Attend industry events, join relevant forums or associations, and engage with peers. Building a robust professional network not only opens up opportunities but also helps you stay informed about market trends and rate benchmarks. It can also help build your profile as the go to expert in your field.
Know Your Worth:
Don't undervalue your skills and experience. Research industry benchmarks and set your rates accordingly. Understanding your worth ensures that you are fairly compensated for your expertise and services. Don’t sell yourself short, be sure to charge a price that is reflective of the resources you will be using for each client.
Optimize Your Accounting and Wealth Management Partners:
You don't have to navigate the complexities of taxes and finances alone. Seek support from accounting and wealth management professionals who specialize in working with contractors. Icon Accounting offers tailored solutions to help you manage your finances effectively, ensuring you receive all entitlements and make informed financial decisions.
Maximizing your pay as a contractor requires a combination of tax efficiency and a strategic approach to your career. By understanding your tax credits, claiming eligible business expenses, planning for your future, and continuously improving your skills, you can enhance your income. Additionally, networking, knowing your worth, and partnering with experts like Icon Accounting can further boost your financial success as an independent professional. Take proactive steps today to achieve your financial goals and secure your future.