Launching Your Career as a Building Contractor: Your Ultimate Guide to Success

Whether you're new to the industry, or swapping from a permanent role to strike out on your own, working as an independent contractor within your own company can be a hugely rewarding path. From more flexible working hours to a higher earning potential, there are many benefits to being self-employed, however, there are also drawbacks to setting up as an independent contractor, such as less job security, therefore, it pays to take time to make your decision and ensure it’s the right move for you.

This guide is aimed at providing anyone wondering how to become a building contractor, with useful insights, practical tips, and sound advice on how to become a successful contractor, while also highlighting the pitfalls to be aware of.

Click on a link below to jump straight to the section you’re most interested in:

• What is a building contractor?
• Setting up as a Contractor
• Legal & Tax Considerations
• Financial Management Tips for Contractors
• Transitioning from Permanent Employment
• Maintaining a Successful Contracting Career

What is a Building Contractor?

As well as being an expert in planning and delivering successful construction projects, a building contractor should know current construction methods and materials, and demonstrate effective project management skills. A building contractor can either seek work at a construction company or on a self-employed basis, be hired to fulfill a contract providing labour for the project. Contractors can be hired as themselves, through their own building company or recruitment agency.

Despite differing from someone with a full-time, permanent job, a building contractor's work can span periods of weeks or months depending on the project and can result in a contract lasting a fair amount of time, ensuring good job security.

Is contracting right for me?

If you're the type of person who likes to work independently, has self-discipline, and is good with finances and communicating, then branching out on your own could be the right thing for you. As a building contractor, you'll only have to complete the work you've been contracted to do, and you'll have the choice to decline work, allowing you to forge a better work/life balance. Having said this, contractors aren't entitled to full-time employment perks such as holiday or sick pay.

Being responsible for the success of your business, from finding work to managing finances, is a huge part of a building contractor's role, as is paying taxes. However, this also means contractors can set their day rates and negotiate the terms of their contracts. Put simply, building contractors have the prerogative to determine the working conditions they are happy with and that suits their lifestyle.

Setting Up As a Contractor

Now you know what is contracting in business and how to be a successful contractor yourself, here are some valuable insights on how to go about setting up your own contracting firm.

Choosing the Right Business Structure

• Comparing Umbrella Companies and Limited Companies
  Two of the most popular business models for building contractors to operate under are an umbrella company or a limited company as a sole trader. Each has its pros and cons, so deciding which direction is right for you is a big consideration before setting up your own firm. Working under an umbrella company can be more straightforward as lots of administrative responsibilities, like invoicing and chasing payments, are done on your behalf, saving you stress and time. However, with this model, you're eligible for PAYE and national insurance contributions. Creating a limited company and working as a sole trader is more tax efficient and lets you claim more expenses, resulting in higher earnings, however, there are more legal obligations and management responsibilities.

How to Set Up Your Own Limited Company

If you decide to go down the limited company direction, follow these steps for starters, and then read our more in-depth guide on Starting a General Contractor Business for more details.

• Choose a company name that isn't your own or you could be treated as an employee and subject to IR35 legislation
• Provide a company address
• Appoint a company director
• Decide on shareholdings
• Register your company at Companies House
• Open a business bank account
• Register for PAYE
• Register for VAT
• Get professional indemnity insurance to show HMRC you are outside of IR35 legislation.
• Track your expenses to make filing tax returns easier

Legal and Tax Considerations

Every business must consider these legal obligations when starting out:

• Registering with Companies House and HM Revenue & Customs (HMRC) - If you are setting up a limited company you must register with Companies House, allowing the information to be in the public domain for anyone to access. Sole traders, however, don't have to do this, they must simply register with HMRC to submit tax returns.
• Understanding Tax Obligations - There are two main tax obligations to be aware of. The first is Income Tax, which is the tax you pay the profits you make from being self-employed. You don't pay tax on things like the first £1,000 of self-employment income, which is known as your trading allowance. National Insurance is a mandatory contribution for self-employed people making a profit of more than £12,570 a year. NI entitles them to qualify for certain benefits such as the NHS and a state pension. Your Unique Taxpayer Reference Number (UTR) is an important 10-digit code that identifies you or your business and is used by HMRC when dealing with your tax payments. Keep it somewhere safe and convenient as you'll need it when filing tax returns.
• The Importance of Professional Indemnity Insurance and Public Liability Insurance - As you will be providing a service for clients, you will need to obtain insurance to protect yourself and your business should someone put a claim against you. It also provides clients with the reassurance that they are covered for any mishaps, and is now often a requirement in many contracts. The type of insurance you choose will depend on the business you are running and what is specified in the contract. Professional indemnity insurance is most popular for contractors providing a professional service. It can help cover legal costs due to a breach of contract or negligence, as well as any compensation needed to pay to rectify a mistake. Public liability insurance is crucial if you are carrying out work at a site belonging to your client, or you welcome visitors to your place of work, like a workshop or studio. It ensures you are covered for any legal or compensation costs should a member of the public get hurt at your place of work, or make a claim against your company.

Financial Management Tips for Contractors

Keeping an astute eye on your finances and managing your income effectively will avoid any costly surprises down the track. Here's what you should know:

• Tax Benefits and Efficiency for Contractors - As a self-employed contractor, you will be responsible for keeping track of your income and expenses. Do this monthly so you are always on top of you finances. With Houzz Pro's invoicing tool and payment reports, you can clearly see how your business is doing by tracking income, costs, and the profitability of each project.
• Managing Finances to Avoid a Huge Tax Bill - To pay less tax as a contractor, consider measures like taking out a pension, using your ISA allowance, choosing contracts outside IR35, joining a flat rate VAT scheme, and getting paid through dividends. A limited company is going to be more tax-efficient for you as a contractor, as it can restrict the pay that is eligible for income tax as well as reduce national insurance contributions.
• Best Practices for Keeping Accurate Tax Returns - It's essential to maintain full financial records for budgeting and planning ahead and to help you file an accurate self-assessment tax return. HMRC may also contact you at any point to check your records and that you are paying the correct amount of tax. Keep track of outgoings, such as business travel, mileage, and stationery, so you accurately estimate your potential tax exemptions, while going digital with your accounts will ensure you stay on top of all your business outgoings and income to help maintain a steady cash flow. Houzz Pro's accounting integration easily syncs with Quickbooks Online or Xero, allowing you to sync every estimate and proposal, invoice, purchase order, and expense, so there's no more need for double data entry, saving you buckets of time.

Transitioning from Permanent Employment

If you are thinking of swapping a permanent job for contractor work, there are a few factors to consider, such as potentially longer working hours and additional travelling: 

• Differences Between Permanent Employment and Contracting - As a permanent employee, your hours and pay are dictated by the company employing you and when you will get paid, such as monthly or bi-weekly. However, in contracting roles, your income depends on what you have agreed in your contract and you could be paid by the hour, day, or per project. There is no fixed payment plan, so budgeting is essential. 
• The Challenges of Leaving Permanent Roles for Contracting - Whether you find a contractor job directly through a company or a recruitment agency, you may find you are required to start your contracting role at short notice. This could cause issues with your current employer and affect your character reference should you need one. Another challenge worth considering if you want to become a contractor is that you'll no longer be eligible for company benefits, such as a company pension, medical insurance, gym membership, and annual leave. 
• Preparing for Flexible Working Hours and Changing Working Environments - Unlike permanent employment that has fixed hours, when you become a contractor you will have to deal with flexible hours. This can either have a good impact on your lifestyle if you are keen on a better balance, or it can have a negative impact if you're financially unstable. Also, contractors have to be constantly aware of when their contracts are coming to an end, so they can apply for new roles in time. There could be periods between jobs that can be anxiety-inducing for contractors. 

Maintaining a Successful Contracting Career

Once you've made the leap and become a contractor, keep these long-term strategies in mind to ensure your contracting career is a successful and fruitful one:

• Continue your professional development and seek professional advice - Continue to expand your knowledge and skills by enrolling in further educational courses in construction or project management, attending conferences, and seeking advice from experienced contractors who have valuable pointers to share. 
• Networking the contracting industry - Attend industry network events, join online groups or forums and generally connect with as many people as possible in the construction industry, so you can reach out to your contacts when you are seeking advice or looking for work. 
• Manage client relationships - Contractors will be exposed to many different construction teams and homeowners throughout their varied contracting career and therefore need to manage professional conduct at all times to ensure they gain a good reputation.
• Finding contract jobs - Sign up with several recruitment agencies so you are on their books and can inform them, with plenty of notice, when your contract will be coming to an end. This could help reduce the time between each contract so you don't have any periods of unemployment.

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