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Mistakes to avoid when contracting

Alex Bentley

Alex Bentley | Marketing Assistant

Thursday 1st Sept, 2022

You’ve decided to go off on your own and it feels great to relish in the independence of being your own boss. However now that you’ve made the move, you need to make sure it’s the right one. This article will share with you the common mistakes contractors make and how to avoid making those same ones.


Umbrella company vs Limited company – which one is right?

One of the first things you need to consider is how you want to work and ensuring you choose the operating structure that not only suits you but also your circumstances. However the choice may not be yours to make, it depends on the nature of your work and where you fall in terms of the IR35 legislation.

The two most popular options are to work through an umbrella company or via your own limited company.

If you fall inside IR35 then your best option is to work through an umbrella company. Working through an umbrella company means that you become an employee of the umbrella company, such as PayStream, and we make all the necessary pay as you earn (PAYE) and National insurance contributions for you.

Falling outside IR35 means that you also have the choice to work through your own limited company. This is by far the most tax efficient way to work, however with it does come with certain responsibilities. It means that you are responsible for all of the limited company admin, including calculating and paying all the necessary taxes. However a good accountancy service provider, such as PayStream, will provide you with a dedicated accounts team and online portal which will give you complete access to your company finances 24/7, with a tax timeline showing how much tax to pay to HMRC and when, to-do lists, and much more.


Not having a tight enough grip on your finances 

It’s important before going out on your own to weigh up all of the potential costs no matter how small. This could include large expenditure items such as equipment and office space, through to furniture and supplies.

The good news is, if you were to work through your own limited company you may be able to claim some of this expenditure back as a business expense, which would be offset against any tax that may be due. HMRCs rules around what are and aren’t legitimate business expenses are simple enough to follow, however if you’re ever unsure your accountancy service provider will be able to advise further.

You also need to ensure that you are on top of what taxes need to be paid and when. Unlike an umbrella company contractor, this is your responsibility and yours alone to ensure they are paid on time to avoid any potential fines.


Poor Negotiation

As a contractor, you are usually paid more for your services because of your specific or sometimes rather niche set of skills, so you should negotiate accordingly. Make sure you’re aware of where you sit in the market and find your sweet spot for pricing, without under or overselling your skill set. Check out our article on contract negotiation here for a few more tips and tricks.


Not valuing networking

You need to get yourself out there and known in your industry to keep consistently winning contracts. However depending on your audience will determine what channels you should use. Whether you should look for more traditional methods like posters and handouts or digital methods through social media sites such as LinkedIn. If you’re not already on LinkedIn or just want to further your knowledge on the power of LinkedIn for contractors read our article.

Social media sites such as LinkedIn allow you to reach thousands of opportunities across the UK without leaving your front room. It’s also a great place for you  to interact with like-minded individuals, sharing valuable tips and advice.

Also the more connections you have, the more chance there is of you appearing higher up in the search results of individuals looking for your particular skill set. That’s because LinkedIn favours results from close connections, so if the person doing a search is connected with someone in your network, you will appear above someone who isn’t.


At PayStream we have a range of services on offer, which means that we can ensure you use the service that’s right for you and your circumstances, not what's right for us. Whatever your industry, we've got the experience and know-how to guide and support you as your career develops.

If you need a helping hand with the running of your limited company or are looking for an umbrella company you can trust, get in touch today. Call our new business team on 0161 923 0201 or email

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Related article - Common pitfalls contractors face

Like in any job, there are often challenges that contractors face, not only at the start, but throughout their career. Some pitfalls are much more common than others, but, with the correct knowledge, can be easily avoided. Here we take a look at difficulties contractors face.

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