A contractor's best friend
Thursday, 6 October 2005
Easy to Get Into Trouble
It’s all too easy for contractors to get into trouble. You save up the money for tax. However when one contract finishes it is not always easy to get another one straight away. Even in normal conditions it can take 1-4 months to get a new contract. In the current conditions it can be months or, for some, more than a year before they get one.
So what does a contractor normally live on when he or she is unemployed? First of all it is the savings that they have. Then when that runs out they start digging into the tax money, thinking that as soon as they get a new contract that they can easily make it up.
However, when no new contract arrives and when one isn’t even getting any interviews, or worse still, one isn’t even being put forward for them, then the worries start. More than one contractor has woken up in the middle of the night in a cold sweat wondering where the money is going to come from to pay for the mortgage, the car loan, the taxman and to keep his or her family in food, clothing and shelter.
Often they don’t have to bother about the last one as it happens too often that the family and partner goes when the cash goes.
What to Do
So what does a contractor normally do when this happens? Why, hide away from his or creditors of course. There’s no point in contacting them after all if you don’t have enough money to pay them.
There’s no point in contacting your accountant either if you have no money to pay the tax, or his or her fees either.
Wrong!
The one person that you should keep in touch with through all your financial troubles is your accountant. You know, it isn’t uncommon for people not to have enough money to pay their taxes. In fact it is very common – and your accountant has seen it, and been asked to do something about it, hundreds of times, perhaps thousands of times.
Often in the past I’ve delayed talking to my accountant when I’ve been between contracts, and have only contacted him when I’ve got more desperate. I’ve always felt a lot better after talking to him. He often used to laugh when I’ve told him about my particular predicament at the time. “That’s no problem” he would laugh. “You should have contacted me earlier. You worry too much”.
What They Can Do
There are a lot of things that they can do. For instance they can you get you a Voluntary Arrangement where you have a meeting with all your creditors, including the Tax Office, and make an offer to settle your debts for a smaller sum, which can be as little as 10-20c in the dollar for all the money you owe. They normally take it and move on. You’re small fry to them.
Even if you haven’t much money there are still other things that he or she can do for you.
I don’t want to start giving out accountancy advice here, but suffice it say that there are a great number of options that they can take for you on your behalf. And don’t worry about not being able to pay them. They’ll always make sure that there is a bit left for them in any arrangement that they make for you.
Even if you haven’t anything at all, they don’t want to lose a potential future customer and will still give you some advice about what to do.
Don’t Hide Away
I hope that there are not contractors out there hiding away from their accountants because they don’t have enough money for their taxes – but I bet that there will be.
As something like 33% of contractors are now out of work, there must be a whole lot of worrying and sweating going on.
Please make sure that you keep in close touch with your best friend in these circumstances – your accountant.
This article originally appeared on the British contractor's site, Contractor UK.
Gerry McLaughlin
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my experienceHere in Australia it is different, in that contractors are considered to be employees, and all taxes should be paid as one earns. But it is tempting to put some money aside for the end of contract - WRONG! If you register with Cenrelink, you (as a contractor) are viewed with great suspicion. My details had to be scrutinised by their 'complex' assessment group first. Then, you will only get any help if your liquid assets are less than $5,000. So in this case, having savings counts against you. I was lucky enough to have planned an overseas holiday for the end of my contract. Doing so used up most of my savings. At least I got some pleasue and fond memories from it. If I had not done so, then I would have had to live off the savings with nothing to show for it. anon, 10/05/2005 08:45:37 PM
Deny what you have -When I go on the dole i work out how much I could lose if i declared what i saved verses how much dole i get. If losing the dole makes me chop in my savings i withdraw it and then do on the dole. Thanks Johnny H macca, 10/05/2005 11:44:21 PM
Centrelink allowance tests"Then, you will only get any help if your liquid assets are less than $5,000. So in this case, having savings counts against you." Is an investment property a liquid asset? I wouldn't think so but at the same time I wouldn't think Centrelink should pay me an allowance if I'm out of work, out of savings but have 3 investment properties...? Or is there also an asset test? (which you might be able to get around by putting your assets in a trust) DavidM, 10/16/2005 07:30:17 PM
1-4 months to get a new contract?what world do you live in? Never out of work for more than a week ! Mike, 12/12/2008 04:10:29 PM
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