Andy talks to Raju Ajiz, an IT support contractor, about some of the first things you should consider before embarking on freelancing or contracting.

Andy White: I’m talking with Raju Ajiz who has been an IT Contractor, specialising, in support for 12yrs. Hello Raju.

Raju Ajiz: How you doing Sir.

AW: Now then Raju, what would you say are the top things that you need to do to prepare for freelancing?

RA: Firstly most agencies that ask you for work insist on you being a limited company so you need to register yourself with Companies House. Most accountants will do that for you but if you do want to get your hands dirty then you can actually request the forms online from Companies House and fill that out and complete that yourself and I think that the cost to generate a limited company is around about £50 plus VAT. It is not an expensive way of doing things. Once you’ve done that, most agencies again, unfortunately we are ruled by our agencies because they are our prospective employers rather than the end employer so to speak, they insist on us being VAT registered and, there again, you should be able to do that online. HMRC are the people that deal with VAT. The only one thing that I would say with the VAT is please don’t mess the VAT people around. You must pay on time and be a good boy otherwise you do get hit hard with fines etc etc.

AW: You sound like you’re talking from experience Raju.

RA: Oh definitely. I mean, I think most contractors would have gone through the circle of ignoring people when they need paying and then, once you get hit with a few fines whether it be from the VAT man or the tax man, you soon tow the line so to speak. In my experience, I was a few days late and I think initially you get fined 3% on the value of the VAT and if you continue to do that it can go up to about 15%-25% and then it does give you a black mark so it’s good to be quite disciplined and I think if you start off quite disciplined it will benefit you as you go along.

AW: OK well talking about money, how about bank accounts?

RA:Yes obviously we need to gain the hard earned money that you’ve worked for and, these are specialised bank accounts. Once you’ve been made limited and you’ve got your VAT registration, you can hop along to most banks and most banks are pretty much and much. It’s just who you prefer and you will need some identification, your certificate of corporation etc. So basically off you go to your bank manager, he will do a credit check to see if you are worthy. I think you get credit checked for everything nowadays don’t you.AW: Yeh I think so.

RA: Yep and then they should open up a limited company account for you. There again, one bit of advice on accounts, I would try and put transactions through, invoices etc, try and limit your cash withdrawals because obviously, you’ve got to be able to prove what those cash withdrawals are for so there again, I’ve fallen into the pitfall of withdrawing too much cash and have not been able to identify what it was for because us, as human beings, we normally don’t write records down etc so, there again, if you can be disciplined, if you can start off on the right note, so to speak, you would normally not have any problems at the end of the year. You can go through your bank accounts and look at all your transactions, hand it over to your accountant and he should be able to sort out your tax and VAT liability.

AW: RA: So it’s very important to keep records isn’t it then?

RA: Oh definitely definitely and I would definitely say that you should really have a weekly expense form or transaction form just so that you can remind yourself and it just makes life a lot easier. So if you spend about half an hour for the week, just completing this on your expense form you may be travelling so you may want to put down your mileage because you can claim that. I think currently at the moment it’s 42p or 40p per mile for diesel over 2 litre. Obviously, that particular criteria, you can speak to your accountant and he’ll tell you exactly how much you can claim per mile but yes to record all of this down because at the end of the month, every two or three months, your not going to remember every single detail and if you can claim for something legitimately then you must do that and not leave it so to speak because at the end of the year, it will all add up and you don’t want to be taxed on any legitimate expenses.

AW: Now what about insurance Raju?

RA: Well I haven’t had too much to do with the insurance but certainly it’s something that I’ve got for myself and it is Indemnity and Public Liability. I think it’s important that you have these two particular types of insurance because, if for example, for myself, I’m an IT professional but if I was to do something wrong on a customer’s site even if it’s not my own fault and you make it into a situation where you may not necessarily be sued but the problem’s there and at least you know you’ve got peace of mind that if it did come to that, which I hope it never would do, that you’re covered. That normally costs, it’s not very expensive, I think with Public Liability it’s about £130-£140 depending on who you go with.

AW: I suppose it’s quite variable at the end of the day isn’t it.

RA: Yeh depending on obviously if you’ve got staff under you, if you’ve got a Limited company, if your expanding, obviously they’ll take that into account but as a sole person with contracting in just a Limited company scenario, I think it’s about £130-£140. There again it’s not that expensive and for what you may get back, it’s certainly reassuring.

AW: Raju, do you think it takes a certain type of person to go into freelancing to break away from the employee/employer relationship? Any advice on the way you should be thinking about it?

RA: Well definitely definitely. I think you’ve got to be a good listener because you’re dealing with various levels of people. For myself I can deal with from just average Joe, secretary or director and each person that you meet you may have to treat differently and diplomatically so sometime it pays to listen to everybody because obviously they’ve got a problem and you need to resolve it and how you deal with that will reflect your ability to be able to ……. I mean at the end of the day, I’ve got a little saying that you can turn up on site and fix a fault and the customer is happy or you can turn up on site and fix the fault and the customer isn’t happy. It just depends on your attitude. The fixing of the problem isn’t always the end result, you need to be able to speak to people, explain to people what you’ve done. You’ve got to have a certain character where you have a certain amount of diplomacy as well. So yes, I would definitely say that I think it takes a special type of person to be a freelancer.

AW: Raju Ajiz thank you very much for talking to us.

So Darren I thought that was really interesting. I saw you nodding in that interview. There’s a couple of things that really struck you weren’t there.

Darren Fell: Yes there really were. I mean, the thing that I didn’t know about that Raju was going on about was the penalties from the HMRC for being late on the payment of VAT. Raju is talking about 3% of the VAT owed. 3% probably doesn’t sound like too much but then if you have a stonking month as a contractor or freelancer then that’s going to really really hurt. I didn’t realise that the penalty increased, if you missed that date, it actually went up to some horrendous percentage. I think the thing for me, I will make sure categorically that I get the VAT Return back exactly on time and pay HMRC. No way am I paying big chunks of the money that I’ve earned. The other thing that I thought was really really interesting is that Raju was talking about going to site and fixing a fault and the customer not being happy or fixing the fault and the customer really really is happy and I think that’s something we forget about. Some people do it absolutely naturally and that’s being diplomatic and responding to the customer’s needs which really is just talking to them and understanding their problems and woes and I think that so may people can go to site and just go “fixed mate” and the customer will think “I’m never going to get him back again” so I think the thing I picked up from that is that you should always make sure you be diplomatic. The customer is always the customer, they’re always right. Be as nice as you possibly can to them, listen to them and I think they will be happy with you, get you back and hopefully, through word of mouth, you’ll get other business from it.

AW: It’s so important about having skills with people isn’t it? The book that I would recommend to people is Dale Carnegie’s “How To Win Friends and Influence People”. Have you read that book Darren?

DF: Yes I have. I was told to read that actually when I worked in Sydney for an agency and that was the first thing the guy told me to read.

AW: Were you a bit offended by that?

DF: Well yeh I thought, do I come across that badly but I read it and it’s absolutely brilliant and I really learnt so much about that. Fundamentally, if you listen to people, people actually warm to you because you give them the time of day. You actually appear interested in them and I think that is probably what Raju is trying to say. Listen to the customer, listen to the issue, spend a bit of time with them, then go and fix the fault. The fault actually may only take you like 5 minutes or 3 seconds to do it and then you can go back and I think the customer will be ecstatic that you spent the time listening to them. Just fixing it then walking off without too much detail is never going to get you more business.

AW: So Darren, what are we covering in the next episode?

DF: The next episode, we are going to go on a really really important subject and I think that this is one thing that freelancers and contractors forget or mainly freelancers because they are actually doing their own self marketing. Contractors typically get their work from agencies but you forget after you get the first couple of jobs, you’re all lined up, you’ve left the corporate, you’ve left your full-time job and it’s like damn how am I going to get my next business. My pay-cheque is going to dry up. So the next Podcast is “Five Marketing Secrets of Contractors and Freelancers.”

AW: Look forward to that. Darren Fell thank you very much. See you next time.

DF: Thank you Andy.

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