Starting a software consultancy

[FrustratedPRApplicant]

Hi All,

I'm looking to start my own business/consultancy. I wanted to understand if it's better to go the route of independent contracting or not. Basically, I have long term hopes to grow it into a small consultancy where I can hire people to work for me. How should I go about doing this from a legal and tax perspective? Also, any tips on how to get my first client and grow would be beneficial. I currently work full-time as a Senior Software Engineer.

 

[lr108]

Hi All,

I'm looking to start my own business/consultancy. I wanted to understand if it's better to go the route of independent contracting or not. Basically, I have long term hopes to grow it into a small consultancy where I can hire people to work for me. How should I go about doing this from a legal and tax perspective? Also, any tips on how to get my first client and grow would be beneficial. I currently work full-time as a Senior Software Engineer.

It depends on your individual situation... skills, networks etc. If you don't have a clear idea, its better to do independent contract work for a few years establishing network of clients and peers. There could be possible tax challenges if you start a corp and are just working for one client.

 

[FrustratedPRApplicant]

@lr108 Thanks for the tip. How do I go about starting independent contracting? I understand I need an HST number but not sure what else.

 

[lr108]

@lr108 Thanks for the tip. How do I go about starting independent contracting? I understand I need an HST number but not sure what else.

There is nothing much required for being self-employed. The company giving out contract will give you a T4A which you'll use while filing personal taxes. Any self employed income gets reported in your personal income tax. "starting" in self employed is mostly about finding your consulting contract. Everything else will fall in place related to tax etc. as you go. Once you get your contract going, start thinking how to expand your network and how you can eventually transition into a company hiring folks etc. Seems like that's where you'd like to eventually go.

 

[KenshiMK1]

Hi All,

I'm looking to start my own business/consultancy. I wanted to understand if it's better to go the route of independent contracting or not. Basically, I have long term hopes to grow it into a small consultancy where I can hire people to work for me. How should I go about doing this from a legal and tax perspective? Also, any tips on how to get my first client and grow would be beneficial. I currently work full-time as a Senior Software Engineer.

There are two major approaches. You can start as independent consulter or you can incorporate. You can charge GST/HST in any of those cases. The major difference between those is liability. If you incorporate and you get sued, the worst case you will lose a company and the assets that belong to that company. If you are an independent consulter and you get sued, you open yourself and your assets to be seized. It's pretty easy and free to start as independent consulter. I strongly suggest you to work with tax specialist and a lawyer if you decide to incorporate.

My 2 cents: I would start as independent. See how it goes. If you start bringing in more than 100K, then incorporate. DO NOT INC ON YOUR OWN! While that's possible, it will cost you a lot if you make a mistake.

 

[KenshiMK1]

The company giving out contract will give you a T4A which you'll use while filing personal taxes.

That's only if one gets hired through the mid-party that takes care of taxes. A pretty easy way to lose a portion of paycheck. Most don't go that route. You deal with the client 1:1. You are responsible for paying taxes (usually, save about 30% for taxes). You can write-off quite a lot of fees if you use personal assets to conduct business.

 

[lr108]

That's only if one gets hired through the mid-party that takes care of taxes. A pretty easy way to lose a portion of paycheck. Most don't go that route. You deal with the client 1:1. You are responsible for paying taxes (usually, save about 30% for taxes). You can write-off quite a lot of fees if you use personal assets to conduct business.

Not necessarily. You can get T4A from anyone you sign a contract with. Same goes for sending a quote and getting paid. I'd agree to go directly instead of a third party recruiting agency. You have to be careful with incorporation. Being a software engineering working on a single contract could qualify you for personal service business (PSB) depending on the nature of your contract. In which case you'll be paying higher taxes and you won't be able to write off the same way a typical corporation could do.

 

[FrustratedPRApplicant]

Thank you both for the help @lr108 @kenshiMK1. I'll look into the independent route to start things off.

 

[laracroooft28]

There are two major approaches. You can start as independent consulter or you can incorporate. You can charge GST/HST in any of those cases. The major difference between those is liability. If you incorporate and you get sued, the worst case you will lose a company and the assets that belong to that company. If you are an independent consulter and you get sued, you open yourself and your assets to be seized. It's pretty easy and free to start as independent consulter. I strongly suggest you to work with tax specialist and a lawyer if you decide to incorporate.

My 2 cents: I would start as independent. See how it goes. If you start bringing in more than 100K, then incorporate. DO NOT INC ON YOUR OWN! While that's possible, it will cost you a lot if you make a mistake.

I'm thinking about this idea too. There are many options and each option has its pros and cons. This makes the choice really difficult. I, too, have already consulted with a lot of people and little by little I am gaining knowledge in this. I also turned to digital ocean consulting, used https://itsvit.com/services/devops/digital-ocean-consulting/ for this. Still, the final choice is mine. But if you enter into this process, you need to think through everything, that’s what I think.

In short, in any case, this will not happen quickly and easily.