Want to be your own boss? Contracting could be for you…
There are many key benefits of contracting, ranging from higher rates of pay and more flexible working hours, through to getting to choose when and where to work, and when to take holidays. However, as contracting can come with less security than a permanent position, getting into the industry is not a decision to make lightly.
To help you find out whether it’s the right choice for you, we spoke to ContactorUK, the UK’s number one IT contracting site, to find out the pros and cons – and learn the key steps you’ll need to take before you can start your first contract role.
Do your research
Firstly, you need to thoroughly research your market to make sure there’s demand for your skillset as a contractor.
You also need to take a look at the rates currently being offered for your skillset, to see whether they meet your needs. You can do this by checking roles online, using dedicated salary checkers, or even talking to recruitment agencies in your industry to see what kind of contracts are available.
Another consideration is to see where the demand for your skillset is – as you may need to be flexible on the location of your contracts depending on where the demand is.
Find a contract
The easiest way to find a contract is by searching online.
Looking at online job boards to see what types of clients and contracts are available is a great place to start – either by using the dedicated filters, or simply using ‘contractor’ as a keyword for your searches.
It’s also worth checking job listings on company websites, subscribing to relevant newsletters, and keeping up-to-date with relevant forums, newsletters and social media sites.
LinkedIn in particular is a handy tool for building your network and keeping in touch, and both online and offline networking are both extremely valuable ways of finding new contracts.
Set up your own company
So, you have your first contract job in the bag. You now need to decide how you want to run your business.
The two most popular business models for contractors are setting up a limited company, or operating under an umbrella company, and there are advantages and disadvantages of each.
Setting up a limited company where you become director and shareholder, is the most tax-efficient way of contracting, and allows you to have complete control over your financial affairs. There are however legal obligations and paperwork requirements in running a limited company.
Alternatively, if you choose to operate under an umbrella company, then they will take this responsibility off your shoulders by sorting the invoicing, paperwork, collection of money etc. on your behalf.
However with the umbrella company model you do effectively become an employee again, and are therefore eligible for PAYE and national insurance contributions.
Deciding which direction is right for you is one of the key considerations of contracting – so make sure you carefully weigh up the pros and cons of each before making your decision.
Get to grips with IR35
IR35 is a piece of tax legislation which directly affects contractors.
It was designed to stop contractors working as disguised employees by taxing them at a rate similar to employment, and this affects all contractors who do not meet HMRC’s definition of self-employment.
Contractors benefit from tax advantages, therefore if you are working as a contractor but with the same responsibilities, control and benefits as a permanent employee – you are not entitled to a different tax regime and should declare yourself inside IR35.
If you declare that you are working outside IR35 but HMRC deems this to be untrue, you could face a huge tax bill and penalty. Therefore if you do declare that you are working outside IR35, it is essential to ensure that both your contract and working practices reflect that you are working as an independent contractor.
It’s also worth noting that since April 2017, IR35 status for public sector contracts is determined by the client, not the contractor. So if the client decides that IR35 applies, the contractor company is taxed at source, exactly as if it were an employee.
Get yourself insured
As a contractor, you’ll be providing professional advice and services which your clients rely on.
That means that if something goes wrong, the company could decide to put in a claim against you.
Even the most skilled or careful contractor can make mistakes, and clients have also been known to allege contractors have breached their contract or made mistakes when they have not.
Professional indemnity insurance can protect contractors against such claims, and may cover legal costs due to negligence, or compensation needed to pay to correct a mistake.
As well as protecting you and giving you peace of mind, professional indemnity insurance also provides reassurance to your clients. It’s now often specified as a requirement in many contracts.
For more on getting started as a contractor visit ContractorUK.
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