Helpful tips for potential contractors
The decision to become a contractor is likely to be the most important one of your professional career. Becoming a freelance contractor means you will have a great deal more responsibility in all aspects of your work.
Finding clients and securing contracts will now be down to you. Calculating your taxes properly and ensuring you get paid won’t be your employers problem anymore, it will be yours.
Are your finances in order?
First of all those who are making the jump from full-time employment to contracting should make sure they can afford it. Due to the nature of contracting you will be required to start a job immediately. This means that you will not be able to work a lengthy notice period at your current job. When the client calls, you must answer immediately!
It is therefore wise to prepare in advance, make sure you have enough saved to provide for you and your family while you search for work.
Go it alone or use an agency?
Once you are confident you have the resources to move into contracting you can consider looking for work. This poses the question – do you go it alone or sign on with an agency?
If you decide to source a contract yourself you will be reliant on your own business network and you will also have to contact the client yourself. You can also use job boards and websites to source potential work. Some contractors may not have the industry links to start off this way, in which case using an agency could be beneficial.
An agency will work as a middle person between you and the client. It will seek out prospective jobs and put you forward if they believe you are right for the them. The main positive from using an agency is that they already have a database of clients they can use saving you time and hassle.
One thing to bear in mind about agents – they have many contractors on their books and at the end of the day they are looking out for their own interests as well as yours.
Limited or Umbrella Company?
Possibly the biggest decision you will have to make is the way in which you run your business. Contractors generally have two choices in this area – set up a Limited company or work through a umbrella company UK.
Setting up a limited company in your own name gives generally gives you more freedom as to the direction your business takes. It also means that you will be responsible for your own tax and National Insurance contributions. It may benefit you to employ a qualified accountant to help ensure that this is done properly.
You will also be responsible for your IR35 payments. This involves proving to HMRC that you are ‘self employed’ in order to maintain outside of IR35 legislation.
By using an umbrella company, contractors do not have to worry about excessive paperwork, IR35 or tax calculations because it is all taken care for you.
The umbrella company you choose will technically act as your employer, this will enable you to claim some of the benefits you had as full-time employee. This also mean you will be inside IR35 so you will not need to worry about it.
Your PAYE umbrella company will make all your tax deductions and National Insurance Contributions for you. This eliminates the need for an accountant and makes sure that your taxes are paid correctly. It will also ensure you are paid by the client. Once you have filled out your timesheet, the umbrella company will take care of the rest for you.
Using an umbrella company means you will have very little paperwork to deal with, this means you can dedicate more time to your actual work.