The role of contractor has always been sought after. However, in this time of economic and financial crisis – people have not got guaranteed permanent jobs anymore, so heads are turning more towards contractor roles. Contractor roles, simply put, have their advantages: Flexibility and control, financial bonuses, opportunity to develop different skills, possibility of travel or to work from home, scope to work with lots of different employers in private and public sector….the list goes on. With permanent jobs you get the ‘security’ (or what you perceive to be true in this economic climate) held in pension schemes and paid annual leave – but when you make, the what can be scary, leap it will be possible to see benefits in all aspects of your career.
First Step into becoming a Contractor
The first thing you need to do when making the move to contractor is to simply; find a contract. You may not think that there are many contract roles out there due to the current economic climate, but you’d be wrong. Companies are now looking to hire people short term, then support them long term. Important things to do:
- Update your CV – Focussing on key skills that help you stand out as a contractor whilst talking about recent employments and achievements within
- Target Recruitment agencies that specialise in your chosen field.
Limited and Umbrella
There are two ways to function as a contractor – limited and umbrella. Limited companies are ideal for contracts of 3 months or more and when annual take home money is £25,000 plus. Umbrella companies are basically the opposite – working for people with short term, low value contracts.
- Umbrella – take home pay between 60%-65% of your contract value (Not much different to working as a permanent employee).
- Limited – take home pay between 75%-80% of your contract value, however there is far more paperwork and legal issues to take note of.
IR35
On finding a new contract, the next step you need to take is to establish your IR35 status. Before signing your contract you need to check whether you fall inside or outside of IR35 legislation – otherwise you may be finding yourself in hot water somewhat. If you find yourself within the legal boundaries of IR35, in simple terms you will take home significantly less money. So, you can see why it would be more sensible to operate through a limited company, if you are inside IR35, claim expenses, reap the rewards from the Flat Rate VAT scheme and ultimately only pay tax on 95% of your contract. Using a specialist contractor accountant can help you with this.
You should always ask around when selecting a contractor accountant, and remember that it is better to find a specific accountant to your field of work. It is essential that you find a contractor just for you, and take your time selecting one – it should not be a rushed haphazard decision. Look for firms that have been established a while and are backed by credible third party claims. It is also possible to see how successful a company is purely on the amount of awards they have accumulated from organisations such as Accountancy Age, National Customer Service and PCG.