The contractor sector is growing as more professionals realise the benefits of flexible working. There are many benefits to contracting, such as the ability to decide when to work and when to take time off, choosing which jobs to take on and enjoying higher rates of pay. There has also never been a better time to become a contractor as many sectors are increasing their use of contingent staff.
If you are unsure about whether or not to leave permanent employment behind or have already made the leap into contracting, here is some helpful advice to help you flourish as a contractor.
Finding a contract
There are two ways contractors can secure a contract. The most popular way to secure a contract is via a recruitment agency. Contractors can find these roles via online job boards or through specialist sites dedicated to particular sectors. Recruiters will also search for contractors on CV databases so it’s a good idea to upload yours to increase your chances of being found.
Social media sites are increasingly being targeted by agencies who will advertise contracts and search for potential candidates. Make sure your LinkedIn and other relevant profiles are kept up to date with your current employment status, relevant skills, and previous work experience.
You can also approach a client directly. However, this can be very time consuming and requires a very good network of contacts within the industry.
Determining the IR35 status of the contract
IR35 is tax legislation that applies when you work for a client through an intermediary – for example, a limited company. If it’s deemed that the rules apply to you then you will have to pay tax and National Insurance as if you were employed directly by the client. This can decrease your net income by up to 25%. It is important to determine your IR35 status as it impacts how much of your final salary ends up in your pocket.
If you’re working in the private sector it is currently your responsibility to assess your own IR35 status and it is important to get it right. However, from April 2020, it will be your end-clients responsibility to determine your status. Your end-client or recruitment agency will also be repsonsible for deducting the relevant tax and National Insurance as they are your fee payers.
If you are working in the public sector it is the public-sector body that is responsible for the assessment.
It is important to remember that with each new contract, your IR35 status needs to be reassessed.
Umbrella versus limited company
As a contractor, there are two ways in which you can operate – through a PAYE umbrella or becoming a director of your own limited company.
Working through an umbrella company means that you will be seen as an ‘employee’ of that company. It is not as tax efficient as contracting through a limited company. However, it is seen as the more hassle-free way to get paid. This is because once you have submitted your weekly or monthly time-sheet, the umbrella company will make all the relevant tax, National Insurance and other pre-arranged cost deductions and then pay you your salary.
Whereas, if you chose to contract through your own limited company, it means you will be in charge of your own salary, accounts and taxes. Contracting through a limited company is more tax efficient than working via an umbrella company and you will find that your take home pay rates will be higher. The downside to having your own limited company is that it involves a lot more administration than working via an umbrella company, but there are contractor accountants who can take this burden away from you.
Keep your business finances in order
There are a few accounting issues to be considered when working as a contractor. Here are just a few suggestions which will help you keep your business finances in order, particularly if you are operating through your own limited company:
- If you’re working through your own limited company, you’ll automatically need to open a separate business bank account, but if you are operating through an umbrella it is not necessary.
- Keep track of your monthly incomings and outgoings as it’s much easier to get an idea of your tax liability throughout the year.
- Put money into a separate pot at the end of each month to account for Income Tax and National Insurance and to prepare for your payments on account that are due at the end of January.
- Claim the correct allowable expenses as these can negatively impact your rates of take home pay if calculated incorrectly.
How to be a successful contractor
There are many ways in which you can be successful as a contractor and stay competitive within the market. In most cases, there is a direct link between demonstratable skills and expertise in a specific area, and the hourly or daily rate you can charge. By keeping your skills updated, by going on training courses and applying new techniques that you have learnt on previous contracts, you will ensure you remain an attractive candidate for contracts.
If you have just left your full-time job and you are looking to work in the same profession as a contractor you may already have contacts within the industry who can put you in touch with potential clients. However, if you do not it is advisable to put together a marketing plan to cover aspects such as your social media strategy to raise your professional profile.
Start actively looking for your next contract a couple of weeks before you are available and always keep an eye on the market even whilst you are working. This will make sure you can avoid long periods of unemployment, and plan for periods of low market activity.
Finally, having a well written and high impact CV and LinkedIn profile will get you noticed by recruiters and potential clients. This is where you can communicate your achievements and show your credibility and competence in your field.
Do you need further advice regarding contracting? Speak to a Churchill Knight expert
Churchill Knight provides specialist accounting services to contractors and freelancers to suit your individual needs and circumstances. We will help you to find the right payroll solution, whether it is through a limited company, umbrella company, CIS or sole trader.
If you need any further advice about operating through your own limited company, please speak to one of the experts who can offer you free and impartial advice. Find out more about our contractor accounting service, give us a call on 01707 871622, or complete the short form on this page.