Are you wondering how to become a contractor in the UK? Deciding on a career change is always challenging, and becoming your own boss can seem intimidating. Contracting can offer many benefits such as an increased earning potential, flexible working hours and job autonomy. Our 5-minute guide will help you get to grips with contracting and preparing for the next steps in your career.
If you are thinking of becoming a contractor and are not quite sure how to start, we can help you make the first steps to starting a rewarding career in contracting.
How to become a contractor in the UK
1. Assess the demand
Before you even think about becoming a contractor, find out if there’s enough market demand for your skills. For example in IT, there is less demand for generalised support skills and more demand for specialisations, for example SQL, Python, and even cybersecurity.
You will also find higher contract rates the more skills and years of experience you have in your field. If you’ve not been in the industry for very long or can’t seem to find many contracts for your specific skill set, it may be worth spending a couple more years developing yourself professionally before pursuing contracting.
2. Sign up with recruitment agencies
The contracting industry is largely fuelled by recruitment agencies who are good at placing skilled contractors into roles quickly and efficiently. The easiest way to put yourself out there as a first-time contractor is to register with several recruitment agencies. Many agencies also specialise in specific job sectors, so registering with a specialist agency could help you find your first contract role quicker.
You can also find contract roles on job boards such as Jobserve, or directly from end-clients. This is sometimes difficult for a first-time contractor who may not have a large network of contacts. You can grow your network by keeping in touch with colleagues, putting your CV on contractor job sites, and updating your LinkedIn profile to reflect your career aspirations.
3. Be prepared to leave your permanent role
You do not necessarily need to be unemployed while searching for your first contract role, but keep in mind that the majority of potential clients will want to interview candidates immediately and some roles even request candidates to start within a couple of weeks. This is not always the case, but you should time it right so that you can work your current employer’s notice and start the contract with the end-client on their desired date. If you are highly skilled and specialised, some clients will be able to push the contract start-date back but negotiations should be navigated carefully.
The contractor industry is fast-paced and competitive by nature, so if you come across great opportunities be prepared to take these as they arise – or someone else will.
4. Research and understand IR35
Every contractor, recruitment agent and contractor accountant will tell you that you need to get to grips with IR35 in order to be a successful contractor. For one – if you are ‘inside’ IR35 you need to pay income tax and NI like a regular employee. If you are ‘outside’ IR35 you are deemed as genuinely self-employed and can enjoy the tax advantages of being self-employed.
Your IR35 status will vary from contract to contract as it’s dependant on your working circumstances. For public sector roles, the end-client will be responsible for determining whether your role places you inside or outside. In the private sector, large and medium end-clients will be responsible for this from 6 April 2020. Regardless of the sector, you should understand IR35 in case you have the opportunity to appeal an end-client’s decision, or if HMRC ever questions your status.
These are some useful resources that will help you grasp IR35 and how it could affect you.
Remember, if you end up with a public sector contract working through an umbrella company, IR35 will not affect you for this contract but you should still do your research.
5. Decide on a payroll service – limited vs. umbrella
There are typically two methods for contractors to be paid: via an umbrella company or via a limited company. Contractors who do not want to be involved with administration or paperwork or are contracting for the short term often use umbrella companies for their payroll.
A limited company, on the other hand, is beneficial in that it can yield a higher take home pay than an umbrella company by offering more tax planning options. Limited company directors are also able to claim certain expenses not available through an umbrella company.
For those worried about the hassle of completing paperwork, there are professional contractor accountants in the UK who can assist with the majority of limited company administration to make running a contractor business as hassle-free as possible. It’s important that you consider your IR35 status for a role before deciding on a payroll option.
Ready to explore your payroll options?
Use our contractor calculator to compare your take home pay between the limited and umbrella options. Don’t forget to request a personalised quote for an even more detailed breakdown of the benefits!
Whether you choose to operate via an umbrella company or a limited company, Churchill Knight & Associates Ltd can help you start your contracting career. Our personalised advice will give you the knowledge to choose the best payroll service for you. We can either set you through our umbrella company or help you set up and run a limited company through our bespoke accountancy service.
6. Get started in your new role
Your agency will liaise between you and your end client to finalise and sign your contract so you can get started in your new role. When you start your contract, make sure you submit all relevant timesheets, expenses and mileage to your accountancy service provider as required, and complete relevant monthly, quarterly and yearly administration through your contractor accountant.
Becoming a contractor can give you a higher take home pay, more opportunity for career advancement, and higher flexibility and freedom in your career. Many permanent employees are making the switch to contracting, especially as the industry is in demand for skilled professionals for IT, Finance, and technical Marketing roles, to name a few. This gives you the opportunity to reach a higher salary level as a contractor than as a permanent employee. Furthermore, becoming a contractor allows you to expand your professional experience by working in a variety of roles.
More about running your own limited company
Having your own limited company not only helps you maximise your take home pay, but it also provides you with more security and control over your finances. Many contractors are opting to set up their own limited company as it’s proven to be a more financially rewarding option.
If you choose to set up your own limited company, Churchill Knight can assist you with:
- Setting up your limited company for free
- Setting up your business bank account
- Registering your limited company for VAT
- Registering your company for PAYE and National Insurance contributions
- Completing your company’s quarterly VAT Returns
- Completing your company’s annual Confirmation Statement
- Providing you with unlimited free support and advice
Our contractor accountancy service is bespoke. We have been helping contractors in the UK since 1998, making us experts in the contracting industry. We can help you navigate any changes to tax legislation that arise, so you can continue to maximise your take home pay.
Looking for an umbrella company?
Visit Churchill Knight Umbrella – our dedicated umbrella PAYE service.
Last updated 25th February 2019.