Table of contents
Table of contents
Deciding you want to work for yourself as a contractor is exciting, but it’s completely normal if you feel a little nervous or confused. Whether you need help deciding on a business structure, or you want to know more about IR35, we have plenty of resources for contractors to guide you through each step of the way. So where do you start?
Likes freelancers, contractors have a specific set of skills and qualifications which they provide to clients on a self-employed basis.
Unlike freelancers who tend to work on an ad hoc basis, contractors usually offer out their services to clients for a contracted period – which can make it more secure than freelancing.
Contractors can operate in any industry, from IT to cleaning services. For example, one contractor could be a construction manager while another works as a painter.
Just like ‘being self-employed’ mean you literally work for yourself, the term ‘contracting’ refers to the way you work – it isn’t a type of business structure. To register your contracting business to pay tax, you’ll need to decide which type of legal structure is right for you.
Let’s say you work in a particularly high-risk industry. In this scenario it may be better to start your business as a limited company, because this limits your personal liability if anything goes wrong and the business can’t pay its bills. Operating as a sole trader could put your personal assets at risk, because there’s no legal separation between you and the business.
There are other factors that could affect your decision too, such as how much profit you reasonably expect to make. This is important because the way you structure your business can affect how tax efficient it is, so higher profits might influence which one you choose.
It can be a lot to take in, and the final decision will depend on your own circumstances and preferences. A good accountant will help!
If the thought of going self-employed is too much (we understand it can be overwhelming with lots to think about), you might choose to work for an umbrella company instead. They’re often used by recruitment agencies, but they’re also common in other industries.
The umbrella company will ‘employ’ you, paying your wages through PAYE much like a regular employer would, and collect the amount from the client you worked for.
Some umbrellas will help you find clients, but others will leave it to you to find work. Just beware potential signs of fraudulent activity. It’s worth doing some due diligence before signing up to anything – and always check your payslips! Some umbrellas could potentially be a front for money-laundering.
If you’re contracting through your own incorporated company, then yes – you may well need to keep an eye out for contracts that ‘fall inside’ IR35.
If you’re unfamiliar with IR35, this is the name given to legislation preventing what HMRC calls ‘disguised employment’, where someone works through their limited company when they would otherwise be working as their client’s employee if the company didn’t exist.
Contracts which are subject to IR35 rules are said to be ‘inside’ IR35. When this happens the person who hires you will deduct National Insurance and income tax from your gross pay rather like they would if you were an employee. Albeit, minus the benefits of being one – like holiday pay or sick pay.
Many contractors try to avoid scenarios where they might be covered by the rules because it can affect cashflow and there are additional record-keeping requirements which can cause more hassle.
Deciding what to charge or giving someone a quote can feel a little daunting.
Some contracts are advertised with a set rate already, so this can help you determine how much companies are paying contractors. Don’t undersell yourself! Look at:
If you’re in the construction industry and have your own subcontractors, you’ll need to sign up as a contractor for the Construction Industry Scheme (CIS).
Once registered, you’ll be responsible for things like deducting advance payments for tax and National Insurance from your subcontractors’ gross pay, and reporting this by submitting monthly CIS returns.
There are lots of ways to find work as a contractor, including through job boards and by signing up to agencies. The agency will either put you forward for jobs or refer various contracting roles they think you should apply for. Don’t get them confused with umbrella companies – you’ll need to sort your own taxes out!
It’s useful to network too – you never know who you may meet that needs a contractor, or who knows someone who does.
You’ll often need to have your CV and portfolio ready. You might also need to prepare a pitch for specific contracts, detailing things like costings and timeframes. To make life easier, you can create a template and personalise it where needed.
Take care of your bookkeeping from day one! It will help you manage your cash flow efficiently, stay on top of client invoices and payments, and submit your tax returns much more easily.
Like most new businesses, once you decide to become a contractor there are several steps to think about:
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