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Becoming a Contractor

January 9, 2019 by David Soffer

There are many benefits to becoming a contractor in the UK, which often include higher rates of pay and more flexible working hours. You may also have the choice of when and where to work, as well as when you take holiday, sometimes even able to work remotely from abroad.

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However, contracting does also come with less security compared to a permanent position. Therefore, taking the decision to get into any industry as a contractor or freelancer should not be taken lightly and you must consider your options well.

In order to help you make an informed decision about whether becoming a contractor or a freelancer is right for you, we have put together this useful guide. You should also strongly consider the key steps that you will be required to take before starting a freelance or a contract role.

Becoming and contract worker in the UK comes with many benefits

Research Freelance and Contractor Employment

The first step to moving from regular, permanent employment to freelance and contractor roles should be to thoroughly research your market and industry to ensure that there is demand for your skill-set as a contractor or a freelancer.

Freelance employment is a great way to earn money

Many industries do not call for freelance and contractor work as much as others and therefore you should always be sure to research whether there is indeed a place for non-typical workers in the industry in question.

How Much Do Contractors Earn?

You should also look at the rates which are currently being offered for your skill-set, to see whether they meet your personal and financial needs. Without thorough consideration, it is not uncommon for workers to otherwise turn to the likes of instant payday loans or similar, due to numerous loan rejections.

You should take account of important considerations such as whether you will be able to pay your rent or mortgage, as well as how much disposal income you are likely have each month after becoming a contractor or freelance worker.

In order to get started with working this all out, you can check roles on dedicated salary checkers. You may wish to discuss your options with recruitment agencies in your industry to understand the kinds of contracts that may or may not be available.

Consider where your particular skill-set is desired in your chosen industry and understand that you are more than likely to need to be flexible at least to some extent on the location of the contracts and some precise terms, depending on where the demand actually comes from.

Look for a Freelance or Contractor Contract

There is no doubt that the easiest way to find a contract is by looking online, were you will find a wide range of opportunities, specifically for freelancers and contract workers.

Start by looking at online jobs boards to see what sort of clients and contracts are available to you with both your experience and skill-sets. This way you can whittle down the results by utilising the filters, or simply using ‘contractor,’ ‘freelancer’ and ‘contract jobs’ as keywords for your search.

LinkedIn is also a great place to get a fee of what is out there. It is a handy tool for building up your network and industry connections and helps greatly with keeping in touch. Both online and offline networking are very valuable ways of finding, nurturing and developing new contacts, contracts and opportunities.

Establish Your Contractor or Freelance Business

Once you have your first contract in the bag, you now need to decide how you want to run your business. The two most popular business models in the UK for contractors looking to get on the contract employment ladder are:

  1. Setting up a limited company
  2. Operating under an umbrella company

Setting up a limited company, where you will be the director and shareholder, is one of the most tax efficient ways of contracting. It allows you to have complete control over your finances, although there are legal obligations and paperwork requirements in running a limited company.

To start your limited company up you will need to:

  • Decide on a suitable name for you company: Some believe it is better to go with a name which is not directly related to what it is you do, in case you want a career change or expand upon your field of work
  • Choose a company address and decide where it will be based: This could be your home address, or a rented business premise, or even the address of your accountant (if you have one)
  • Decide on who is going to be involved in your company: Will it be just you under the company, or will you have other shareholders and involved people? If so, what role will everyone play?
  • Involvement in the company: Allocating company shares, anyone with over 25% of shares holds a strong position in the company and has control over voting rights
  • You must appointment at least one Director
  • Create the rules of the company
  • Register the Company with HMRC via Companies House

Working for a UK Umbrella Company

If you choose to work under an umbrella company, they will take a lot of weight off your shoulders by arranging invoices, the required company paperwork, collection of money and more on your behalf.

Umbrella companies in the UK do charge a fee for their services, for example The Transparent Umbrella Company charges up to £5 per week. However, for the fee you get more than peace of mind. The umbrella employer should:

  • Arrange personal and income taxes and National Insurance contributions for you
  • Take care of sending and chasing up invoices for your work
  • Be able to advise, and sometimes even provide some necessary insurances for you
  • Keep you legal with regards to the UK Government’s IR35 Legislation
  • Ensure you and your client do not fall foul of the Criminal Finance Bill
umbrella-company-invoices
An umbrella company will take care of your invoices

Get Contractor Insurance

Being a contractor does not provide you with as much security as being in a ‘typical’ position of employment and so insurance for contractors and freelancers is important to have. You will by the very nature of your role and terms of work be providing professional advice and services which clients will be reliant on, even if only to a small extent. This means if something were to go wrong, the company receiving your advice and services may decide to pursue a claim against you in the courts.

Even the most reputable and skilled contractors can make mistakes and so having insurance in place can protect contractors and freelance workers from such claims, helping to cover legal costs due to negligence, or compensation which is needed to pay to correct a mistake or even fight a claim in the UK court system.

As well as insurance providing you will protection and peace of mind, it will also give reassurance to your clients. Some clients actually now make it a requirement for contractors to have this when working with them in the interest of all parties.

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