Thinking about a career in contracting? Here’s everything you’ll need to get going in 2021
Congratulations on your decision to take the leap into contracting! What a fantastically exciting career you’re about to embark on. So where do you start? In this blog we guide you through the key areas you’ll need to consider before starting your first contract, and offer some expert advice.
- What will your business structure be?
Usually the first thing you’ll need to decide on is whether you’ll contract through your own Limited Company, or if you’ll contract under an Umbrella company. So what are the differences and how can you decide? How you answer the following questions will help you understand which option might be best for you:
How long do you plan on contracting for?
If it’s for longer than six months, forming a Limited Company might be the best option. A shorter period of time may not justify the set-up process that comes with forming a Limited Company.
How much do you expect to earn?
Usually if you’re expected to earn a day rate of approximately less than £140, using an Umbrella company would be more advisable. A day rate of this or less generally wouldn’t warrant the tax benefits that come with being limited.
What image do you want to give your clients?
Having your own Limited Company can give a more professional image, as it shows prospective clients you’re serious about your contracting career. Some clients may also expect the contractors they hire to be limited.
How much involvement do you want with client communication, decision making and admin?
Umbrella companies deal with your client invoicing, PAYE, tax and National Insurance Contributions (NICs) on your behalf, so you don’t have to do a thing! What you get paid at the end of the week or month is your net pay, and the Umbrella communicates with your end-hirer / client on your behalf so you don’t need to worry about chasing payment.
Running a Limited Company comes with a lot more responsibility, management and admin. You’re also in direct contact with your end-hirer / client, and will have to deal with them directly. Whilst there’s more responsibility, there is professional help available. A specialist contractor accountant will be able to support you on all matters of running your Limited Company, and ensure you’re staying on the right side of the taxman.
- How will you arrange your contracts?
There are many ways in which contractors find their clients, but here’s a few ways to help you find your very first contract:
Establish a direct contact
You may already know the client from previous work, or they’ve found you online through your LinkedIn profile or personal website (if you have one) and have contacted you directly.
Use a recruitment agency
Let someone else do the hard work! Many contractors register with a recruitment agency to help them find their next contract. This is a fantastic way to get started and begin to build your portfolio of clients and work.
Word of mouth
A previous colleague might be able to put you in touch with a client, or maybe they need your help with a current contract. Word of mouth is such a powerful way to get noticed, plus it doesn’t cost anything and will ultimately help build your client and colleague portfolio!
- Understand IR35 and your obligations
IR35 is a piece of tax legislation introduced by HMRC to reveal contractors who claim to be self-employed, but are actually employed. So in fact they are claiming all the tax benefits that come with being self-employed as a Limited Company, which they are not entitled to.
If you’re found ‘outside’ IR35 then you’re truly self-employed, and if you’re caught ‘inside’ then you’re classed as an employee and will be taxed as such.
If you decide to use an Umbrella company, then you needn’t worry about your IR35 status. As you’re taxed at source and what you receive in your pay packet is your net pay, you’ve already paid all the required taxes and NICs.
If you decide to go limited, then from April 2021 your client / end-hirer will be the one to determine your IR35 status, regardless of whether your contract is within the public or private sector. If you’re found to be ‘outside’ you can continue enjoying the tax benefits and in turn a higher take home pay, but if found inside you’ll have to pay National Insurance Contributions and tax as per if you were permanently employed.
For more information on all things IR35, take a look at our IR35 resources section, where we have videos, guides, blogs and everything you’ll need to understand it in greater depth.
SG Accounting is here to help, no matter what your final decision
If you’ve decided to go Limited: our team of specialist director-level accountants are able to assist you with everything, from getting your Limited Company set up, to helping you decide on your company structure and aiding you with all your IR35 needs. If you subsequently need to use an Umbrella company for a contract, you can enlist the services of our sister company, SG Umbrella for half price.
If you’d prefer to (or need to) use an Umbrella company: SG Umbrella will be able to get you set up and ready to start contracting.
Need a second opinion on which decision is right for you?
Give our team a call and talk through your personal and professional circumstances. Based on where you are and what you want to achieve our accountants will be able to advise which route they feel is the best for you, and get you started. Get in touch today to get your career in contracting off to the best start!
Note: All the information and advice in this blog post was correct at the time of writing.
