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Becoming a contractor

As the digital economy continues to evolve, more and more professionals are realising the benefits of contract work. Although deciding on a career change can often be challenging and daunting prospect, there are many benefits to switching from permanent employment to contracting.

Increased earning potential, job autonomy, greater flexibility and freedom in your career are simply a few reasons to switch to contracting.

If you’re thinking of becoming a contractor but not sure where to begin, we can help you make a start on your contracting career.


Register with recruitment agencies

As a first-time contractor, registering with an industry or market specialist recruitment agency is a great way find your first contract role quicker. Given the speed at which contract market moves, businesses often prefer to work with agencies trusting them to fill their roles quickly and efficiently. As a result, specialist recruitment agencies will often have a large pool of roles to present to you and work as the intermediary to facilitate interviews and other aspects of the hiring process between the company and the contractor.

Agencies can also provide advice on day rates, legislation and career development opportunities.


Be prepared to leave your permanent job

Most contracts will require you to interview within a few days of application if not immediately and unlike permanent roles you’ll be asked to start within one or two weeks at most. You don’t necessarily need to be unemployed while searching but it’s important to keep in mind the speed at which the contract market moves.


Deciding your payroll structure – Limited vs Umbrella

You’ll need to set up your new business in the best way so that you minimise your long-term tax liabilities, while maximising your income and making it easy for people to deal with you. In essence, your choice is between setting up a limited company or using an umbrella service company.

Limited company vs umbrella company

Limited company

Setting up and running a limited company, where you become a director and shareholder, is the most tax efficient way of working and has a number of advantages, including distributing dividends and claiming certain expenses unavailable through an umbrella company.

Umbrella service

If you are not keen on the prospect of dealing with paperwork or administration then using an umbrella company for your payroll is the best option. It is also a good option if you plan to contract in the short-term.

If you are planning to use an umbrella company then you need to ask three key questions:

  1. What exactly will they charge?
  2. Is there a minimum charge?
  3. What tax or accountancy qualifications does their firm possess?

With the introduction of the Managed Service Company Legislation in 2007, umbrella companies are obliged to deduct Pay As You Earn (PAYE) Income Tax from their contractors – the equivalent of carrying out a contract within IR35.

Deciding your day rate

As a contractor, you will have to decide on your rate, whether daily or hourly, with daily rates the norm for contractors within the digital economy. You’ll need to think carefully about your industry, specialism and current skill sets when determining what you’re worth in the contract market. Using resources such as salary surveys are a great way of helping you benchmark your rate against your peers. Equally, seeking a contract recruiter’s advice on rates can often be invaluable.

Remember to be realistic with your worth and keep up to date with market changes. Negotiate with the company - there is always a middle ground and if not, you may be forced to walk away and seek other opportunities. 

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