Moving from permanent to contracting
Other pages within this section:
- Starting up as a contractor
- Business Structures
- Start Up - Frequently Asked Questions
- Should I set up a limited company?
Higher rates of pay, flexible working hours and the ability to choose which projects you work on. There are many reasons why you may be considering making the move from permanent employment to contracting. As this may initially seem a daunting prospect, we have created this guide, covering everything from how to find your first contract to opening a business bank account.
Finding your first contract
Employers will turn to contractors in times of need as individuals who are able to manage projects and implement change when needed. Contractors provide a cost effective solution for companies who need temporary man power for a particular task, as they do not want to make the long-term financial commitment that comes with hiring a permanent employee.
Finding a contract is exactly the same as finding a job, and just with finding a job your first point of call may be contacting recruitment agencies that specialise in your area of expertise. Speculative applications to companies that you would like to contract for could also be favourable. Companies that need to recruit in a hurry or don’t have the budget to use a recruitment agency will turn to speculative applications as their first point of call.
Networking is another way that may help you secure contract work. Now that you are working for yourself it is a good idea to get some business cards printed and hand them out to potential clients as well as ensuing that you always have an updated CV. It is worth maintaining a network with previous colleagues, clients, industry professionals and anyone else that may be able to help you find contract work.
Limited or umbrella? Choosing the best route for you
As a contractor you don’t have an employer to ensure that you pay the correct amount of tax and national insurance. In order to take responsibility for your finances you will be required to choose a way to operate. The two most common ways to contract are through an umbrella company or forming your own limited company; both options come with their own advantages and disadvantages. You may also find our Limited Company vs Umbrella page useful.
Contractors who choose to work under an umbrella company will benefit from having all their finances taken care of for them. The umbrella company will collect the contractor’s earnings from their client and then pay them onto the contractor with tax, national insurance and their umbrella company fee deducted.
The major disadvantage of employing the services of an umbrella company is that it is the most expensive way to operate, as your contract rate will be subjected to full tax and national insurance in the same way that a permanent employee’s salary would be. These disadvantages mean that contracting through an umbrella company is generally only recommended to those that are earning less than £25,000 annually or who are only planning on contracting for a short period of time (usually three months or less).
Another popular option for contractors is limited company ownership. The main advantage of working for your own limited company is that it will allow you to work more tax efficiently and in doing so increase the amount that you take home. If you decide to contract through your own limited company there will be some administration responsibilities that need to be completed. Below are the main tasks that limited company contractors will need to complete before they can start trading.
Establishing your IR35 status
IR35 is a legislation that was put in place to target disguised employment. The purpose of IR35 is to essentially stop people leaving full time employment only to work in the same position on a contract basis. This is because in doing so they would be receiving the benefits of employment, such as job security, as well as the benefits of contracting.
As a contractor you will need to establish your IR35 status before you sign a contract. Your IR35 status will either be outside IR35 (not caught by IR35) or inside IR35 (caught by IR35). You are still able to work in a contract that is inside IR35, but you will need to declare that you are inside and you will not be entitled to all of the contractor benefits that you would be entitled to if you were outside IR35. For more information visit our Contractors Guide to IR35.
Limited company formation
If you would like to become a limited company contractor you are going to have to open a limited company. Forming a limited company is a very straight forward process, which can be completed in one working day. At Nixon Williams when you become a client of ours we will form your limited company free of charge and also register your company for PAYE, VAT and corporation tax.
Open a business bank account
All limited company contractors will need to open a business bank account in order to get paid. As part of our limited company formation service, Nixon Williams will provide assistance in opening a business bank account with Metro Bank. For more information please see our Guide to setting up a Business Bank Account.
Appointing an accountant
Taking control of your finances as a contractor can be a daunting task. Many contractors decide to appoint an accountant who will help them with their accounts, ensure that they are working as tax efficiently as possible and answer any questions.
Nixon Williams provides fixed fee accountancy packages for contractors, which covers all of your business and personal taxation needs. Our service includes a direct line to your own dedicated accountant who you can contract as many times as you need to without any additional costs.
If you would like more information about moving from permanent to contracting, forming a limited company, contracting in general or how Nixon Williams can help you please get in touch with a member of our new business team on 01253 362062 or email firstname.lastname@example.org.