Starting Off Contracting.

Bod_1234

Been a employee all my life, most of which were at a single employer, where I have a fair amount of domain experience.   I recently left to try new stuff, which isn't working as I had hoped, my previous employer has offered me a position as a contractor, which at initial glance is appealing. 

I'm financially secure (no mortgage, no kids, no huge outgoings or loans, decent amount of rainy day funds). Getting a good work-life balance is very important to me at this point in my life.  There are obviously loads of differences to being an employee, but wondering what pitfalls I need to consider.

My list, off the top of my head:

More freedom to work my own hours, holiday etc. (Pro)
Significantly better pay (Pro)
May be able to claim tax back on work related purchases (Pro)
No job security (Con)
No sickpay (Con)
No employee Perks(Con)
No pension or company contribution (Con)
No PAYE / Have to do tax returns (Con)

I'm sure there are loads more, including needing to set myself up as a business. (How would I even start this process)  What sort of things should I be considering? 

Also, the company I'm looking at starting contracting with, already has a few other contractors, and they are all contracting via the same agency (perhaps an umbrella company?), what would this agency do for me, other than take a cut of my earnings?  It is generally the done thing to go via an agency?

Where does IR35 fit into this picture (in laymans terms)?

Lots of questions, I know, and grateful for anyone's input or personal experiences.

Many Thanks,

El_Torro

I was a contractor some years ago. It was before IR35 so i can’t comment on that. 

One big con is that contract positions often don’t last long, you always need to be on the lookout for the next contract. Building and maintaining a network is important for this. Some people are more successful at it than others. Sure, you get paid more, but if you have significant periods of not working and looking for the next contract the extra pay can become less of an advantage.

You don’t have to set up your own Limited Company, you can go through an Umbrella Company instead. There are tax advantages in a Limited Company though, so if you’re serious about contracting this is probably the right way to go.

You’re probably right in saying that an agency will just take a cut of your money and not much else. Some companies only deal with agencies though.

Bod_1234

"One big con is that contract positions often don’t last long, you always need to be on the lookout for the next contract."

In this particular case, this isn't such a huge concern, for a number of reasons.

Marcon

Bod_1234 said:

Been a employee all my life, most of which were at a single employer, where I have a fair amount of domain experience.   I recently left to try new stuff, which isn't working as I had hoped, my previous employer has offered me a position as a contractor, which at initial glance is appealing. 

I'm financially secure (no mortgage, no kids, no huge outgoings or loans, decent amount of rainy day funds). Getting a good work-life balance is very important to me at this point in my life.  There are obviously loads of differences to being an employee, but wondering what pitfalls I need to consider.

My list, off the top of my head:

More freedom to work my own hours, holiday etc. (Pro)
Significantly better pay (Pro)
May be able to claim tax back on work related purchases (Pro)
No job security (Con)
No sickpay (Con)
No employee Perks(Con)
No pension or company contribution (Con)
No PAYE / Have to do tax returns (Con)

I'm sure there are loads more, including needing to set myself up as a business. (How would I even start this process)  What sort of things should I be considering? 

Also, my company has a few other contractors, and they are contracting via an agency, what would this agency do for me, other than take a cut of my earnings?  It is generally the done thing to go via an agency?

Where does IR35 fit into this picture (in laymans terms)?

Lots of questions, I know, and grateful for anyone's input or personal experiences.

Many Thanks,

Plenty of basic reading here: https://www.gov.uk/browse/business

Well worth getting some proper professional advice from an accountant to ensure you get off on the right foot in terms of record keeping, tax matters etc. Getting it right is both easier and cheaper than putting it right.

Bod_1234

Found this helps.

https://uk.indeed.com/career-advice/finding-a-job/how-to-become-contractor

prowla

No holiday pay

Beware of umbrella companies

Delay between (monthly) invoicing and (30 days) payment

VAT registration

Company annual statement

Bod_1234

prowla said:

No holiday pay

Beware of umbrella companies

Delay between (monthly) invoicing and (30 days) payment

VAT registration

Company annual statement

Hi, can you expand on the umbrella companies and downsides of VAT registration and company annual statements. Thanks.

redped

If you haven't already done so, then have a look at https://www.contractoruk.com/ where you'll find lots of good info on contracting.

DullGreyGuy

Bod_1234 said:

1. More freedom to work my own hours, holiday etc. (Pro)
2. Significantly better pay (Pro)
3. May be able to claim tax back on work related purchases (Pro)
4. No job security (Con)
5. No sickpay (Con)
6. No employee Perks(Con)
7. No pension or company contribution (Con)
8. No PAYE / Have to do tax returns (Con)
   

1. really depends on what you are doing as a contractor; if for example you were a business analyst then the reality is you will be working 9-5 (or maybe more 8:30-6:30) because the nature of the role requires you to be engaging with the clients staff. As a day rate contractor your plate is often fuller and you get no sympathy for having to do 9pm meetings with west coast US

2. Cash element obviously however it depends on how good you are at getting work... double the cash but only working half the year means you're in a worse position

3. Isnt a pro, if you are being honest, as its a work related item which were you an employee your employer would have provided free of charge

4. No job security if you sub 2 years in a job anyway, so really the con is the shorter notice period

5. You can buy sickness insurance with your extra cash

6. Ideally not but in reality you may get some of the minor perks... the bar next to the office gives 30% off food with a staff ID, they've no idea that the red border means contractor, blue border perm and yellow border a temp

7. No pension would be your choice not a con, no company contributions is a con but see extra cash above

8. If you operated via your own LTD you normally would do PAYE plus tax returns so an extra con

Bod_1234 said:
what would this agency do for me, other than take a cut of my earnings?  It is generally the done thing to go via an agency?

It depends on the arrangement, in my world most clients dont want to be dealing with an invoice from each of their 100 contractors each month and then chasers if payments are late etc. As such they will push direct referals to their pet agency in exchange for a much smaller fee than the agency normally charges when they are the one to have found the candidate. 

In most cases the agency fee is paid on top of the agreed day rate so if a job is advertised at £500 a day that's what gets paid to your company or your umbrella and the agency would be billing the client £575 a day.

What's in it for you? Generally shorter payment timescales and little to do in way of credit control. 

An umbrella is different, they'd be paid the £500 and then have to take off their fee and all the employer taxes and levies and the remainder is then passed to your via PAYE.

Bod_1234 said:

Where does IR35 fit into this picture (in laymans terms)?

IR35 only applies if you are proposing operating via your own LTD. In layman's terms IR35 says that if you look like an employee, smell like an employee and act like an employee then you have to pay your taxes like an employee.

IR35 impacts your client, they will either assess each individual role and determine if they are inside or outside IR35 or will simply state that all contractors have to be via an umbrella. If a role is determined as being inside IR35 you will almost certainly will have to operate via an umbrella. 

How tax efficient you are as a ltd will dictate how painful it is to have to go via an umbrella.



With contracting, in my opinion as a contractor of 12 years, the key to success isnt really your skills in the job but your skills in winning the job. I know guys who have done the same job as me for longer, have more paper qualifications and yet I get paid more than they are and I go from one contract to the next whereas they spend 3 months or more between jobs trying to secure their next gig. 

Wyndham

I've been contracting for a few years. It suits me, and I don't think I'll ever go back to being an employee again at this point.

I haven't got my own company, but use an umbrella company instead. I looked into setting up my own company, but I'm making significant pension contributions, and with the tax relief on those, corporation tax instead of income tax, and a couple of other bits, the maths didn't quite work out in my favour, and I knew it would be a certain amount of hassle! An accountant helped me to reach that conclusion, and it was certainly a useful conversation to have.

My tax and NI is mostly sorted by the umbrella company - but I also do a tax return and use that to claim travel and any equipment costs etc. I keep records as I go along, rather than trying to remember the details at the end of the year.

The umbrella company also means I don't have to worry about IR35.

I get paid weekly, and for a timesheet that is authorised on a Monday, I'm paid on the Thursday, so I'm not waiting around.

I get work through agencies, and have used the same one for the last four contracts. I know them, they know me, and it works out for us both. I'm not wedded to them, I also talk to other agencies, so may end up using someone else in the future. I'm at the stage where they chase me, it's rare that I have to go to them. I occasionally get calls from someone new, and then I make a judgement. I've certainly had agents who have basically been incompetent, and I've (politely) told them that I don't want them to represent me - if they make a bad impression on me I assume they are also going to make a bad impression on a prospective employer.

My work is quite specialised in terms of the industry I'm in, so it's rare for me to get work which is close to home. Mostly these days that's fine, as I'm doing it remotely. But in the past I've gone to client's sites, and worked there throughout the week. I didn't mind this, I got to know some fantastic cities (and part of me misses that a bit, I'll be honest). But being away obviously has consequences to family life. And if you are staying away, that costs money, which you need to take off your bottom line (even with the tax perks, it's still not free).

You've got some good links on this thread, so well worth a read. But I hope my personal experience is of use to you. 

Wyndham

Bod_1234 said:

"One big con is that contract positions often don’t last long, you always need to be on the lookout for the next contract."

In this particular case, this isn't such a huge concern, for a number of reasons.

You may want to be careful with this assumption. Ask yourself why they are offering you a contract post, rather than a permanent role (or a temporary one on the payroll). Contract posts always have an end date.