Starting Off Contracting.

DullGreyGuy

Bod_1234 said:

DullGreyGuy said:

Bod_1234 said:

DullGreyGuy said:

Bod_1234 said:
need to sort out liability insurance, 

You haven't said what you will be doing but many contractors require professional indemnity insurance which covers bad advice as well as Public/Employers Liability insurance which covers physical damage to people or property

The agency I am going through helpfully stipulate what types and limits I need:

Employers Liability (£5m)
Public liability (£2m)
Professional Indemnity Insurance (£1m)

Its your choice on the EL, many agency agreement state its required but if you are a sole trader or the sole director/employee of a company you own there is no legal requirement for it and there is no one that can make a claim against it. 

Many firms sell packaged insurance of the three and with the inevitably tiny payroll of a one man band (assuming your incorporated) the EL section is £40 or such. Depends if it's worth your effort to argue it with each and every agency or just pay £40 for a useless piece of paper that keeps them happy. 

Yeh, I'm starting to see the money making schemes, the agency has a handy "deal" with an insurer, and suddenly it's part of the required insurance.

They wont dictate where the insurance is bought from but naturally will have someone they can recommend. 

It really depends if you want to tick a box or get insurance that will actually cover you, particularly on the PI side. I was forced inside IR35 by one client and so chose an umbrella company and it was subsequently bought out. Long story short, spoke to the owner and for some reason the new umbrella thought I was a brick layer and got very worried when I said the type of work I do and the values involved as their insurance excluded financial services. 

StevenB12

Massively varies on what you want to do.

I know some contractors who haven't had a holiday in 5 years or more as they can't afford to miss a day of work...I think there's quite a big misconception of the 'freedom' aspect of self employment which is something to look at. Again, may depend on what you do.

I was self employed for about 3 years doing groundworks/maintenance etc, I probably spent a good couple of weeks sending emails,phone calls etc companies looking for work,as staying with one company as a contractor is often an "eggs in one basket" scenario for a smaller start up..., again, depends what you do work wise. As others have said, and as I also did, get in touch with various agencies, you'll eventually build a relationship with a few of them who will automatically put you forward for upcoming works, whether it be long term or short term. I was often getting short terms jobs for a few days up to a month or so, before heading off onto another site.

Look at any start up costs...I massively underthought this. I had a budget of around £5000 to start off...I probably spent about £8000 overall to get going properly,before I had a steady stream of work.

Perks you can create your own..if you want an early finish on a friday,that's up to you,if you want to work 4 day weeks etc...the perks can be done by yourself and arent strictly an employed only aspect.

Get yourself a good accountant..I was paying £25 a month for mine at the time,got tax returns etc all done.

It was a great experience for me until Covid hit,which also hit me massively, ultimately I went back to being employed. Don't think I would go self employed again in my industry to be honest. But if you put the work in etc and keep money back for rainy days and so on, it can be a great experience to pick and choose what work you want.

alynjones

I work as an agency odp, I used a brokerage service to find the best umbrella take home pay at www.umbrellasmart.co.uk.  thank me later

Dakta

reported as spam

don't seem to be on companies house

facebook existence is a few weeks old, nothing really there

no presence on linkedin, and you work with totaljobs, randstadt, and based on site artefacts you're built on wix?

Not knocking wix, but c'mon - I'll thank you right now for the laugh. 

Potbellypig

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, 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,

Contracting has changed a bit in recent years, but I've been a contractor for knocking on a decade now but the big thing for me and why I would always choose it over PAYE is because of the flexibility of the contract terms. Not all contracts are like this and some you may have to work business hours but I can work standard business hours, I can work 80 hours one week and 0 the next, I can work 2 one day, 12 the next etc etc.

I am outside IR35 and have been since the rules came in, so my LTD company has kept going. If you are inside then you're no different just going with an Umbrella company (and some firms actually insist on this). I have a good accountant that ensures I legally comply with all tax rules but I always end up with significantly more in my pocket than the tax man.

Of course if you fall over and break both arms tomorrow then you don't get sick pay, no holiday pay, pensions etc. Remember you'll need insurance too.

But the reason I replied really was to say that you said work-life balance is important to you (which it is to me too) and if you get the right contractor position then perhaps there's actually no better way to achieve that work-life balance.

dranzer01

People will say that as a contractor there is no sick pay/days off etc, etc... But when you are making 13-20k a month, Im sure you can put a couple grands away comfortably....

DullGreyGuy

dranzer01 said:

People will say that as a contractor there is no sick pay/days off etc, etc... But when you are making 13-20k a month, Im sure you can put a couple grands away comfortably....

You're average contractor isnt billing £20k a month (net) let alone getting anything close to that as net take-home pay! 

The uplift in monies and tax efficiencies should mean there is sufficient funds to put aside to cover holidays etc and cost of insurances or other income replacement tools for sickness. Unfortunately not all people are sensible and I've known many new contractors suddenly realise they've not saved enough to pay their taxes let alone put enough aside to cover a long holiday (esp factoring in potential bank holidays and Xmas furloughs on top of voluntary holidays) or extended period of sickness. They can equally be as bad at putting a big holiday on the Credit Cards thinking they'll pay them off in a couple of months after they get back only to find their project and so their contract cancelled and they're out of work.


Being an employee is simpler, you get your 28 days a year holiday plus sick pay on top without having to plan ahead for them. 

tripled

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. 

You don't say what sector you're in, I can just share my experience as an IT contractor.

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.

Being a contractor in my field has not helped with work life balance, at least not in a conventional sense.

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,

You need to meet the needs of your clients. That typically means that you don't have complete freedom to choose your own hours and holiday. This is particularly true if you have been brought in to support a project working to a deadline. Yes, you don't need to ask for "permission", but if you aren't delivering, you can expect to get the boot. Typically I avoid taking more than one week off during a fixed term contract, and mostly align my working hours with my client's. Freelancing is a bit more flexible, but you still need to keep your customers happy.

One thing to also bear in mind is a contractor is expected to deliver. Expectations are high, and you don't get work related training. That means that you need to put your own time and energy into keeping your skills current. Between contracts, you need to expend time and effort trying to land the next one.

Yes pay is usually better for fixed term contracting, although there are some chancers offering rubbish rates out there. Some rates I've seen lately, I'd be better off shelf stacking. The rate should reflect the lack of holiday pay, sick pay, employer's pension, employer's NICs, apprenticeship levy, bonuses and benefits, and no employment rights or recourse to a tribunal. There also needs to be a bit of "padding" for a rainy day fund when the market is lean and it is difficult to find work, when you could be out for several months. For outside IR35 contracts you will have business expenses such as accountancy fees and professional insurances, while for inside contracts there will be umbrella fees if you are using one.

You can claim back tax on work-related purchases if your work is outside of IR35. Otherwise you will find it a struggle, there is a high threshold to meet to try and claim any tax relief from HMRC if you are working inside IR35. You can't claim back expenses for travel and subsistence to your client's site if you are inside IR35.

If a role is deemed outside IR35, you can either work through your own Ltd Company or an Umbrella company. Typically you would want the tax advantages of operating your own Ltd and will use a specialist contractor accountant, who can set the company up for you. An umbrella takes the hassle away, but you will pay significantly more tax as an employee.

To give you a brief overview of IR35, it refers to legislation introduced in 2000. The goal was to prevent "disguised employees" getting the tax advantages of working and billing through a limited company. It wasn't uncommon in the 90's for an employee to leave on a Friday and come back on Monday doing the same job but as a contractor. Since then, HMRC could (and indeed have) investigated and come after contractors for the lost tax plus penalties when they think a contractor is a disguised employee and haven't declared and paid the right taxes.

In the last few years, more rules have been brought in, first to the public and then to the private sector. Because it was felt HMRC investigations weren't enough of a deterrent and there was rule flouting going on, HMRC can now go after the client rather than the contractor. Given some companies could have dozens or hundreds of contractors, the potential penalties have scared many of them into blanket assessing contract roles as inside. Typically they (or the agent) will then engage contractors through an umbrella company, which will pay the contractor through PAYE as though they are an employee of it. Some companies will put you on their own payroll to save using an umbrella.

Typically the rate needs to be about 25% higher to give you the equivalent take home on an inside contract compared to outside. However, if you have travel or accommodation expenses, inside contracts can quickly become unviable. For example, a return train to London would cost me about £100, so that would be £200 out of my gross rate for that day. You should find that inside contracts offer slightly more than outside ones, but generally not enough to make them worthwhile unless they are local.

Grumpy_chap

dranzer01 said:

People will say that as a contractor there is no sick pay/days off etc, etc... But when you are making 13-20k a month, Im sure you can put a couple grands away comfortably....

DullGreyGuy said:

You're average contractor isnt billing £20k a month (net) let alone getting anything close to that as net take-home pay! 

Let's be honest - the average contractor is not billing £20k per month GROSS.
At least not with respect to their own time.  That's a day-rate of £1k chargeable just for labour / expertise.

DullGreyGuy

Grumpy_chap said:

dranzer01 said:

People will say that as a contractor there is no sick pay/days off etc, etc... But when you are making 13-20k a month, Im sure you can put a couple grands away comfortably....

DullGreyGuy said:

You're average contractor isnt billing £20k a month (net) let alone getting anything close to that as net take-home pay! 

Let's be honest - the average contractor is not billing £20k per month GROSS.
At least not with respect to their own time.  That's a day-rate of £1k chargeable just for labour / expertise.

Most people talk of their day rate on a net basis (ie exc VAT) and so with 21 working days a month roughly its more like £794/day which is still way above your average contractor (at least in my industry which tends to be one of the better paying ones short of investment banking or wealth management)