Everything You Need to Know about Working as a Contractor
Everything You Need to Know about Working as a Contractor in the UK.
"What do I need to consider before becoming a contractor?"
- Market conditions and demand
The market is ever-changing. Just like with a permanent job search, there are peaks and troughs in the market. At times, there’s a large demand for certain skills on a contract basis whereas at others, companies may prefer to hire permanent employees or they may have hiring freezes altogether. We’d advise doing some thorough research before making the decision to go into contracting to understand the demand for your skills and the likelihood of securing a contract position.
- Financial security and ‘void times’
Although contracting can be very fruitful and an excellent way of life, it does bring an element of risk. Some contractors may find themselves between contracts for many months at a time, so it’s worth considering this and making sure you have a ‘financial buffer’ in case you find yourself out of a role for a prolonged period of time.
- IR35
The IR35 reform of April 2021 has had a significant impact on the UK contracting market. This legislation determines whether a contractor is operating as a true contractor or ‘disguised employee’ which results in a big difference in that contractors take home pay.
Read more about IR35 here, or get in contact with one of our experienced contract consultants to find out more, they’re always more than happy to help.
- Availability
Clients typically want contractors to start as soon as possible. If you’re in a permanent role and have a notice period then we recommend that you get in touch with one of our interim consultants to discuss the best way to make the transition as it’s unlikely that a permanent employee with anything more than a 2 – 4 week notice would be considered for an interim position.
"What is the average length of a contract?"
Contracts tend to start at three to six months, though they are often extended. Our latest research shows the average contract length to be 10+ months. We tend to manage contracts that are at least three months in duration though on occasion, we have supported with shorter contracts.
"How much should I charge on a day rate?"
Use our UK Day Rate Calculatorto see how much you should charge based on your previous PAYE salary. This should give a good indication of what you should be charging clients based on your previous earnings and general experience level. If you’ve never contracted before, we do encourage you to have flexibility on your day rate in order to secure your first project.
Our day rate calculator is set-up for contracts that fall outside IR35, working through Ltd companies. We recommend increasing your day rate if a contract were to fall inside IR35, due to the increased tax and NI due.
When discussing a contract position with a recruitment company or end client, it’s also important to understand what the take home pay will be on the day rate quoted. It’s a legal requirement for companies to share a Key Information Document (KID) with a contractor before they start their role. This document shows a breakdown of gross and net pay over the month at the appropriate day rate.
Day Rate Interim Assignment & FTC Assignments
"What’s the difference between a day rate interim assignment and a fixed-term contract (FTC) assignment?"
An FTC assignment is essentially a ‘permanent’ job, for a fixed period of time – often anywhere between 3 and 18 months. You will be an employee of a business and will therefore be entitled to their benefits. We recommend asking for a full breakdown of the benefits package during the recruitment process or at offer stage, as these can vary quite significantly from one client to the next. For example, some companies include FTC employees in their bonus schemes, whereas others don’t.
On the other hand, with day rate roles you are only paid for the days that you work and there are little to no extra benefits associated with them. When working through a Ltd company outside IR35, your day rate is your total package, whereas you are entitled to statutory benefits when working through an umbrella company for any inside IR35 roles.
For more information about the differences between interim and FTC assignments, click here.
"Am I entitled to benefits on a day rate assignment?"
When working on a day rate contract you are not entitled to benefits if you’re working through a Ltd company. If you take on a contract that sits inside scope of IR35, then you will be entitled to statutory benefits. If you are looking at contracts inside scope of IR35 you should get advice from your accountant, umbrella company or one of our interim recruiters or consultants to understand what benefits you will be entitled to and what your weekly and monthly take home pay will be.
"Do I need to set-up a Personal Service Company (commonly known as a Limited Company)?"
We wouldn’t recommend setting up a PSC until you have an outside IR35 day rate contract secured. It can be a very quick process and will unlikely have an impact on your start date with a new contract. You will also need to arrange other things which can take a bit of time such as the relevant insurances and business bank account.
Another reason we don’t recommend setting up a Ltd company without securing a role is because you may end up securing a contract which falls inside IR35, in which case you’ll be working on a PAYE arrangement with the end client or working through an umbrella company, or you may even secure an FTC. If that’s the case, your Ltd company will be irrelevant.
An umbrella company will act as a PSC for you and we recommend that you only use an accredited umbrella company. Independent membership bodies such as Professional Passport and FCSA provide their list of approved umbrella companies.
What Do I Need to Do?
"Do I need an accountant?"
If you set up a limited company, you will need to hire an accountant for general financial advice and to carry out your tax returns.
"What insurance do I need?"
If you choose to set up a limited company you will need Professional Indemnity Insurance. You will need a minimum cover of £1 million and although you may never use it, it protects you and your business in the event of damages being awarded against you. This can be because of professional error, omission or an act of negligence towards a third party to whom you owe a duty of care.
"Will IR35 legislation apply to me?"
Every contract is different and should be thoroughly assessed by the end client before going to market. We always recommend finding out the IR35 status before progressing with a contract, as it does have a large impact to a contractor’s take home pay. There are certain criteria which determine an IR35 status which our experienced consultants will be more than happy to discuss and advise on.
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If you have any more questions about day rate or FTC contracts, don't hesitate to get in touch with our Interim & Contract team:
