Some things to bear in mind when starting out as a contractor
Contracting, be it in IT or another sector, can be a fantastic career choice for many people. It has many benefits over permanent employment;
- The flexibility of being your own boss
- A potentially higher income, including greater tax efficiencies
- A wider variety of projects and work which regularly changes
- An opportunity to develop skills that you might not be able to within just one employer
- The chance to work with a wide range of people, companies and different industries
There are a couple of things that you need to consider before you start though;
Administration and accounts
As a contractor you will be working for your own company and will therefore need to do the administration yourself, including a certain amount of accounts. There are lots of companies out there that can help you with this or sources of advice if you wish to do it yourself.
If you don’t fancy the idea of doing the admin then there is the option of using an umbrella company (see below). If you are running your own company you will need to secure the services of an accountant to do some of the work for you.
Which company model should you use?
Contractors, as opposed to temps, supply their services through a limited company. You can run your own or use an “umbrella company”. There are many umbrella companies and basically they will act as your employer, making all of the necessary deductions and doing the administration for you. This can save a lot of time but, depending on your rate, it might not be as cost effective as running a limited company yourself. As a bit of a half way house, there are several umbrellas offering a “limited company” option. They will run the company for you, for a fee, but you are able to take advantage of more tax benefits.
Before you start contracting it is worth having a chat with various umbrella companies, limited companies and accountants to see which option is best for you. Your recruiter should also be able to give you some guidance.
As I mentioned above, there can be significant financial advantages to contracting but there are also a couple of drawbacks. You will not be considered permanently employed and so securing a mortgage or rental agreement can be more difficult. There are companies out there that specialise in contractor mortgages so it isn’t impossible to get one.
The nature of contract work means that you are not guaranteed an income and you are responsible for tax and NI. This is a large part of why contractor rates are so much higher than the equivalent permanent salaries. You should be setting money aside to cover NI and taxes, any breaks between contracts and lost income due to sickness or holidays.
Because you will be working for multiple companies, you will potentially have exposure to more skills and technologies than a permanent employee. This will in turn increase your employability elsewhere. You will however be responsible for the cost of any training or professional memberships. Particularly within IT, it is always recommended that you keep your skills up to date. This cost can be offset against your tax liability though.
So you can minimise any gaps between contracts it is a good idea to build up a strong relationship with a few recruiters (find out why here). We regularly place contractors in a subsequent role once we have worked with them. Recruiters get to know you and your skills, meaning you’re more likely to be put forward first or considered for roles you wouldn’t normally be if the agency didn’t know you. Many contract roles are only released through recruitment agencies so you won’t be able to source them directly.
Pick a recruitment agency that specialises in your sector and geographical area. You should feel comfortable with the consultant themselves. If you’re not happy that they will represent you well and do their best for you then walk away.
Good luck with your new career as a contractor.
Victoria Watkins is Office Manager here at Corriculo Ltd. After working as a Recruitment Consultant for 5 years she moved to Office Management for an IT consultancy 6 years ago. Victoria was one of the first members of our team and deals with all of our administration and accounts. Connect with her on LinkedIn, Twitter or Google+