So you’re ready to start your new career in contracting, congratulations! But if you’re new to the industry, where do you start? In this blog we guide you through the key areas you’ll need to consider, to help you get going in your new contracting career.
- Choose your business structure
Before starting your first contract, you’ll need to decide on whether you’ll contract under an Umbrella company, or through your own Limited Company. So how do you decide? Your responses to the following questions will help you choose the right structure for you:
How long will you be contracting for?
If you’re planning on contracting for longer than six months, then being limited may be the best option for you. Any shorter than this and the set up and management of a Limited Company may just not be worth it.
How much are you expected to earn?
It’s advised that if your day rate is less than approximately £140 then you’d be better suited to using an Umbrella company. A rate lower than this threshold wouldn’t generally warrant the tax benefits associated with being Limited.
What’s your desired professional image?
Will you work with clients who expect contractors to have a Limited Company, or just want to portray a more professional image? Being Limited can offer this, as it shows a client you’re serious about your career by managing your own company.
What level of involvement do you want with admin, client communication and decision making?
An Umbrella company will handle all of your client invoicing, paying your PAYE, tax and National Insurance Contributions (NIC) on your behalf. Whereas if you were to go Limited it’s up to you to run your company correctly, so there is a substantial amount more admin and involvement. Whilst being Limited has a greater level of commitment and management, a specialist contractor accountant will be able to support you with all this, taking the guess work out of running your Limited Company.
Are you planning on returning to permanent employment in the next six months
Maybe you’re just testing the waters, or want to complete just a couple contracts. If that’s the case then again it may not worth the effort of setting up and then closing down a Limited Company, (unless your take home pay is high enough to warrant it). Using an Umbrella would serve this purpose much more usefully.
- Decide how your contracts will be arranged
Contractors find clients in many different ways, but here’s a few which you could try in order to find your first one:
Create a direct contract
Maybe you already know the client from previous work, or they’ve found you online (possibly on LinkedIn or through your own website, if you have one) and have reached out to you.
Use a recruitment agency
Many contractors use an agency to help find their next contract. This can be a useful way to get yourself started, and begin to build a portfolio of clients and work.
Word of mouth
Maybe a contracting colleague will be able to put you in touch with a prospective client, or maybe they’ll need your help to complete one of their contracts. Word of mouth is a powerful way to find clients, and used by many seasoned contractors who have built up not only their client portfolio, but also their colleague one too.
- Understand your IR35 obligations
IR35 is a piece of tax legislation, designed to uncover contractors who claim to be truly self-employed, but who are in fact in ‘disguised’ permanent employment. Whilst being employed they’re still reaping all the tax benefits that are available only to Limited Company contractors. The legislation is there to ensure everyone pays the correct amount of tax, without taking advantage of benefits which they’re not entitled to. If you’re truly self-employed you’re labelled as ‘outside’ IR35, and if you’re found to have similar working characteristics as those who are permanently employed, then you’re labelled as ‘inside’ IR35.
If you decide to use an Umbrella company, you don’t need to worry about IR35. Because the Umbrella pays your tax, NIC and PAYE at source from your pay, you’ll never be caught claiming for tax benefits, as you’re not entitled to them in the first place.
If you want to go Limited, from April 2021, your IR35 status will be determined by the end-hirer / client, regardless of whether your contract is within the public or private sector. Once your status has been decided, if you’re outside you’ll be able to continue enjoying the tax benefits and in turn higher take home pay, but if found inside you’ll have to pay National Insurance Contributions and tax as per if you were permanently employed.
If you need more information on IR35 our knowledge hub has everything you’ll need to gain a deeper understanding of what IR35 is and how it could affect you.
Whatever your final decision, Aardvark Accounting can help
If you’d like to go Limited: Then congratulations! Starting your own Limited Company will mean a greater take home pay in the long run, and will ultimately give you more control over your finances by giving you access to more tax benefits (if you’re found outside of IR35).
The expert team of director-level accountants here at Aardvark deal with Limited Company contractor’s personal and professional needs every day, and do everything they can to get the most take home pay for their clients. Get in touch today to speak to a member of the team, or take a look at our packages here. Alternatively if you’d like to know more about what’s involved in setting up your Limited Company and how Aardvark can help, take a look at our blog: Setting up a Limited Company for more information.
If you think an Umbrella company is better suited to your needs: Aardvark can also help you out! Our group company, SG Umbrella offers contractors a fast and specialist service, designed to deal with all your pay and tax needs. They handle the technical stuff, freeing you up to contract securely in the knowledge that your obligations to HMRC have been met, and you’re staying on the right side of the taxman.
Unsure of which option is best for you?
If you’re a little stuck and unsure which is the right decision for you, speak to one of our team. They’ll run through your professional and personal circumstances, and give you their professional opinion on what they feel is the right path for you. Get in touch today!