Embarking on a journey as a contractor in the UK can be a rewarding and flexible career path, offering independence, potential for higher earnings, and the opportunity to work on a variety of projects. Whether you’re transitioning from employment or jumping straight into the world of contracting, understanding the essentials of how to become a successful contractor is crucial.
In this comprehensive guide, we’ll explore the key steps to establish yourself as a contractor in the UK, covering everything from acquiring the necessary skills and experience, choosing the right business structure, to understanding tax obligations and navigating the intricacies of IR35 legislation. Perfect for both newcomers and those looking to refine their contracting journey, this article provides the foundational knowledge and practical tips to thrive in the dynamic and often lucrative world of UK contracting.
The Steps
To become a contractor in the UK, you generally need to follow these steps:
- Acquire Relevant Skills and Experience: Before starting as a contractor, ensure you have the necessary skills and experience in your chosen field. This usually involves gaining experience as an employee in the industry but can also be done by completing courses, degrees, etc.
- Get yourself Financially ready: Before making any move to Contracting you will want to understand what your Finances look like at the moment. How much of an Emergency Fund do you have? How long will it last based on your current spending if you were out of contract?
- Find Work: This can be done through networking, using job boards, contacting recruitment agencies that specialize in contract work, or direct marketing. The earlier you can start this the better as it will allow you to understand whether Contracting is feasible for you.
- What is the notice period at your current workplace? Recruiters will want you to start ASAP and if you have a long notice period, they might not wait. This means you may need to leave your permanent role without the security of having a contract immediately lined up. This can be scary so you need to be speaking to recruiters ASAP.
- Understand IR35: IR35 is a tax legislation aimed at identifying contractors and businesses which are avoiding paying the appropriate tax by working as ‘disguised’ employees. You should understand how it affects your contracts.
- Determine Your Business Structure: Decide if you will work Inside IR35 or Outside IR35 or both (A recruiter will be able to give you a view of whether you will be able to be Outside IR35). If outside, you will need to form a limited company, or if Inside, you will work through an umbrella company. Each option has different tax implications and levels of administrative responsibility.
- Limited Company: Offers limited liability protection. More complex in terms of administration and accounting. More tax efficient.
- Umbrella Company: An intermediary that manages your invoices and tax deductions, with less administrative burden but higher fees and less control.
- Register for Tax: Depending on your business structure, you may need to register for taxes with HM Revenue & Customs (HMRC). This includes registering for VAT if your turnover exceeds the VAT threshold.
- Get Insured: It’s wise to have professional indemnity insurance and public liability insurance to protect yourself against claims for damages or injuries.
- Manage Finances: Keep accurate records of your income and expenses. It’s advisable to hire an accountant who is experienced in dealing with contractors.
- Continuing Professional Development: Stay updated with industry trends, and new technologies or methodologies in your field to remain competitive.
- Legal and Compliance: Ensure you are aware of any industry-specific regulations or licenses that may be required.
- Networking and Marketing: Build a network of contacts and market your services effectively to maintain a steady flow of work.
Remember that becoming a contractor involves not just being good at your job but also being able to manage a business, including dealing with administrative, legal, and financial aspects. It may also be beneficial to seek advice from a legal or financial professional when setting up your contracting business.