It’s said that in the UK the numbers of contractors are between 1.7 to 1.9 million, depending on which data source you refer to/ depending on which source you get the data from. What’s certain is that they contribute billions to the UK economy collectively and the number of contractors is set to increase further.
So, there must be a rationale that explains why we’re seeing this trend as it’s rather obvious that becoming a full-time contractor has many benefits. Among them, greater flexibility when it comes to working hours, higher pay rate, a greater degree of market demand and tax benefits (depending on the structure of your business) are often cited as key benefits.
How do I switch from working as an employee to working as a contractor?
With growth forecast for the coming year for contractors and contractor work, particularly in manufacturing, automotive, engineering, design and construction industries, the time is right for you to get ready and take full advantage of the robust contracting landscape in the UK.
While you may be aware of the benefits of contracting, you might not be privy to how you can actually make this move, primarily if you’ve worked in permanent employment all your life. This is why our contractor accountants at TaxAgility put together some useful tips to help make your transition smoother.
Sending out speculative applications
First and foremost, you should begin by testing the waters to gauge whether there is a demand for your services in your area. Doing your due diligence on your target audience/ potential clientele, as well as researching the market and any competitors in your locale is always advisable and considered good practice. One effective mechanism for implementing this is by sending out speculative applications offering your services.
Assuming you send out a high volume of applications, you’ll be able to measure the current state of the market concerning the ways in which various businesses react to your proposal. Don’t be deterred by the number of responses you receive initially, as this is more of a numbers game than anything. The rule of thumb is generally a 10% response rate, depending on the quality of your email and offer.
Even if you don’t receive a contract from this initial interaction, don’t give up. View this as an opportunity to increase your visibility within the marketplace and to companies who might not have been open to the possibility of hiring a contractor in the first place. As long as your details are in their systems, it’s likely that they will contact you when something comes up.
Networking
As a contractor, it’s important to develop a network that can deliver consistent opportunities and work. You can do this by creating a comprehensive networking plan, appearing at business events, distributing business cards or networking online, particularly on the social network, LinkedIn. To be successful, you’ll need to establish relationships within the industry that could potentially provide you with employment opportunities.
In a nutshell, it’s all about getting your name out there. You generally shouldn’t contact clients that you previously worked with when you were a full-time employee for someone else – this is considered poaching and bad etiquette. However, there’s no reason why you can’t reach out to individuals whom you used to liaise with that have since moved company.
Forming your company
When you first begin as a contractor, you’ll have to make the choice between working under an umbrella company, or alternatively, for your own limited company.
We’ve written at length on the differences between umbrella and limited companies in the past, but to put it simply: when you work through an umbrella company they take care of the financial side of things; taking payment from clients then paying you, minus tax, national insurance, and their personal fees.
When you form a limited company, everything (including the financial side) is your responsibility; but you’ll ultimately make more money as you won’t have fees to pay, and you’ll more than likely be operating outside of IR35 legislation if you have established a legitimate contractor business.
Hiring an accountant
If you haven’t already enlisted the services of a specialist contractor accountant at this point, then you should research a suitable financial services provider in your area who can assist you with the operation of your business. A specialist small business accountant is advisable for contractors and freelancers, and an expert in start-ups such as TaxAgility can assist with the transition from full-time employment to full-time contracting.
We’re able to advise you on the requirements for establishing your business, including all aspects of company formation, opening business banking accounts, and registering your incorporated entity with Her Majesty’s Revenue and Customs (HMRC).
To speak with an experienced tax accountant and discuss your potential move from permanent employee to full-time contractor, contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
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