Top Tips for making the leap to contracting in 2020

How to make the move to contracting in 2020

There are currently 1.9 million independent contractors in the UK, with contractor-owned businesses now contributing £109 billion to the UK economy. If you’ve been considering joining them, a new year and new decade could be the perfect time to make the leap and enter into a new life of contracting.

Although there are many benefits to becoming a self-employed contractor, from increased autonomy to more flexible working, it’s not a decision that should be taken lightly. That’s why it’s always a good idea to plan, prepare and do your research before jumping from the world of permanent employment into self-employment.

In this handy guide, Umbrella Supermarket offer our top tips to help anyone considering the move to contracting make the right decision for them.

Weigh up the pros and cons

Before making the big decision, you should first weigh up the pros and cons of the contracting versus permanent employment.

Benefits of contracting:

Contractors are reported to be 97% happier than traditional employees, citing many reasons they prefer the contracting lifestyle, including:

  • Freedom and flexibility: contractors decide what contracts they want to work on at any one time, meaning they can fit work in around their own schedules and daily lives.
  • Increased income: studies repeatedly show that the average contractor earns more than permanent employees whilst working less hours. As a contractor, the ability to determine what you charge contributes to contractors earning more as well as feeling more valued for their time. Plus, contractors can usually claim tax relief on a variety of
  • Control: as contractors choose what contracts they work on and which clients they work with, they have a strong level of autonomy over their own workload and professional development.
  • Job Satisfaction: having the freedom to work with an array of clients on a number of projects gives many contractors increased job satisfaction, giving them opportunities to develop and grow at their own pace.

Downsides of contracting:

Although there are many benefits to contracting, on the flipside there can be a few unavoidable drawbacks too, including:

  • Job Security: the nature of contracting is one of peaks and troughs, meaning contractors do not have reliable sources of income from month-to-month.
  • Paperwork and admin: contractors are required to organise their own tax returns and keep thorough records of their invoices, payments and expenses.
  • Statutory benefits: as contractors are not employed, they are not granted rights to sick pay, holiday pay, maternity/paternity leave or pension contributions from an employer.
  • Competition: for those just starting out at contracting, battling the competition to establish your own client base can be a tricky task.


Assess your skills

Before making any big decisions about leaving permanent employment, it’s important to identify your key skills and strengths. After all, 46% of clients hire contractors to gain access to specific skill sets. This means you should have full confidence in your chosen area of expertise to ensure that you have the skills required to fill a gap in your industry.

Having identified where your strengths lie, you will now need to act on them. Seasoned contractors know that to thrive in their careers, they need to ensure their skill sets are competitive and up to date. Therefore, you need to identify any areas in which you can build on and improve your skills to ensure they are of the highest possible level. This will be vital for marketing and pitching yourself to clients.

Once you have identified the areas you wish to improve on, enrol in an online course or attend a training course to ensure your skills are the best they can be. Keep up to date with developments in your sector and latest industry news to ensure you are knowledgeable and informed. To succeed as a contractor, you will need to be committed to personal development and always be on the lookout for opportunities to upskill and gain new certifications and qualifications.

Carefully consider when to take the plunge

Although contractors are in high demand, especially in the IT, finance and engineering industries, there is no guarantee when you will win your first contract. That’s why, when making the move to contracting, timing is everything. The chances are, it will take you a while to establish your contracting career and win that all-important first contract, meaning making rash decisions to quit permanent employment isn’t always the best idea.

The best course of action is to build the foundations of your contracting career by securing a contracting role before exiting your permanent role. If you follow this route, you will need to know how long your required notice period is and plan accordingly.

If you decide to take the leap before securing a contract, it will be important that you have at least 3 month’s salary in savings as an emergency fund to prepare you whilst you find your feet.

Choose between a limited company or umbrella company

When considering a career in contracting, there are typically three routes you can take, these include:

Limited Company

Contractors can choose to start their own limited company and work as a self-employed contractor. Although this option can lead to higher take-home pay, it is the most taxing option in terms of admin and paperwork. Whereas this was typically the best option for contractors earning above a certain threshold who could pay themselves a salary and dividends, with the introduction of IR35 imminent in April 2020, this may not be the best option for a first-time contractor who is unsure of the legislation.

Sole Trader

Sole traders must register with HMRC as self-employed. They are required to keep in-depth records of all businesses transactions and file their tax returns each year.

Umbrella Company

Operating under an umbrella company could be the best option for a first-time contractor as it will place the contractor onto the umbrella company’s payroll, meaning you effectively become an ‘employee’ of the firm. The good news is that this means IR35 will not apply to you. What’s more, under an umbrella company you will receive statutory benefits and have your tax returns and paperwork taken care for you.

For more help finding the best umbrella company for your contracting needs, Umbrella Supermarket’s umbrella comparison tool is a great way to find the best deal for you.


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Decision Making

Is PAYE Better Than Umbrella?

If you are considering contracting you will need to decide on PAYE or umbrella.

It can be a difficult decision to make and contractors will inevitably be questioning which option will be the best for them.

To help every contractor get on the right track for them, in this guide Umbrella Supermarket looks at PAYE vs umbrella, outlining the key differences and how this will impact you.

using an umbrella company

Why Should Contractors use an Umbrella Company?

There are many reasons that contractors across the UK opt to work under an umbrella company.

Umbrella companies offer an easy way to contract and remove the need for the contractors to worry about the burdens of admin, finances, tax and IR35, all things that limited company contractors have to deal with.

For this reason, many contractors will be weighing up their options and questioning whether it is worth using an umbrella company in 2021. To help make the decision that little bit easier, Umbrella Supermarket has put together this guide on the pros and cons of using an umbrella company.


umbrella company fees

Does an Umbrella Company Charge Fees?

Any contractor that is considering operating through an umbrella company in 2021 will need to understand Umbrella Company fees - from why an umbrella company charges fees, how they are paid to how much the contractor will pay.

In this guide, Umbrella Supermarket answers those all-important questions to help every contractor know exactly where they stand when it comes to umbrella company fees.


What makes a good umbrella company

What Makes a Good Umbrella Company?

If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.

After all, there are lots of umbrella companies out there, so how do you know which one to choose?

To help you find the best umbrella company for you, in this guide Umbrella Supermarket outlines what makes a good umbrella company, so you can rest assured you’re making the right move.

umbrella company pensions

Guide to Umbrella Company Pensions

One of the many advantages to operating through an umbrella company for contractors is that they become an employee of their chosen provider.

In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.

To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.


using an umbrella company

Beginner’s Guide to Using an Umbrella Company

If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.

After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.


PAYE and Umbrella

Guide to PAYE vs. Umbrella

PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.

To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.

Holiday Pay for Umbrella Contractors

Complete Guide to Holiday Pay for Umbrella Contractors

One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.

To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.

umbrella company

When Shouldn’t You Use an Umbrella Company?

Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.

One way that contractors can work is through an umbrella company.

Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?

To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.


The truth about HMRC approved Umbrella Companies

There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.

After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.

However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.

To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.

umbrella company costs

How Much are Umbrella Company Costs?

If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.

To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.