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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