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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Using an Umbrella Calculator

The Pros of Using an Umbrella Calculator

There are many advantages to using an umbrella calculator for contractors.

Umbrella calculators allow you to quickly compare thousands of umbrella companies across the UK, offering a clear overview of what you will receive from the company, including everything from your take-home pay, what benefits you will receive, and what services the company will offer.

To help contractors find out more, Umbrella Supermarket outlines the main benefits to using an umbrella calculator in 2021.

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Umbrella vs Limited Company: What to know when making the move this new tax year

The 6th April 2021 marked significant changes to IR35 legislation which impacted thousands of self-employed, limited company contractors operating within the private sector.

In light of the changes that have now rolled out, many limited company contractors are understandably considering their options and thinking about making the move to umbrella this new tax year.

To help make the decision that little bit easier, in this guide Umbrella Supermarket outline what contractors need to know about making the move from limited company to umbrella in 2021, to help you get on the right track.

 

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Umbrella Company vs PAYE: What should you choose?

Umbrella company vs PAYE is a question asked by thousands of contractors.

After all, it’s a big decision to make that will have a direct impact on your contracting career and day-to-day life, so it’s not one that should be taken lightly.

To help every contractor make the right decision for them, Umbrella Supermarket has put together this insightful guide outlining the key differences between umbrella and PAYE and the advantages and drawbacks of each.

avoid ir35

How can I avoid IR35?

As a contractor, you will most likely know about IR35 and upcoming reforms from April 2021.

These changes to IR35 legislation are set to badly impact many self-employed contractors in the private sector, so thousands are understandably worried. After all, getting caught out by IR35 can mean you end up paying more in tax than you need at the same level as an employee, without receiving the benefits of being employed, such as statutory rights.

umbrella company costs

Umbrella Company Fees: How Much Should You Pay?

When deciding which umbrella company to work with, the fees they charge will inevitably play an important role in the decision-making process.

Umbrella company fees are taken directly out of the contractor’s income, so it is only natural that contractors want to ensure they are getting a fair deal.

To help contractors understand umbrella company fees, from how they are charged, what they will receive in return, and how much they should be paying, Umbrella Supermarket outlines everything there is to know about umbrella fees in this handy guide.

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Pros and Cons of Limited vs. Umbrella

Big reforms to IR35 legislation are set to come into motion from 6th April 2021 which will impact the thousands of self-employed, private-sector contractors out there.

For this reason, many of the contractors that currently operate through a limited company will be considering the umbrella company route as an alternative.

If this is true for you, it’s important to do your research to find out whether limited company vs umbrella is the best option for you in 2021.

To help make the decision that little bit easier, in this guide Umbrella Supermarket outline the key differences between limited vs umbrella, so you can get on the right track.

2021 budget

What Does the 2021 Budget Mean for Contractors?

On 3rd March 2021 Chancellor Rishi Sunak unveiled his Budget in the House of Commons, outlining the government’s tax and spending plans for the year ahead.

Sunak announced a variety of measures he will put into place to help businesses and jobs that have suffered through the pandemic, as well as outlining a plan for the long-term recovery of the economy.

However, the question many contractors will be asking is how the Budget will impact the

umbrella company

5 Benefits to Working with an Umbrella Company

Contracting through an umbrella company has become an increasingly popular option for contractors across the UK in recent years. After all, it is a route that offers contractors a range of benefits over other paths such as working through PAYE or being self-employed.

 

 

ir35 reforms

Contractor’s Guide to IR35 in 2021

From April 6th 2021, reforms to IR35 legislation will come into force, impacting the lives of thousands of self-employed contractors.

Inevitably, contractors across the UK are concerned about upcoming reforms and how these will affect them. To help, in this guide, Umbrella Supermarket look at what these changes to IR35 entail and how they might impact you as a contractor in 2021.

 

compare umbrella company fees

How to Compare Umbrella Company Fees

If you are considering joining an umbrella company in 2021, or have been contracting through one for a while and want to ensure you are getting a good deal, it is important that you know how to compare umbrella company fees.

What you pay in income tax and National Insurance will be the same regardless of which umbrella company you choose, however the fees the umbrella company charges can make a big difference to your take home pay.

At Umbrella Supermarket, we know that every contractor wants to get a fair deal. To help, we explain how umbrella company fees work and how you can compare them to find the best deal.

job retention scheme

Job Retention Scheme for Contractors in 2021

The COVID-19 pandemic has impacted workers across the UK and contractors have been no exception.

Many of the 1.77 million independent contractors have either lost work altogether or have had contracts put temporarily on hold leaving them in a tricky position.

Fortunately, many of these contractors are eligible for the government’s Job Retention Scheme otherwise known as furlough, introduced to offer financial support for businesses and workers. This has been an essential source of income for many who have lost contract work as a result of the pandemic.

As we experience a third national lockdown, the furlough scheme has now been extended until the 30th April. So, if you find yourself out of contract work or have projects on hold, Umbrella Supermarket are here to explain what the Job Retention Scheme is, how it works and what this means for contractors.