Top 5 things a first-time Contractor should do when switching to Contracting

In our previous article, we did mention about the rapid growth the UK has witnessed in the self-employment workspace. Self-employed people now account to more than 4.8 million which says a lot about the contracting industry (minus the upcoming IR35 reforms).

Switching to contracting is relatively straightforward, but there are things one must keep in mind before taking a leap forward. The decisions you take before switching to contracting would impact on your career prospects in the contracting space. Therefore, it is very important to keep in mind a few things to ensure a smooth transition.

In this article, we have tried to describe those key things in 5 points to help you make the move in the best possible manner.

#1: Understand the contracting market and your own market rate

Moving from permanent to contracting maybe a cultural shock for many. The way things work in the contracting space is totally different when compared with permanent employment. There would be no fixed salary or employment benefits. You would now be a business providing services to a client for an agreed rate. You would now need to figure out what that rate would be.

Rates in the contracting industry are charged on an hourly/daily basis. This would be totally in contrast with the fixed salary you would be getting in your permanent employment.

To figure out the best rate for your type of skills and experience, do some research by visiting job portals, talking to Recruiters and seasoned Contractors.

#2: Prepare your CV and LinkedIn profile from a contracting perspective and put your skills first

Since you would be moving from permanent employment to contracting, it is extremely important to prepare a high impact CV to help you bag your first contract. Your CV should be clear, concise and your skills would play the key role and not your tenure in an organisation. So put your skills on the top and your CV should make it clear to the Recruiter reading the CV of your intentions regarding your career plans.

Just having an up-to-date CV won’t be enough, as these days mostly every Recruiter looks up on LinkedIn for candidate profiles. So, it’s best to have an updated LinkedIn profile to increase your chances of getting shortlisted and securing your 1^st contract.

#3: Understand IR35 and stay outside it

One of the key aspects of contracting is to understand the IR35 legislation, it’s impact on your contract and making sure that you are always outside it. There are a lot of articles on the internet that would help you understand the IR35 guidelines and their effect on the self-employed workforce. You also need to keep yourself up to date on the IR35 reforms to counter any negative impacts on your contracting career.

If you still don’t understand, do not take any chances and seek professional advice. It’s recommended that you get your contract reviewed by a professional to avoid any future hiccups or tax penalties.

#4: Choose a trading method, i.e. Limited Company OR Umbrella

The next step to contracting is choosing a trading method that suits you the best. If you are one of those who doesn’t like extra paperwork or if your expected pay is less than £15 per hour then contracting via an umbrella company may suit you the best.

But if you are looking at long term contracting and your expected pay is more than £15 per hour then, trading through a Limited Company may be the right solution for you.

Read our article about Umbrella Company and Limited Company to figure out the best solution for yourself. If you still find it difficult to determine then seek professional help.

#5: Claim expenses, keep records and pay your tax on time

Which expenses you can claim will largely depend on the payment structure you choose. Also, the number of expenses you can claim will also depend on your IR35 status.

There are certain expenses you can claim like Travel expenses, Accommodation, and subsistence, books, magazines and courses related to your contract, business insurances, computer and accountancy costs etc. To find out what exactly you can claim, talk to your Accountant as they will be in the best position to guide you after looking at your current circumstances.

Always remember that as a Limited Company Director it’s your sole responsibility to keep records and pay taxes on time. You need to keep in mind when your confirmation statement and company accounts are due. If you are VAT registered, you should also ensure that the VAT is filed and paid at the end of every quarter. Should you fail to do so, you would be charged late filing or late payment penalty depending on what you have missed.