The Easy Guide to UK Contracting
Skilled professionals are choosing contracting more than ever before for reasons that include increased flexibility, more choices, better rewards, and higher exposure in their industry.
Cool Company has been working with skilled, talented and, highly sought-after contractors for over a decade. We know this trend is set to continue and have designed this guide to help you get started. With hard work and perseverance, we believe these contracting fundamentals will provide a steady foundation to grow your career, and we are here to support you every step of the way.
Contracting vs. Permanent Work
Contractors are self-employed professionals that take on short-term assignments or roles that range from one week to up to two years. Projects are either found independently or sourced through recruitment agencies on behalf of clients. Contracting may have less stability and security, however the higher level of flexibility, better earning potential, increased freedom, and diverse exposure to the field provide multiple benefits, making it the preferred choice for in-demand, highly-skilled professionals.
On the other side of the spectrum are permanent employees that engage with an organization on a long-term basis. Permanent employment typically offers job security, financial stability, training and a pension. While there are some perks such as paid vacations and gym memberships, there is typically lower earning potential and a lack of tax-saving opportunities.
Contracting Routes
Contractors can undertake work through several models that include:
Umbrella Company
An umbrella company provides services to contractors that ensure compliance with HMRC (Her Majesty Revenue and Customs). Changes in IR35 legislation have resulted in a surging demand for the services of umbrella companies among contractors. This is due in part to IR35 legislation that requires payment in some circumstances through the UK PAYE (Pay As You Earn) system.
Umbrella companies allow contractors and recruitment agencies to do away with the complexities of the legislation for a small margin while offering benefits such as tax compliance, insurance and employment protection.
Recruitment Agency
Recruitment agencies source and distribute assignments to independent contractors on behalf of their clients. Many contractors start their journey using recruitment agencies to gain exposure and experience.
While some recruitment agencies operate their own payroll, some choose to outsource this work to an umbrella company.
Limited Liability Company
Creating a limited company is a standard route for most contractors. The legality of establishing a company depends on the contractor’s IR35 status.
IR35 is a piece of UK tax legislation designed to close loopholes in the system whereby workers use a limited company structure to pay less tax. Click here for more information on IR35.
Contracting outside IR35 through a limited liability company allows contractors to pay themselves through a combination of salary and dividends. While setting up a limited liability company can present many complications, it is a tax-efficient way to operate as a contractor.
Still trying to decide on what route is best for you? Check out this article that outlines 7 important questions you need to ask before making this important choice.
Types of Insurance
Contractors that work independently through their own company are required to obtain insurance before undertaking any work. The following types of insurance are mandatory and include:
Professional Indemnity Insurance
This type of insurance provides coverage in the event that your client suffers financial losses if contract requirements are not met.
Employer’s Liability Insurance
This type of insurance is not legally required for limited company contractors if they are sole proprietors, however some clients will request that you have it in the event of workplace injury.
Public Liability Insurance
Public liability insurance protects you if there is any property damage or injury to others while on the job. While not legally required, some clients will demand it before undertaking any work.
Umbrella companies typically take care of mandatory insurance requirements. Independent contractors operating their own liability company need to make their own arrangements before undertaking any assignments.
Other Types of Insurance:
Personal Accident Coverage
Personal accident coverage is not a legal requirement, however it is commonly purchased to cover any losses that may occur due to illness or injury.
Jury Service Insurance
Jury coverage insurance protects you from any loss of earnings that can be incurred from jury duty. Some providers can cover up to £500 per day depending on the policy.
Business Interruption Insurance
Business interruption insurance protects you against any loss of earnings that can occur due to damages or physical loss. This type of insurance is typically purchased on a personal level by the contractor.
Still trying to figure out what insurance you need? Check out our quick guide to UK contractor insurance that gives you all the information you need to make an informed choice.
Getting Contracting Work
Obtaining contracting work in the beginning can be a challenge for some contractors. Here are some sources to start building your resume:
- Recruitment agencies
- Online job boards
- Company websites
- Cold emailing/telephone
- Networking (online/offline)
Is Contracting For You?
As you have learned in this guide, contracting is very different from permanent employment and it’s essential to understand the difference before making a choice.
Permanent employment can give you access to employee rights and benefits that include sick pay, holiday pay and annual leave. Permanent employees also earn a fixed salary that can provide job security, financial stability, a steady environment, pension and perks such as discount schemes and gym memberships.
The downsides to permanent employment can be boredom, office politics, strict schedules, low earning potential, high taxes and a lack of varied work experiences.
While contracting has many challenges, it gives high-performing players the opportunity to stay ahead of the curve in terms of skills while working with a diverse range of clients. Many highly skilled professionals also choose contracting due to its significant earning potential, tax savings and better work/life balance.
Working with an umbrella company can bring contractors the benefit of both worlds. To learn more about experiencing contracting freedom with an umbrella company, click here to get started.
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Do you have any questions or are you ready to get started with Cool Company?