What you need to know about the benefits of contracting
Making that jump into contracting is often a very daunting move, and first-time contractors typically have a lot of questions they need answering. While there are a number of complex processes to get your head around at first, as well as extra tasks to carry out, there are plenty of benefits to being a contractor.
Why should you become a contractor?
There are numerous reasons to become a contractor, but largely people do it because they want to overhaul their lifestyle and take control of their own career.
Flexible hours appeal to people who are tired of working the traditional nine-to-five slog, and those who have commitments they need to be able to bend their schedule for. Contractors can choose when and where they work, and they can choose to take as much or as little time off as their cash flow will allow for. This means that quitting the rat race can result in a much better work-life balance.
Meanwhile, the idea of only taking on projects that appeal to you is a top reason for many, as is the idea of being able to drive your career in the exact direction you want to. You can choose which of your skills you want to pursue, and invest in the training that will get you to where you want to be.
Income can often be a worry for those making the leap into contracting, as they’re leaving a permanent job with a stable, regular income, but contractors often find that their cash flow increases when they work for themselves. This is due to the fact that they are paid more per hour/day than regular employees are, and the contracting tax status also means that they can take home more net pay too.
There are some extras…
People who want to make the most of the benefits of contracting do have to carry out some extra tasks that they would not have had to as an employee.
As a limited company contractor, it is required that you get your head round a number of financial processes to ensure you’re operating inside the law, including payroll, insurance, auditing, and the dreaded tax rules.
IR35 is a word that you’ll hear thrown around a lot among contractors. It is essentially a tax rule designed to prevent tax avoidance among workers, using intermediaries. Workers had been using intermediaries to cut their tax and NIC liabilities, rather than paying tax as an employee. Some contractors fall within the IR35 rule, while it does not apply to others – it is important that contractors find out in order to ensure they don’t fall foul of the taxman.
What is an umbrella company and how can it help me?
If you like the sound of contracting, but are reluctant to deal with the complex administrative side of running a limited company, an umbrella company could be the perfect solution.
Essentially, umbrella companies act as an employer for contractors, offering services relating to PAYE, tax, compliance, IR35, insurance, travel expenses and food allowance. They take care of the administrative side of things, freeing you up to pursue whatever it is you got into contracting to do.