How to be an independent contractor

So you’ve decided to quit your job and become an independent contractor, one of the first things you’ll be faced with is securing a contract. To help you on your journey, we have written this guide and packed it full of information on how to become a contractor.

There are 2 main routes to securing a contract, going through an agency or direct to the client. Many contractors are able to get a contract by applying via job boards on the internet or through a network of contacts.

When liaising with the client or agency, it is important to remember that they may already hold a list of quality candidates but it isn’t necessarily the best candidate that wins the contract, but the candidate that is able to convince the agency or client they are the best person for the assignment. If you can show that you are capable of carrying out the work, you will be placed at the top of their preferred list.

It is important that your skills are relevant to the type of contracts you are applying for and you are looking for a pay rate which is relevant to your skills and in line with the industry standards.

Agencies and various other resources are always available to teach you or provide you with resources on how to become a contractor who is successful.

Key Legislation

Once you have secured a contract, it is important to consider IR35. IR35 aims to eliminate the issue of tax avoidance and is relevant to independent contractors working through their own limited company. If you are unsure of your IR35 status, seek advice from experts who can provide you with a status review.

AWR ensures that agency workers are given the same rights as their permanent counterparts including equal pay and annual holiday. Contractors are also urged to consider other rules such as VAT and insurances.

How to get paid while operating as an independent contractor

You will now need to decide how you want to get paid, will you enlist the help of an umbrella company, set up a limited company or register yourself as a self-employed individual.

Umbrella Company

Operating via an umbrella company as an independent contractor is seen as the hassle free way of handling your finances while contracting and is HM Revenue and customs (HMRC) preferred method of receiving payment. The umbrella company will issue and invoice to your client or agency upon receiving a timesheet from yourself.

Your client or the recruitment agency will then pay the umbrella company, who will pay you via PAYE.

Using an umbrella company will allow you to benefit from offsetting some of your income through expenses such as travel, work related equipment, accommodation and meals.

Limited company

In order to operate as a limited company contractor, you will need to check that the business name you require is available, and then register it with companies house.

While operating as a limited company, one can expect to take home around 75-80% of their contract value where as if  working through an umbrella company you can expect to take home 60-65% of the contract value.

Operating as a limited company allows you to claim for a large range of expenses and the owner of the business is taking a low personal risk compared to being a sole trader as any financial problems encountered will be considered separate from the business owner.

If you are interested in winning big contracts then setting up as a limited company may increase your chances of obtaining them as larger limited companies and PLC’s are more likely to work with registered limited companies than individuals.

Self-employed Freelancer (sole trader)

Operating as a self-employed individual such as (graphic designer, taxi driver, hairdresser or beautician)  can be seen as the most time-consuming way of operating, however enlisting the help of a sole trader payroll specialist could free up your time, allowing you to focus on core activities.

You will be required by HMRC to register as self-employed as soon as possible. Once you are registered self-employed, your online Self Assessment account will be set up automatically and you will immediately be required to start paying your class 2 National Insurance Contributions (NIC) unless you qualify for a small earnings exemption which can be applied for by filling out a CF10 form.

Operating as a self-employed individual will mean you are responsible for invoicing your clients, credit control, cash collection, self-assessment tax returns, VAT returns (if appropriate), processing expenses and mileage forms.

There are many resources available on the HMRC website on how to become a contractor.

If you are new to contracting and require more information on how to be an independent contractor and don’t know what trading structure to choose or want assistance in handling your finances, feel free to contact Futurelink Group on +44 (0)1923 277 900.

“I’ll most certainly pass on your details to people I know. You run a great service there, keep up the good work.”

William Cadden, Self-Employed Contractor

“For me, Futurelink Group was the best solution, as a foreign and a lack of knowledge of the UK rules, they were extremely helpful in all aspects. Always fast in answering all my questions. I almost didn’t do anything and they put me on track to invoice and receive my payments. I can fully recommend them.”

Ronaldo, Umbrella PAYE contractor

“WS Contractors Ltd are extremely happy with the services that Futurelink provide. The efficient and friendly staff are always willing to help and assist. The feedback from our operatives is positive and pleasing. We would recommend Futurelink to all new recruits joining our team.”

Michelle Hughes, WS Contractors Ltd

“We at Gemini would like to thank you and your team for all your help and support in connection to payroll solutions. We find Futurelink Groups approach to be responsive to action when required with a courteous and bright manner – keep up the good work!”

Frank Mcfarlane, Gemini Security Services Ltd

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