Contracting

I have been offered a chance to go contracting but have always been a permanent person but was wandering how difficult the change is as regards doing your own tax, pension etc.?
I know there are umbrella companies which some use for all the admin work but would this not negate the extra you get contracting?
cheers

Tax, pension etc a doddle, especially with a decent accountant.

Umbrella companies are, imho, a waste of time.

Umbrella companies should really only be used for short term stuff. If you’re going to do it for any reasonable time and are going to be earning a reasonable amount, set up your own limited company and get a friendly accountant to do your books. A good accountant can often save you more than you pay them.

Private pension stuff is easy.

I swapped from perm to contract as a software developer. I didn’t bother with an umbrella company – just set up my own limited company. Having an accountant who specialise in this sort of thing helped a lot – I use SDJ and they did some useful hand-holding at the start as there’s a fair bit of paper work and stuff.

No idea how much you’d lose being in an umbrella company – given how easy it is to go without one, I’d suggest you consider setting up you own.

Go ltd. I used an umbrella company for a while and compared to perm I was losing £500/month through their fees and calculations…
With Ltd you’ll take home far more of an equivalent annual salary too.
IMO with pay rises looking unlikely for the foreseeable, Ltd is the best way to go if you want to maintain your standard of living.
Plus, being allowed to get on with your job and not worry about corporate politics is a wonderful luxury!

Just be wary about being a self employed contractor and only working for one client (IR35). The chance to become “a contractor” is often offered seemingly as an incentive but in reality only benefits the employer (no sick pay, NI or holiday pay)and can end up with you being in a whole lot of trouble with HMRC.

Thanks all – good advice. The contract is initially 6 months but maybe up to 2 years and in BENELUX (yes all 3), so might consider it.

Amen to the freedom from corporate politics. Being able to chuckle smugly as the permie drones are forced to endure another mandatory “training course” (glorified 2 hour YouTube video explaining how not to leave your laptop on a train) is one of the best bits of being a contractor

How much larger is the annualized contract rate over the salary you’d expect from a permie role? There are other reasons to contract though such as more freedom to choose what you do.

I would say about twice as much as the perm position.

That sounds good, might have a problem with IR35, if goes on for too long, but still worth doing.

There are a lot of myths and misunderstanding around IR35 (including that length of contract is a factor…) Suggest you read around.

http://www.hmrc.gov.uk/ir35/

http://www.contractoruk.com/ir35

http://www.sjdaccountancy.com/about/ir35_advice.html

My experience of setting up a Ltd was that is was all pretty straightforward. I can’t quite see the advantage of paying an umbrella (sort of defeats the purpose really). Find an accountant that you can work with, there’s lots to choose from. In true STW fashion, I’d happily recommend mine!

As INH says, it will pay to do your reading on IR35 – is the contract effectively your current employer becoming your first client?

Also, it might be worth looking at whatever the equivalent to IR35 is in Benelux, or if you can set up your Ltd there. Amazon, etc seem to benefit from it!

+1

SJD, used them for 10 years

I’m using an umbrella company at the moment as my initial contract was only 12 weeks. I’m looking at a new contract now so looking into a ltd company but it all looks rather daunting.

I did a bit of research and decided Nixon Williams was a good bet. So far so good.

Are you actually a contractor or just a disguised employee?

I’ve done contract work for over 10 years, all using my own Ltd company.
As above, get yourself a good accountant if tax etc is not your thing, and particularly if you are doing work abroad for extended periods.
Setting up a company is easy (you can buy them off the shelf or your accountant will do it for you) and changing directors, registered address etc you can do online with Companies House.
And sorting out a personal pension (remembering that it will be your company that will make contributions not you so that you save the NIC) is also simple.
Personally I would recommend getting a basic understanding of bookkeeping and manage your own accounts (just handing them over once a year to your accountant for him to draw up the stat accounts that need to be filed). There are plenty of software choices out there (I use Sage as I seemed to acquire a copy many years ago, but there are free options now). And try to be very organised with your expenses otherwise you will end up not claiming stuff from your company.
Finally, have a good look at IR35. As others have said it is not as simple as one client = IR35 issue or long contract = IR35 issue; you can have two clients one of whom HMRC deems to fall within IR35 and the other does not….
Good luck

Be very careful about taking contract positions outside of the UK.

Countries have their own rules/regs on how a contractor will be viewed from a tax perspective. You need to do your research well before proceeding IMO.

Amen to the freedom from corporate politics. Being able to chuckle smugly as the permie drones are forced to endure another mandatory “training course” (glorified 2 hour YouTube video explaining how not to leave your laptop on a train) is one of the best bits of being a contractor

precisely this reason I’m giving it some serious consideration.
If I could just get one with my (already difficult) job without the complete nonsense ladled on top by my employer it would be fine!
I lose whole days of productivity every single week due to over bearing mechanisms of corporate governance and employee control.

For UK based stuff it’s worth reading and scoring yourself on the potential new HMRC guideline test
http://www.hmrc.gov.uk/ir35/guidance.pdf