At a time when employee benefits are being reduced, final salary pensions are disappearing and salaries are being dramatically cut there has never been a better time to become a contractor.
Following the April 2007 Budget announcements, there are only two options recommended for contractors to trade – either through your own Limited company, or through a PAYE umbrella company.
There is usually one in particular that will suit you and your needs best; say if you’re expecting to contract for less than three months or earn less than £25,000 then it may be worth considering the Limited company route.
Contracting through your own Limited company is the most tax efficient way of working, and by trading through your own Limited company will see you take home around 75%-80% of your contract value. By working through an umbrella company you could take home between 60%-65% of your contract. Read our Limited company v’s Umbrella guide for more information.
Benefits of working as a contractor
Working as a contractor has many advantages, mainly due to the fact that you are your own boss; therefore you have complete control of your own future. There are of course many other benefits including being able to claim back on expenses, which can increase your take home pay, which can be worked out using a contractor calculator.
As a contractor, you have a lot more flexibility and control, and you can benefit more financially. For example:
- You’re able to choose when you work, where and for however long you like.
- Taking holiday will be a lot easier, as you will not be in the position of having to juggle your days off around other colleagues. You can also choose to have as much time off as possible, instead of the standard few weeks in a year.
- You can offset all of your business expenses against your income to further reduce your tax bill.
- An average contractor rate can easily be double that of a full time employee – sometimes even more.
- You can set your own rates, which may include being paid for every hour that you work unlike a permanent employee who is paid a fixed annual salary. Also, as a contractor, you have the opportunity to work over time if you so choose.
Appointing an accountant for contractors
An accountant is an extremely useful resource for contractors, particularly for people who are just starting out and so might not be 100% confident dealing with their own finances.
It’s always best to take on an accountant who specialises in working with contractors so that they will be able to offer you the best possible advice when it comes to your working practices.
You can get great advice from a contractor accountant on issues such as take home pay, IR35, contractor expenses, tax and any other financial questions you may have.