Starting out as a contractor can be a daunting but rewarding step. If you’re considering joining the world of contracting, or just want to know more about it, our guide covers some of the most frequently asked questions (and answers!). You can also find more guides and templates in our resource centre for contractors.
What is a contractor?
Contractors provide skills and services for a set amount of time, enabling clients to hire the specialist support they need in order to complete a project.
Working on a self-employed basis means you won’t have the same entitlements and benefits as an employee, but you’ll normally be hired for the duration of a contract so it can be more secure than other types of freelancing. There are several stages to think about if you’re planning to become a contractor.
Do I need to register as a contractor?
There are a few considerations to this. Contracting isn’t a business structure in its own right, so if you decide to become a contractor, you’ll need to decide what sort of legal structure you want to set up.
As well as registering as a business, ou might also need to sign up as a contractor for the Construction Industry Scheme (CIS) if you hire subcontractors to carry out construction-related work.
What business structure can contractors use?
Like any business owner, contractors can choose whichever legal structure is most suitable for their needs. The way you set up your business affects the way you report information, how you pay tax, and even how you pay yourself, so it’s a big decision.
There are several options, although for lots of contractors these will boil down to:
- Setting up a limited company
- Contracting as a sole trader
- Operating through a (reputable!) umbrella company
There are advantages and disadvantages to every method – it all depends on your individual circumstances. We explain this in more detail in a separate blog (just click the link below) or you can also use our online calculator to compare a tax estimate for two of the most common business types.
Am I affected by IR35?
The way you set up your contracting business can influence whether or not you’re affected by IR35 rules. In simple terms IR35 basically deals with the way contractors are meant to pay tax if they work through their own limited company.
The client you provide services to must make a ‘determination’ to assess your IR35 tax status based on several factors, such as the length of the contract. If they determine that the contract is ‘inside IR35’, then they’ll deduct tax and National Insurance from your payments as if you were an employee (which can affect your cash flow).
IR35 can be very complicated, but if you contract as a limited company then it’s well worth researching how it works.
How do I find contracting work?
Lots of contractors find work through agencies and jobs boards, or even vacancies advertised by the client. You can often register for these online, but it’s also worth checking if there are agencies who deal with your particular industry in the local area.
Larger contracts might also invite you to prepare a pitch for the work so you can provide more details, such as costings and timeframes.
How much do contractors charge?
Deciding how much to charge for your services can feel strangely terrifying when you’re starting out, even when you know the going rate for your industry. Some contracts will be advertised with a pricing structure included so, like any other job application, it’s up to you whether or not it’s enough.
Other jobs might ask what your rates are, so taking the time to do some research will help you have an answer lined up ready. There isn’t a magic formula to work out fees, but as a starting point take a look at:
- What contractors with your skills and experience charge
- What the contract entails
- How much it will cost you to fulfil the contract (basically, how much will you have to spend in order to complete the job?)
What happens next?
Contractors have the same needs and responsibilities as any other type of business owner although the exact nature of these depends on what type of structure you set up. In general, this will include:
- Finding work and promoting your business
- Opening a bank account
- Invoicing clients
- Keeping records which show your earnings and any business spending (known as bookkeeping)
- Submitting tax returns
- Dealing with CIS if you use subcontractors for construction work
Our article about starting a business goes into more detail about what to do.
Need to speak to an accountant? Call us on 020 3355 4047 or learn more about our accounting services for contractors .
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