According to a study conducted by the Association of Independent Professionals and the Self Employed (IPSE), the majority of contractors in the UK expect their prospects for the year to be stable.
However, the report indicated that the only area which contractors believe will be lucrative is pay and financial performance.
Pay for the members of IPSE increased during the third quarter by 7.4 per cent, from £27,596 to £29,643 during the fourth quarter. The daily earnings of professional contractors has risen, from £506 during the third quarter to £524 for the last quarter.
Over half of the respondents believe that their pay will remain static for 2015, although at least 25 per cent of the contractors think that their pay levels will increase during the next year. According to IPSE:
“Freelancers not only continue to earn more in a single quarter than an average employee earns in a year, but their rate of earnings growth is also significantly higher.”
However, just over half the contractors think that their costs are set to increase during 2015, as almost a third believe that the performance of the UK economy will get worse this year. When questioned in December about the outlook for the first three months of 2015, most of the respondents said that conditions would remain the same. The professional body stated that the positivity of contractors would be a good thing, as the higher pay levels may be sustained for the next 12 months.
Sunetta Johal, the research manager for IPSE, stated that the most likely outlook for 2015 would be steady, according to the Freelancer Confidence Outlook.
Pay as a contractor
As a UK contractor, your pay will depend largely on whether you fall within or outside IR35 legislation. If you fall within IR35, you will be taxed as though you are working through PAYE, paying tax and national insurance every month on all income. If you fall outside IR35 legislation, you will probably pay yourself with company dividends and a salary. Dividends are not liable to National Insurance contributions, which will lower the tax bill. The remainder of your income will be taxed through self assessment at the general rates of tax.
Operating as a limited company is often the most favourable solution for a contractor, although you may fall within the IR35 legislation. For some great advice on setting up as a limited company and minimising your tax bill in a legitimate manner, contact us at The Accountancy Partnership.
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