I was recently asked by a junior colleague about the world of contracting. She seemed to find my words useful so I thought I’d share it with anyone else looking to move over to the dark side.
Note: These are based on my experiences only. I’d strongly advise you to do your own research before making any decisions!
Looking to leave the safety net of permanent employment and go it alone? There are unquestionable benefits to being your own boss through self-employment. For Project Managers, in particular, there will always be some kind of project that requires coordination, so you can pretty much guarantee a healthy frequency of work.
However, more often than not, people generally start contracting once they have amassed several years of experience. Most of the contractors I’ve met have 10/15/20+ years under their belt and there are a few good reasons for this:
- Financially Independent – They have enough in the bank to go through a ‘dry’ spell in between contracts or be able to take some unpaid holidays/sickness.
- Experienced – They have a proven track record of delivering success. Clients will be more confident of hiring someone if they know that person will come in, do the job and leave things in a better place.
- Contacts – The world is a small place. As you work in an industry, you’ll make contacts with Recruiters, Directors, other PMs and they will reach out to you.
Now with all that being said, if the right opportunity comes along, as it did for me, here are some things you’ll need to deal with as a contractor:
Get an Accountant
The bulk of the ‘admin’ that comes along with being a contractor can be handled by an accountant. They will usually charge you a monthly fee but it’s well worth it.
They will submit VAT Returns, Self Assessment Returns, Corporation Tax Returns and annual Companies House filing on your behalf. You will usually need to log in to a portal once or twice a month and provide information like expenses and categorise income/outgoings.
With this information, they will give you an accounts document each month confirming how much you can take out the company account and how much you should leave in.
Umbrella vs Limited Company
One of the first decisions you will need to make is to whether you would like to operate under an Umbrella or through your own Limited Company.
If you decide to set up your own Limited company, you will be the director and will be ultimately responsible for everything, from complying with regulations like IR35 to ensuring all tax payments and returns are submitted.
As the director, you will receive dividends from profits, on top of the income you receive as an employee of the Limited Company.
A less daunting option is to operate under an Umbrella company. You will typically pay a monthly fee to become an employee of an agency, they will take care of payments and in return, you will need to fill in timesheets for the hours you have worked.
The key difference here is you an an employee only, and as such, you don’t have the full responsibilities of a director and aren’t required to do things mentioned above.
Taxes
There is a lot of different types of tax you will be exposed to. Some are related the company itself and others to you as an individual.
IR35
Inside or Outside? You’ll hear this a lot. IR35 Legislation was implemented by the Government to clamp down on people who were claiming to be contractors, but for all intents and purposes were just normal employees. For example, if your contract has been renewed multiple times.
“The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees.”
Note: Some firms now pay a higher day rate to compensate for roles that fall inside IR35.
Holidays/Sick Pay
If you don’t work, you don’t get paid. So plan your holidays in between contracts to avoid losing out. This is the same for sick pay. As you aren’t an employee of the company, they do not need to pay you if you aren’t feeling well.
One of the best pieces of advice I received was to save up enough so I can cover bills and cost of living for 3 months. That should hopefully be enough to keep you going should you fall ill or find yourself out of work.
Where to Find Jobs
I usually look at Indeed or LinkedIn for new roles. There are also specialist agencies you can sign up with who have exclusive deals with large clients. After a while, recruitment firms and companies will contact you directly. Either way, you’ll want to find out who the client is, what the role is, what rate they are offering, and the length of the contract.
Remember, you are now solely responsible for your living, so it’s critical you get out there and network so people think of you when these roles come up.
Length of Contract
In my experience, most contracts for digital projects are typically between 3 to 6 months long. On some occasions, the client will ask you to renew this contract for an additional 3 months at a time.
Time to bed in
When a contractor is hired by a firm, chances are, they need expertise fast. You need to get in, do the job, and get out. There is usually little to no time to bed in, and why should there be? Clients are looking for someone with a particular set of skills and experience to do a specific job.
Banks
In order to run a Limited Company, you will need to set up a business account. This is where all income/outgoing transactions for the company will need to take place rather than your own personal bank account.
Another important point, banks love people who have a stable job and regular income. They just prefer a safe bet, so they know no matter what, they will get their money back.
Expenses
You are allowed to expense any food, travel or equipment i.e. Laptop, you need to do your job. You MUST keep a copy of all receipts for your records.
Talking of records, get in to a habit of storing everything. Receipts, VAT Payments, PAYE etc. You must keep your records for at least 5 years. HMRC may check your records to make sure you’re paying the right amount of tax.
You will need to upload this information to the online portal I mentioned earlier, in order to be reimbursed by your Limited Company.
You’ll notice a pattern, most of the items above are finance related. Again, before you make any commitments, I highly recommend you do your own research and seek advice from a reputable accountant or lawyer.
I really don’t want to put anyone off contracting, it took my career to another level! It’s a great way to experience different types of projects and be exposed to industries that you might not have otherwise worked in. But it’s important to be aware of the caveats and I hope this guide helps you understand them better.