Why contracting might be right for you

Dave Chaplin, CEO of ContractorCalculator, explains the benefits of contracting as well as how to overcome some of the hurdles.

Woman freelancer on her laptop


Working mums with well-developed skills who are looking to earn good money without the commitment of permanent employment might wish to consider contracting.

It can be the perfect work choice for women and men who want to ensure a good family/work balance, as it allows people only to take on contracts outside school holidays.

Some of the critical benefits of contracting include:

 Choosing your hours and location to work from
 Choosing who you work for, what you work on, and how much you charge
 Working flexibly with your timetable – never missing important family events
 Never being subordinate to a boss and avoiding office politics
 Expanding independent skills to include marketing, sales, and finance

Contractors can be found in all sectors and across most disciplines. If you are a qualified engineer, scientist or statistician, or have professional human resources, management or marketing skills, there will likely be contracts that appeal to you.

What is contracting?

Contractors are typically highly skilled, flexible workers who usually work for a single client, full-time, on a specific project for a limited time, often about three to six months.

They typically work as limited company contractors – running a small business on their own or with a spouse or civil partner – or as a sole trader. However, that may be less efficient and requires taking personal risk.

As a contractor, you’d traditionally work onsite on a specific project lasting from one month to two years. However, the proliferation of remote working after the COVID-19 pandemic has resulted in many firms moving to an output-based approach and hiring workers who can work from anywhere in the world.

Your company would bill for your services based on a daily rate paid for work done or for a fixed price for a pre-agreed work package against a deadline. Taking on multiple concurrent projects can prove very lucrative for highly productive workers.

The earnings you can command all depend on your skills, negotiation ability and market demand.

Some contractors also act as consultants, charging a retainer to be quickly on demand to advise clients rather than completing specific projects. Contractors are typically not temporary workers who provide their time and skills for hours in exchange for being paid for working like an employee, subject to an employer’s close supervision and direction.

Trading as a contractor

If you choose to contract, you will most likely need to incorporate your limited company. Sole traders are less common because clients and agencies do not want to be exposed to employment rights risk. Starting and running your own limited company is inexpensive and easy.

Earning more through contracting

One of the reasons you earn more as a contractor is that contractors charge more for their services than their permanent counterparts – it’s the ‘contracting premium’ firms effectively pay for hiring a highly-skilled, on-demand resource. If you use a limited company, your company is paid contracting fees.

Your company then has expenses and is subject to corporation tax. You would then pay yourself a small tax-free salary to leverage your allowance and pay your pension stamps, so you eventually qualify for a state pension.

The money left in your company is profit, which you can then pay out to yourself as dividends, which will attract tax via the self-assessment system, subject to tax-free thresholds. All your valid business expenses are paid via your company.

Some contractors work through unregulated umbrella companies, but beware, there are some out there purporting to be umbrella companies when they might be tax avoidance schemes and could leave you with a hefty tax bill in the future – so only use them if you can check monies are processed correctly. Also, they are much less tax efficient than using a limited company.

It’s not all good news, but the downsides aren’t huge

To benefit from the corporate tax regime as a limited company contractor, you must be a genuine business providing services. Not all are – to the taxman, some are ‘deemed employees’.

Enter something called IR35 – and & Off-payroll – legislation used to tax workers deemed employees using limited companies purely for tax reasons.

But IR35 is possibly the only blot on an otherwise attractive and easy-to-navigate contracting landscape. And it’s relatively easy to steer clear of IR35, as long as you’re genuinely in business and follow some straightforward guidelines. An excellent place to start is IR35 Shield.

So, if you have in-demand skills, can devote one or more months to work, and fancy the idea of only having work when you choose to be, contracting may be a good option for you to explore.

*Dave Chaplin is CEO of ContractorCalculator.co.uk. He has lived and breathed contracting since he first took the plunge and became a professional contractor in 1997. He has become a contracting guru influencing new generations of contractors through ContractorCalculator.co.uk and the popular Contractors’ Handbook.

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