Dave Chaplin is the founder and CEO of ContractorCalculator.co.uk, an online resource for freelancers and contractors and one of workingmums.co.uk’s experts. We ask him about the latest developments in contracting and freelancing in the UK.
Dave Chaplin: The UK has traditionally had a more flexible labour market compared to many other European Union member states, and that remains true today.
Freelancers and contractors compare very favourably to employees when organisations are looking for highly skilled, task-based work to be completed. That’s because contractors do not have to be employed, and are therefore the cheaper and lower risk option.
Contractors also bring other benefits to an organisation, such as new skill sets, lessons from elsewhere, high productivity and motivation, as well as objective viewpoints, untarnished by office politics.
The contracting sector has matured since it took off in the 1980s, with contractors having proved their worth time and again. There are lots of organisations that not only like using contractors, but see it as a long-term business model.
What’s the background to all of this and is it likely to the Government is going to step down on new proposals around taxation for contractors and freelancers?
DC: The IR35 tax legislation was introduced in April 2000, designed to tax “disguised employees” who use limited company structures to avoid paying as much tax as they would if they were directly employed by their client.
It has been a hot topic recently for two reasons. Firstly, HMRC have unveiled some new processes to better enforce IR35 and secondly, a recent Government review found that there were potentially many “disguised employees” working within Government.
HMRC have said they will be reviewing those cases and the Government has published a consultation paper proposing new legislation to ensure that “controlling persons” are, in effect, not allowed to be engaged “off-payroll”
The IR35 legislation itself hasn’t changed since April 2000, so for genuine contractors it is business as usual, apart from them needing to be extra diligent on making sure they can bat away an inspector who might come knocking. The Contractors’ Handbook covers all these new changes in detail. It’s an important topic for contractors to understand, because if they slip up and lose a status challenge they could lose up to 25% of their income.
Fortunately, there are many service providers who can help with IR35, for instance we provide a free online IR35 test to evaluate contractors’ status.
DC: For those looking to start the most common questions are about how to manage the transition from permanent work to contracting: how to find work, how much to charge, and how to arrange getting paid.
The book provides an overview of all the areas that need to be covered, and it also goes into great detail about marketing yourself, finding work, setting up your business, together with details about contract law and legislative issues like IR35 and the Agency Workers Legislation.
Taking the plunge to become a contractor or freelancer requires both a change in mindset, and the need to learn what we call “contracting skills”. Those are the non-core skills required to be successful. Freelancers and contractors who don’t learn these skills might not enjoy the lifestyle as much and find it problematic. It’s a bit like moving country and not bothering to learn the language – it hampers you negatively.
A common example are those contractors who neglect the area of sales and negotiation, and find themselves not earning as much as their peers. You could be the best freelancer in the UK, but if you don’t negotiate well you won’t be the highest paid!
Some common reasons why contractors get in touch is to find solutions when things are going wrong. They might not be getting paid on time, or they’ve been terminated unfairly. I would encourage contractors to get in touch earlier. The website and the book provide a great deal of help that can help prevent problems before they arise and we have covered every possible slip up imaginable.
DC: This is where those sales and marketing skills come in again. The starting point is to create a good CV and make yourself visible using all the common channels, for example CV databases on job boards, agencies, online resourcing networks and the likes. Exercise your network as much as you can, using tools like LinkedIn.
If you need work from day one then this is a risky approach. It’s useful to have a buffer of money so you are forced to take a position solely for financial reasons. Bargaining from a position of desperation isn’t ideal!
It’s hard particularly at the moment to turn down work, but many people then end up having too much work for a period which might go against the very reasons they chose to go freelance…
DC: I think anyone who complains they have too much work in the current economic climate won’t attract much pity! There are only so many hours in the day and provided freelancers manage their clients expectations they won’t burn any bridges.
One must also learn how to say no without upsetting the client. I recall doing many 80 hour weeks back in the dotcom era, and many of us finally got to the point of telling the client that we weren’t going to sign up for anymore. Working too many hours becomes very counterproductive for both you and the client. Life’s too short to spend it working the whole time.
DC: For those starting contracting there can be a funding gap between getting the last pay cheque from an employer and then being paid by a client. A client will typically expect you to bill once per month and 30 day terms are standard. So it could be two months before you get paid, and that’s assuming you start a contract straight away. Having a buffer facility to cover this period is both necessary and advisable which could be savings, an overdraft facility or credit cards.
DC: I’m probably the last person to preach on the work life balance issue! When I built ContractorCalculator I worked 80 hour weeks for about six months solid, probably reducing to about 60 hours for a few years. However, I’m now in a position surrounded by a team of very talented people and can spend time away from the business.
There’s nothing wrong with working hard and having the balance one-sided for a while, provided those around you will support you, and that there is a goal in sight worth working hard for and it tips the scales significantly back the other way.
DC: I remember it very well – October 2004. It was at the Anthony Robbins seminar called Unleash the Power Within. He said that everyone has an internal expectation of where they should be in life, a bit like a temperature gauge – and that subconsciously your behaviour will change so that you meet that expectation. This could mean sabotaging yourself if you are exceeding expectations, or working hard to meet those expectations. To pass on the advice: Raise your expectations.
*Dave Chaplin has just published The Contractors’ Handbook which provides advice for freelancers and contractors whether they are new to contracting or experienced old-hands. If you have any questions for Dave on freelancing or contracting issues, you can send through a question and we will try to publish it on the website. Contractors’ Handbook: the expert guide for UK contractors and freelancers Second Edition is priced £39.99 and published by ContractorCalculator. See www.contractorshandbook.co.uk/ for more details.