A quick run down guide on how to start and become a UK Contractor
1. Raise some funds!
Before I thought about contracting I was doing freelance on the side and saving from my permanent job. This helped me raise a buffer of 4k to enable me in essence to quit my job sit on my backside for 3-6 months and still pay my bills and live my lifestyle. Agencies are really interested in getting a contract in 1 or 2 months it’s usually weeks. In my case I quit my job and didn’t have a contract lined up as I was on a 2 month notice period. That money would help me pay my bills whilst I searched for my contract. 2 weeks left of my notice period I had secured myself a contract and started the day after I left my permanent role! I didn’t need that money in my buffer so I have put it in an account to sit for a rainy day or the next time I am looking for a contract.
2. Register your business
The vast majority of IT contractors work through their own Limited Company.
If you wish to set up your own Limited Company, you can use the ContractorUK Company formation service which enables you to complete the whole process on line within a matter of minutes, and have your brand new Company ready to trade within a few hours. You can check to see if the name you require is available here also. Alternatively, you can apply for a limited company direct from Companies House (but this will take longer).
An Umbrella Company provides a readymade invoicing vehicle for contractors whilst also removing the administrative duties normally associated with contracting in the form of a Personal Service Company. The Umbrella Company normally issues invoices on the contractors behalf, collects payments from clients/agencies, calculates tax and N.I contributions and pays the contractor their net pay direct to their personal bank account.
PAYE through the Agency
Some agencies allow you to become “PAYE” through their own payroll service.
This is the least tax beneficial option available to a contractor as you pay full tax and national insurance (NI) contributions on all your earnings. In addition this option does not allow you to claim valid business expenses which would help to reduce your tax and NI liabilities.
3. Get yourself an Accountant
I personally don’t fancy doing tax returns, sorting out VAT (if applicable), setting up tax and all that stuff! So get someone to do it for you who is specialised in the subject. I’m lucky to have an accountant that has knowledge of small businesses and contracting. Price wise your looking at around £80 pound a month and depending on how up to date and clear you Business Briefcase is this can be reduced.
Little Tip – this relationship between you and your accountant isn’t like your friend is helping you out when he can -so get your accountant to earn this money, as you are paying him! If there are ANY questions or anything you may no understand then ask them. They are there to help if they aren’t helping you – like a real business. Sack them.
4. Build up a CV and your online portfolio!
It is very important to have a clear CV that has a list of skills that can be clearly seen. My advice is to have the skills on the front page when recruitment agencies are looking at CV they don’t have a clue what this acronym means they just see if you have XHTML and see if the acronym is in your CV!
Depending on if you are a coder or a designer having an online portfolio may or may not be needed. Designers will read his and know the importance of having a visual representation of your amazing work. Get yourself a portfolio ready and working for your potential employers to look at!
5. Register with recruitment agencies and get your name around!
Once you get into the loop of things you will no doubt start getting a lot of phone calls asking about your availability which is really good but its the norm. Below is a list of some good job boards offering contract and permament posts. You can register and upload your CV I recommend this as recruiters tend to search these based on your CV so using the acronyms and keywords detailed in 4. Build up a CV and your online portfolio!
6. Build up your Business Briefcase
The ‘Business Briefcase’ as I call it is a list of important documents you need to keep safe and update to help you run your business smoothly and reduce your accountant costs. In my ‘business briefcase’ I have the following :-
- An invoice template – this is a copy of an invoice that you will need to use to invoice your agency at the end of the month to ensure you get paid!
- A sales ledger – this is list of all the ’sales’ you’ve done. For example, 22 days work of work on a rate is a sale. Which you will need to note down and supply to your accountant. I submit this to my accountant ever 3 months to calculate my tax and vat.
- Bank statement – these will need to be generated and supplied to your account as he wont have access to your bank account, usually a CSV format is suffice.
- Time sheet template – most agencies supply thier own time sheet but incase they don’t here is an example of a time sheet
- Expense ledger – this is all the expenses that you can charge back to the company such as rail tickets, parking tickets. Remember depending on how your business is setup(Limited, Umbrella, PAYE etc) you can charge back for lunch that would normally have anyway.
- Loan and transfer ledger – when starting out you will need things like software, laptop, desk etc. If you buy this with your own money you can charge this back to the company.
- Mileage expense ledger – depending on your company set up you can charge up to 40p for the first 60k miles! Speak to your accountant about this.
7. Get your Business a bank account.
Below are a list of UK banks that offer business banking, there are many banks out there that offer different services such as online banking. Remember to read the small print and the charging chart that they will have, this will show if they charge for the little things you use ever day in your personal accounts such as paying a cheque in etc.
Little tip – when you have set up your online business bank account setup 2 additional accounts giving you your current account, tax and vat. By getting your account to give your quarterly updates in regards how much tax, vat you may have to pay you can transfer this money into those accounts ready for when the taxman comes knocking!
8. IR35 Contract
The IR35 legislation is designed to increase the NIC revenue from the service industry, which on the whole has found it more tax efficient to distribute income as dividends, usually subject to the payment of a small salary. To this end, it introduces the concept of “deemed salary” which will be taxed and subject to NIC as if it has been paid as a salary.
In terms of contracting I went to a solicitor and paid to get a contract written up. I advise you do this as well. Some agencies contracts are IR35 friendly, you need to get this checked and in writing.
For more information check out the Inland Revenue at – http://www.hmrc.gov.uk/ir35/index.htm.
9. Negotiate your rate
Negotiating your rate is probably the most important thing to do. This will determine a few things such as how happy you’ll be for the next few months and how happy you’ll be at the end of the month. Agencies can be little blighters in terms of rates, for example they will lower your rate to increase their profits, let me explain. When you first speak to an agency it is important to ask what rate they are charging out at just because they are paying you say £300 per day doesn’t mean they are charging that back to the company – why would they do that they wont be making a profit! What agencies tend to do it pay you £300 a per day but charge you back to the company you are working for at maybe £350 or even £400, making a profit from you for doing NOTHING and I mean NOTHING. Agencies will even sometimes say that the company are not prepared to pay you £300 and want to pay you £250 – STAND YOUR GROUND – as they are probably lying to lower your rate, but still charge you out at £350+ making them the profit.
IT Jobs Watch is a website that shows the industry rates for IT contractors and permanent staff, the rates are based on london and outside of london rates and the trends for the industry you are in. Website can be found at – http://www.itjobswatch.co.uk/
Little Tip – ask for a london rate and depends on there reaction lower, if you ask for a london rate and they hesitate or sound like they dont want to pay that. State you are willing to negotiate and thats a rate you work off, you may even get it!
10. Do the job and little tips and hints for being a good contractor.
Through my experience as a contract and talking to many contractors I have learnt and created a few tips that can help you and make you a better contractor!
- Go for drinks! Its a great excuse but it is really good, you don’t want to be known as the geek that doesn’t speak. Go for drinks and join in with the social activities and really look to become one of the team. That way when they want you back they will remember you as ‘that great guy’ and not that ‘boring chap’
- Monthly review meetings! In my contracts I request them at the end the month. Its a great chance to remind your boss about the great things you’ve done and re jog their memory when its comes up contract talks!
- Play the recruitment game! If you are lucky enough to be in a contract and loving it you will no doubt get loads of phone calls from recruitments looking for there next kill, which is great, but watch out for them scouting for business. A common question you will get is ‘can you recommend someone’ feeling nice you may know someone and may want to recommend them. But theres a little secret you may not know – recruitment agents get bonuses for getting people in and you’ve just given them a nice little bonus and what have they don’t for you? Nothing. Not a great deal. What I tend to say is in a nut shell, get me some work and ill recommend all my friends to you. Little tip – recommending friends to the company you may working for may give you a bonus!
- Reputation is key – contractors talk and talk and talk. Having a bad rep can spread like wildfire. Honour your contracts and you’ll be just fine.