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FROM PERMANENT TO CONTRACT: MAKING THE LEAP
There are many reasons why you would want to change from being a permanent employee to being a contractor. From earning more money to greater flexibility, increased freedom and an overall more satisfying work-life balance, you may wonder why everybody isn’t doing it!
But the first leap into the world of contracting can be intimidating at best, so here’s a quick step-by-step guide to cutting the leash and making the jump.
- Finding a contract
Finding a contract isn’t really much different to being on a typical job-hunt. Firstly, make sure your CV is fully up to date before contacting recruitment agencies who specialise in your field, so that you are organised and ready to accept an offer. It’s also important to ensure you maximise the use of social media to get your name and face in front of potential clients. As a contractor or freelancer, you offer companies far more flexibility and are a cost-effective long-term option compared to hiring permanent staff, so job roles are abundant, even though the economy is still currently in repair.
- Limited Company or Umbrella?
There are several advantages to both of these options, with each one suiting different individuals with different requirements.
This is where you, the contractor, essentially get put on payroll through the umbrella company. You will need to submit timesheets to the company, who then invoice their client for the work done. You will be paid as a PAYE (Pay As You Earn) employee, which means you’ll pay your tax up-front in your salary, minus the umbrella fee.
If you want to operate as a Limited company, you will need to legally form the company and open a business bank account. Your contract will then be with either the end client or the agency. As a limited company, you can take home between 75% – 85% of your hard-earned income.
If you choose to conduct business as a limited company, you are entitled to a whole host of tax breaks, from national insurance to expenses, and much more. You can find details about the tax basics in our handy guide here.
- Sort out the practicalities
Appointing an accountant is one of the most important things to do when going freelance; you will no doubt have hundreds of questions relating to IR35, the Flat Rate VAT Scheme, tax planning, allowances and fifty other things you haven’t even thought of yet. You will also need to open a business bank account which will cater to your needs, and it is likely you will be required to become VAT registered.
There are two different ways to manage VAT; one is how you would usually do so in a self-assessment, where you claim back the VAT on items bought through the company, and the other is to sign up to the Flat Rate VAT Scheme. This is an incentive which has been provided by the government to help simplify taxes; you charge VAT on your invoices at 20% but pay back 13.5% of your gross amount in year one. After this, you pay back 14.5%.
Here at Associate Services, we partner with Chartered Accountants to provide clients with bookkeeping, account management and tax planning strategies, all of which can reduce the administrative burden of being self-employed. So, if you’re thinking of making the leap from a permanent role to that of a contractor, get in touch and let our team of experts assist you on your exciting new journey.
Brendan Beeken FInstSMM
Flexible solutions for everyone
EMPLOYED – SELF EMPLOYED – CIS – UMBRELLA – LIMITED COMPANY – TAX PLANNING – ACCOUNTANCY – CONTRACTOR SERVICES
“I found Associate Services professional, focused and always made themselves available and willing to help”Patrick
Project Manager, Manchester
We are flexible in our approach to ensure that rather than a one-size fits all, we tailor the tax planning to the requirements and personal circumstances of each individualAssociate Services
We are specialists in tax efficient and tailored tax planning strategies for contractors, high net-worth individuals and business owners, maximising wealth and remuneration.Associate Services