Permanent employment to contracting

There are many reasons workers switch from full-time employment to contracting. Below are just a few of the wonderful benefits that you could experience.

• Increased earnings – Higher income and the ability to negotiate rates of pay with clients are reasons many contractors cite for moving from permanent employment to contract work. Similarly, as you are not an employee, you can take on multiple projects as you see fit.
• Skill development within different industries – As a contractor, you will be brought in to provide your skills and expertise to the client and the project. The variety that comes with working in contract roles will increase your skill set, industry knowledge, and exposure to different environments.
• Flexibility – You can negotiate when and where you work, which creates an excellent opportunity for a comfortable work-life balance.
• Choice – Being an independent professional means that you can choose and set up your own payroll solutions. You can decide whether to be a contractor with a limited company (if you operate outside IR35) or work through an umbrella company.

There are many benefits of operating via a limited company:

• Limited liability – Limited companies are separate legal entities independent of the directors and shareholders. This will protect your personal assets should your business hit financial difficulties or become bankrupt, as you would only be liable for the value of your unpaid shares or personal guarantees.
• Tax efficiency – Limited company directors can pay themselves with salary and dividends and legitimately minimise their tax liability. There are also many more opportunities for tax planning when becoming a director of a limited company.
• Shares – You can exercise different share classes, which can be helpful if you are interested in attracting investors, dividing the company’s ownership, or tax planning.
• Business expenses – Trading through a limited company will allow you to benefit from claiming business-related expenses such as professional subscriptions, accountancy fees, fees that occur as part of business travel, and more.
• Selling the company – Selling a limited company is an easy process as it is a separate legal entity.
• You can set up a business in 24 hours – Setting up a limited company is straightforward, and you can do it yourself or hire a professional accountant to assist you.

There are many benefits of using an umbrella company for your payroll:

• Compliance with UK tax law and HMRC legislation – Compliant umbrella companies will process your pay via PAYE – HMRC’s tax system. This ensures the correct tax deductions are made to your salary and paid to HMRC on your behalf.
• IR35 – If you are deemed inside IR35, you do not need to worry about IR35 as you’ll be taxed at source like a permanent employee (PAYE).
• Continuity of employment – Using the same umbrella company for all of your assignments allows you to benefit from continuity of employment. Your umbrella company will remain your sole employer, even whilst working on different assignments for different clients, and it won’t negatively impact your tax code. Continuity of employment also helps when you apply for financial services such as a loan or mortgage.
• You can use the same umbrella company for your temporary assignments. If you work on many assignments that are inside IR35, using the same umbrella company for all your assignments will not only provide continuity of employment but will also reduce your admin time, as you won’t have to register with multiple umbrella companies in a short space of time.
• Employee benefits – Just like a permanent employee, you’ll have access to employee benefits, such as Sick Pay and Maternity/Paternity Pay.
• Insurance – Most compliant umbrella companies will provide free insurance cover as part of the service, including Public Liability Insurance, Professional Indemnity Insurance, and Employers’ Liability Insurance.
• Low cost – Umbrella companies will deduct a margin for their service, which is taken from your gross pay (before tax) and costs you a little less. An umbrella margin is considerably less than a contractor accountancy fee, and you can expect to pay between £15 – £30 per week.
• No tie-in period – Umbrella companies do not charge joining or leaving fees, and the margin only applies to the weeks you work, so you can use them as and when you need them.
• Minimal administration – Umbrella companies are a very straightforward way to get paid for temporary assignments, and once you’ve registered, there is very little ongoing administration.