Its a shame really as good articles are hard to find and I'm sure many americans would find the differences between the UK and US markets very interesting...
However if you really want to be a contractor https://www.ipse.co.uk/advice/articles/starting-out has a lot of advice on starting out.
http://www.contractoruk.com/first_timers/ also has a lot of advice although as a new starter I would avoid the general part of their forum...
And there is a reason why people use limited companies. You can work as a self employed person but many clients stop when HMRC come knocking while agencies have been legally barred from employing people as self employed since the 1970s...
(I don't mind to sound snarky here; the rest of your comment is genuinely helpful).
If your business account ever gets frozen (for litigation, tax investigation, etc.) many banks will also freeze any personal accounts you hold with them.
IMO many of the services he recommends also suck. I've used Crunch before and wouldn't recommend it and Barclays Business banking has a terrible reputation. £50 cashback isn't a good basis on which to chose a bank account. Get a proper accountant that specialises in contractors (Nixon Williams and SJD have decent reputations).
It also doesn't address withdrawing money out of the company (taxes, NI, pension, etc) which is a fairly important part of being a contractor.
Am I ready - The biggest bit is actually having the confidence to do it and a CV good that will get you past both the gatekeeper (the agent) and the client checking CVs... That means you should have real experience across both multiple employers and multiple market sectors (retail, consultancy, banking for instance) before thinking about it.
Timing -
Never understood this one. Projects have different life cycles so require analysts before project managers before developers before testers.
Outside of the week between Christmas and New Year there are always some companies looking to start projects or requiring another contractor to fix a problem. In fact the only time I've found it difficult to get work is in April which supposedly is a boom period due to new financial years...
Bureaucracy -
The easiest way to find contracts is through agencies. To do that you need either a limited company or to use an umbrella. You don't however need to create this before you get a contract as you can get a company created in about 4 hours..
Getting an accountant
You need one but don't need 1 until you get that first contract. Crunch has a lovely interface and is a good site but frankly I don't think they would be that great if things went wrong as they haven't got many qualified accountants. Look at IPSE or Freeagent for many other possible options..
Registering for VAT
On the flat rate scheme you don't keep 5.5% but rather .2 *.145 or 2.6% as the 14.5 is taken from the income including VAT..
Expenses
You don't need to do anything until you have a contract (as I've continually said setting up a company can be done in 4 hours). You may need to wait before you get paid (although some agencies still pay weekly) but if that is the case you keep the expenses to a minimum, keep a record of them and take the money from the company as soon as it receives that money.
Finding your first client
The first client isn't the hardest. The second one is. Especially when your first client was a short term 3 month contract and they didn't renew you because the work was done. With 1 3 month contract under your belt you then start looking for a contract as your money starts running out. That is when things are difficult.
And I'm out of time but just before I go
Mailing lists and communities
This is my real problem with this article. He doesn't seem to want to be a contractor. He wants to be a freelancer working for multiple companies on various projects. Perfectly acceptable but thats the world of code bunnies doing work for start-ups and advertising agencies rather than contracting in a consultancy firm or government department.
- DO NOT give up your full time salaried position until you have at least one contract lined up.
- Use a separate bank account for your business and don't mix personal and business.
- You shouldn't manipulate your company to avoid the 'risk of getting caught by IR35', this is a regulation that is in place for a reason.
It seems this article has been written as a way to maximise income from affiliates - there are multiple sites in the UK that offer accountancy as a service.
Do you happen to have a source for this?
The reason I ask is that I've written to HMRC regarding this precise issue, since I haven't been able to find any official statement to that effect.
While there are structural differences between a 'sole trader' (ie. self employed) and a 'limited company', it's up to the contractor to decide which is more suitable for them. I can't see that the client/agency has any say in the matter.
Sole traders won't be getting capital gains, so you won't personally be out anything, but the agency doesn't want to have to worry about having to have all their coders suddenly be able to claim on their employer's liability insurance or to be on the hook for NI.
The original legislation is tucked away in section 6(1) Employment Agencies Act 1973.
http://www.legislation.gov.uk/ukpga/1973/35/enacted
6.-(1)Except in such cases or classes of case as the Secretary of State may prescribe,a person carrying on an employment agency or an employment business shall not demand or directly or indirectly receive from any person any fee for finding him employment, or for seeking to find him employment. (2)Any person who contravenes this section shall be guilty of an offence and liable on summary conviction to a fine not exceeding £400.
Broadly speaking I’ve seen most of my work fall into these categories:
a) Help we need someone competent to aid us in a murky project b) We are a dysfunctional organisation, who require transient developers to put up with their modus operandi. c) We need your experience and expertise for a gap in our project
I’ve found (c) is best but (b) pays best though it can be stressful if your passionate about quality, engineering practices or process and (a) is often relatively short term but can garner kudos and create better opportunities.
Most companies don’t hire contractors because they’re doing swimmingly. Often it’s because they have some degree of dysfunction. For example large institutions in the City regularly operate as a parody of the Mythical Man Month. Expect Waterfall, PMO, silos of BA, Dev, QA; UAT (manual), Cookie Cutter templates to everything. Expect most “business” interaction to be via a PM and scrums to be lengthy tortious ordeals. (This is why companies like Thought Works do so well and why I expect some serious disruption in the coming years from Startup targeting City companies).
Expect people to ask you your advice and for you to mentor less experienced developers. Do not expect your advice to be implemented, or rather expect it to be watered down with compromise by non-technical councils.
I really like contracting. I enjoy the flexibility, variety and the challenges. I enjoy the people and skills I learn and now my network has expanded and I have earned a reasonable reputation I enjoy the better projects.
I second the sentiment about going IPSE and of hiring a decent accountancy. Don't worry about their portals or how shabby a website may look, pick them based on their competency.
Bite the bullet. Go for it!
You have to be an expert in the required area. Example: you have to be a Java Developer. If you are a software engineer that uses Java as one of your tools, it's not gonna fly, because god forbid you won't know by heart some java specific library/method/quirk/etc during your interview - this will be immediately filed under as a "NO" under "can hit the ground running" section, no matter how good you are at software engineering as a whole. In the end you will work with handful of "proven" (read "old, outdated") tools and become an expert of handling all kinds of legacy mess.
What I offer is a lot of knowledge for the core items I currently use (Dynamics CRM, C#, Javascript, SQL) and a very broad set of knowledge based on 20 years of been there done that seen what happens if you do it that way...
The requirement of any contractor (or consultant) is to convey a sense of competency / trustworthiness that allows the interviewer to believe you either fit the exact requirements or provide enough additional value (in my case 20 odd years of battle wounds and stories of utter disasters) that you are the person who will add the most value....
Nah. I'm by no means an expert in anything - you just have to be good enough to justify the daily rate (mine is low* for this reason.)
* but still a lot more than I'd get being permanent, obv.
This is not correct. The way the flat rate VAT scheme works is you add VAT to your bill, then pay 14.5% of your "flat rate turnover" to HMRC. Flat rate turnover includes the VAT.
For example, let's say you did £100 worth of work for a client. You invoice them for £100 + 20% VAT = £120 in total. You must then pay 14.5% of £120 to HMRC (i.e. £17.40).
So if you plan to sell work to an oversea company in the future, make sure to get off the simplified VAT scheme beforehand. I know I will, come november, the shackles aren't really worth the tiny little money you get in the end.
It seems absurd to make a company pay back a VAT amount that it has not perceived.
Also, on FRS you can claim a single £2k expense annually.
I'd be more interested in knowing what agencies do have a good reputation / good developer experience along with the note to beware of the cowboys.
Oxford Knight
Functional Works
GQR
Hays (They're big but have been good to work with)
I'll add more as I think of them.
If you're looking for work in finance - you will almost certainly be going through a recruiter.
The best agencies? None. Don't use them if you can help it. If you have to the smaller the boutique ones tend to be better, if nothing else because they'll have the better clients and more interesting projects.
I also think that it is worth forming a good relationship with a particular agent. Meet in person if you can so they can see you are someone who seems competent. And if you ever have a friend that is looking, it does no harm to refer them to a good agent you know.
The killer is simply making sure that if you do the entire 6 month contract in 2 weeks that you still get paid for the rest or have a massive termination fee in the contract.
The agents don't care; they pass all costs on.
Do companiesmadesimple have any value-add?
While I do share your cynicism about recruiters, I have also got most of my contracts through them. There are bad recruiters (vague job descriptions, never call you back) and there are good ones (We need someone here, you fit the bill, can we arrange a time to talk to my client?).
Learning to swallow your distaste and listen to them as if they were worthwhile human beings is a useful skill. Some (few) of them actually are.
(--edit-- good guide in general! I don't just want to harp on the negatives!)
Rate - Daily is good, hourly can also work. My current client will pre-authorise overpayment of a few hours a week if I work them. A little income boost if I want it.
IR35 - The 'own equipment' thing is a guideline only, and I don't think you'll fall foul of IR35 for using their equipment, particularly as many places only allow their equipment to be used on their networks.
There are other reasons to avoid working for one client long-term too. At the moment you sign up for a contract or contract renewal that takes you over the two year mark, you can no longer claim day to day expenses.
I.E. I sign an initial 18 month contract, and at the end sign up for another year. From the18 month point the client office will be considered my 'normal place of work', regardless of IR35, so the company cannot pay for transport or lunch any more.
IR35 equipment is an utterly irrelevant point. The real factors are:-
Right of Substitution (I can replace myself with Fred and the client can't complain) Mutuality of Obligation which means that the client doesn't need to pay if they have no work for you to do regardless of the length of the contract Where you were last. you can't be a permanent member of staff on Friday and start back in the same desk as a contractor on Monday morning.
Lots of stuff regarding IR35 can be found at http://www.contractoruk.com/ir35/ and http://www.ipse.co.uk as IR35 is why the latter exists...
How do you manage your hours with a day rate? Is a work day 8 hours, or is it any day you worked for the company more than X hours?
I've been trying to move to logging time and equating 1 day to 8 hours work.
I find it fiddly to bill per day when perhaps I only needed to work 5 hours to complete one job and 3 on another day.
Well, note the affiliate link...
Companies House charge £15 for setting up a company online. Most accountants include it in their service, and will let you use their address as your office/postal address if you want.
It may be different for developers but if you avoid recruiters, you're probably ignoring about half the job market for contracting.
When I first started contracting I used an umbrella company for a few months, I'd recommend people starting out go this route then move to a Ltd once they are sure this is what they want to do.
That said, I didn't need to bother, as part of on-boarding with my accountant they would have done it all for me.
(I've killed 5 limited companies now so I have lots of experience ;-)
IR35 is the only PITA IMHO of doing all this and that's easily sorted by doing the odd phone/laptop repair at the same time and invoicing it.
IR35 is explicitly contract by contract based... In theory (and in practice) you could be working at 3 places at the same time and 2 of them would be outside IR35 and 1 would be inside it...
There are a lot of old wives tales and myths around IR35 http://www.contractoruk.com/ir35/top_ten_ir35_myths_debunked... shows a few of them. And sorry for posting links to the same two sites but that is where the real information is from people who have operated this way for years...
??
Oh, a phone/laptop repair for someone else, and invoicing them for it?
In just under three years I've taken on 5 contracts of varying lengths and billed for a small amount of casual consultancy work on the side too. I'm clearly not acting as an employee, hopefully I'm in the clear :)
Disclaimer: recently volunteered to help to shut down UK limited company, I wished I'd used someone else.
I haven't been through shutdown yet, so I'll take your word for it (and everyone else's!) that it's painful...
Freeagent is a good online accounts package as well, but you need to find an accountant that uses it.
* Don't use equipment provided by the client; -- This would be very hard to do. Most clients I've ever worked for supply you with a PC to use and won't allow non-corporate devices on their network.
* Be careful with paid-for meals or participating in company parties. -- Never heard this mentioned before.
* Avoid working for one client for longer than a year when possible. -- A lot of cients will enforce a maximum period of 2 years anyway, as after that you could theoretically claim benefits.
There are a lot of scare stories propogated about IR35, and a lot of it is by companies that sell IR35 Contract Reviews, IR35 Insurance etc. The number of IR35 investigations each year is in the low thousands, and there are 1.8m contractors in the UK.
Agree about scare stories, but it is a scary topic.
Payments processing - a lot of employers will not want to deal with processing payments for contractors. Indeed, its often the main reason why they might go for contract vs permanent resource in the first place. I've seen situations where contractor and employer have discovered each other, only for the employer to then ask the contractor to 'go through agency X'. No one likes admin load and we'd all get rid of it if we can.
Reduce assessment load - job opportunities cycle much more frequently on the contract market - typically 3-6 months. This means a lot more time involved in opportunity sourcing / vetting, potentially a hugely time consuming exercise. A good recruiter will be able to filter these opportunities for you, and only get you the most suitable gigs
Reduce downtime - going without agencies entirely means relying on your own market gravity as a developer of renown to secure job opportunities. This is do-able for high profile developers, of course, especially those who live in metropolitan areas and are prominent on the open source / community / events scene. However, if you work on proprietary software, have heavy family obligations and live outside of a big city, you're probably going to find agents very useful indeed.
Salary / Rate negotations - they are going to take their 15-20%. But they may end up earning you more by negotiating hard with the end employer. Certainly an inexperienced contractor is at risk of being exploited, but that's true in whatever of the type of contract you sign. A good relationship with a trusted agent can really help you make more on your rate, especially if you are not a naturally comfortable at negotiating.
And I say all this as a maker of a tech hiring platform that doesn't allow 3rd party recruiters on it. They have their place - just a smaller one than they currently occupy.
Great article in all other areas
The payments thing is important, and sometimes recruiters provide a useful buffer too - the end-client company might take their sweet time to pay, or be unreliable. Contracting through a third party provides you with a buffer and I know for a fact that I've been paid well ahead of the recruiter being paid on several occasions.
It's a brilliant platform & I've hired a few great people on there.
Yeah, better do it yourself. I'm from Germany and I set up a LTD directly with Companies House myself. It's really (I mean really really) straight forward and they even accept PayPal to pay the 15 GBP fee. It took me ~20 minutes and the company was incorporated the next day.
Those formation companies usually just are an unnecessary middleman.
I would note that none have ever told me the name of a client prior to me accepting to be represented by them and I have been introduced to a client company who then asked me to work directly through them and to bypass the recruiter (and any fees the client company would be paying to them). I refused as it was a single contract for 6 months and burning bridges with anyone isnt worth it for that sort of duration. Plus the recruiter had got me the interview within 7 days of me getting in touch with them.
YMMV just my 2cents.
Say you end up with a dreadful contract and everything goes wrong and the client sues. If you're a ltd company you can dissolve the business and pay them out of whatever assets your company has.
If you're a sole trader you're liable for all the costs. Until you're personally bankrupt. Sure, there may be clauses in the contract etc, but if someone is mean enough they can make your life very difficult and they will exploit the fact you are a sole trader.
If you don't own a house and are brining in less than £70K PA it may or may not be worth registering a Limited company.
> [...]
> If the client insists on including the clauses above, be ready to move on.
These lines appear to contradict themselves, am I missing something?
Maybe I would have had this issue with any accountants as a first time contractor, but I know it could have been better and I would have happily paid more to make it so. Do yourself a favor and pay extra to get an accountant that handles more things on your behalf (bookkeeping, VAT filing, etc) preferably with a simple non-proprietary interface.
I haven't tried these two services but if I go back to a UK accountant they'd be at the top of my list.
http://www.3wisebears.co.uk/ (contractor) http://www.proactive.uk.net (more startup focused, very helpful via phone)
As I have a business already, I was considering doing the contracting under the business to reduce liability. Does anyone know whether this will increase the amount of tax I have to pay? I figured that I would have to pay corporation tax on any money I bring into the company as well as personal tax on any money that I pay myself as a salary. Is that the case?
Outsource your bookkeeping to Xero or Bench or wherever. As a consultant, accounting is a cost centre. You should be focusing on sales, marketing, or service delivery.
As a consultant, you are now a business. Ring the freaking bell or deliver service. That's your new job.
While I can't claim to know every jurisdiction, this is a very naive way of looking at things. Situations in which I was first-hand witness to people making (lots of) money from knowing the books well (i.e., much better than if someone else would do it):
- subsidies (like for 'innovation') - in case of a tax audit - some junior accountant who gets tasked with the small clients at a firm isn't going to be able to defend some stuff as well as someone with skin in the game - on bankruptcy or when talking to a bank
And I'm sure there are more.
One additional thing: If you're married make sure your spouse is a director of the company as well (especially if they're not working). You can be hugely tax efficient in this manner and can extract nearly £80k per year from the company with no personal tax to pay (there will still be corporation tax to pay on profits).
There might be some pretty good small accountancy firms around that will cost a LOT less than these fancy online firms, so do check around locally, or asks for recommendations -- I think it's worth it.
I have heard good things about Crunch's system but some mixed things about the quality of their advice and how pro-active they are - any other feedback on them or others?
The point about the registered address and fraud is a real one, someone I worked with had this happen to them - will Crunch act as the service address as well as the registered address?
Having said that, just about everything is automated or part of their software now and I haven't had to speak to anyone there since last summer. Maybe their service hasn't gotten any worse, it's just become less personal.
Tax planning really should not be a reason to go contracting. You can get more money by moving to another permanent job elsewhere.
Valid reasons to me for going contracting would be to remain technical, to continue learning new technologies, to avoid permie politics and appraisals (which is why I contract)..
If you're contracting is mostly remote and outside the UK, you don't need to register, or charge VAT (as I understand it).
I.E. I do £100 of work, I charge £120 and pay the government 0.145 * 120 = £17.4
Further, for the first year, you get to pay at 13.5%, £16.20 in the example, effectively boosting company revenue by 3.8% for the first year, and 2.6% thereafter.
If you are working with UK clients I'd imagine it's most likely in your interests to be VAT registered.
AFAICT most VAT on everyday expenses doesn't come back to you.
OTOH you can charge the company for your lunch every day, which means you get that paid for before corporation tax, income tax or anything else...
I could understand it if you had a business with employees and you sold products on a daily basis with loads of transactions, or if you plan to get into debt... but for invoicing someone every month? Personal account seems fine, and I'm sure people have several of them already.
Business bank accounts can be had for free - most contractor-friendly accountants have an arrangement with Cater-Allen, for instance.
It is a requirement for partecipating in certain contests (eg: Microsoft had a program for investing in indie games company and they required to use a business account entitled to the company) but I still haven't heard such requirement from a client.
They are not required by law (here in UK) but they're suggested by pretty much every accountant out there. I don't use a business account when working for myself, but I do use one for a company I've founded with other people.
I'd say it's more useful when it's not a one-man ltd.
Cater Allen is practically free, I think there is some sort of minimum average balance but if you keep both a rainy day and your tax payments in there it's a trivial task.
Another thing I'd recommend is finding an accountant that uses FreeAgent or something similar rather than their homegrown system. Also, If you use an accountant they will do the company registration for you
(edit for spelling)
My advice and I've repeated it continually on Contractor UK for years is to only use a proper umbrella company or use a limited company.
If someone says you'll receive more than 65-70% of you contract value from a umbrella company or more than 80% from a limited company they are just lying to you and wish to use your greed to initially grab money off you and then let HMRC take you to court...
For details on proper umbrella companies see http://www.allumbrellacompaniesareequal.com/ . But if you are planning to do this long term start a limited company....
I contracted for about 10 years in the UK, finance mostly. Had my own Ltd, took home about 65% of my day rate. No funny business, happened to move clients about every two years which helped for IR35.
Nothing more complicated than that. Yes that means I paid 35% tax, which is pretty much the equivalent I would have paid if I could have ever found anyone who would pay me my day rate as a salary.
1. I believe in a progressive tax system and public services 2. I don't believe in working for an umbrella based in Norther Cyprus which is owned by a Trust of which I am a trustee which pays me loans on a semi-regular basis of 80-88% of my day rate with absolutely zero tax paid by me.
HMRC is cracking down on IT Contractor loans anyway, and quite a few people are rightly being hit up for quite large amounts of tax.
If the UK public had any idea how many (roughly 50k contractors in the City) avoided paying so much tax (billions) while they were being mugged by PAYE there would be a total bun fight.
Me. I'm still wealthy, my dad was a teacher, my mum a stay-at-home mum. Went to state schools, drove on state roads, took the benefit of people who actually paid tax.
To all the "I could pay some of my extra money to a charity / local school" brigade. Sure, but you never did - you parasite. Feel free to thank me for providing all those public services for you if you like.
Also, some companies that masquerade as umbrellas are doing some pretty shady things. If they promise some un-feasibly large percentage of take home pay (over 80%) they're probably doing some dodgy Isle of Man scheme and you'll be left holding the can.
Good point about the shady "base pay + loan you never* have to repay" shenanigans - I suspect HMRC will be onto them soon enough though.
If transitioning from PAYE to contractor life (filling in timesheets and other tedia) then the umbrella route is the way to go. You can focus on the job in hand and whatever comes of it. On subsequent contracts there is the opportunity to become your own book keeper and accountant, if you really can be bothered with such things instead of the coding you enjoy.
IMHO the chores of managing timesheets and getting paid are best left to other people, hence umbrella.
As for how much money is needed to get going, with umbrella companies there is an option to be paid early for a small fee, so long as invoices are being paid somewhere down the line. So you don't need to have six months of life savings and insurance stacked up somewhere. You can survive until payday without all that even if the experience is not fun. However, by not spending money you will have more when payday arrives.
It takes like 15 minutes online to establish limited company.
And when you buy insurance - how do you know which one? My current contract requires me to have 10 million employer liability insurance (I don't hire anyone) but I have to have it anyway.
I guess I'll add some comments in this thread... (if time allows)
The only thing you need to be an IT Contractor in London (other than some skills) is confidence.
I worked a number of contracts over ten years in the finance sector in London. I never had a client pull a contract on me, I always left on my terms. On average I lasted two years until I moved on. Major Retail, Funds management, Investment banking was my progression.
My background was Java (I work almost exclusively with Clojure now, and love it). Java was the language of business in London and I presume it still is. If you want to get a well paid gig in a smart office for a bank or funds management firm then Ruby is not your friend. Why was I motivated to move towards Investment Banking? Well, I'm competitive and it's the hardest market to crack, and it pays a premium. That's it. If you want to stay pure to one language or another and not use your rare skills for the best economic result for yourself that's another choice.
The market is huge, once you've got a recruiter who likes you you'll be offered work fairly continuously.
My contractor rate was roughly double what I would have earned permanent. The contractors I worked with were no better or worse than the permanent staff I worked with, they just had the confidence to strap on their contractor pants and go to work. That. is. all.
Advice like this article is useful enough I guess, but in reality you either have the confidence to go for it or not, and once you have you will never imagine why you waited so long (as long as you've got the ability to land work and impress people).
IR35? Just move every couple of years. Tax? Don't take the piss and HMRC will not bother you. Accountants? Have a crap one for a while and swap. Recruiters? Don't piss them about, realise they are all liars, but necessary. Find a good one and impress their clients. Timing? There's a couple of luls towards Xmas and the EOY, but there are always projects looking to spend money.
It is all confidence, you either do it or you don't, all this other crap follows.
Main advantage of being contractor? Much better pay... They say - "no job security" - but there is no such term anyway.
You think the NHS is bad, you ain't seen nothing yet.
Looks like I am gonna have to scrap my lavish summer holiday plans to put money aside...
It's not particularly difficult to achieve a £100k+ salary in London and you can have a very comfortable lifestyle on a six figure income.
Something of an understatement. There are very few in the UK earn that much...
--edit-- though I do agree money on offer here generally is a joke. Hence going into contracting.
For a developer, £100k+ as a contractor is not particularly difficult, but as an employee this would be rare, no?
An average day rate for London is £450-500 and that is well north of 100k pa
You invoice £4k. It gets paid into your bank. Congratulations. You just earned £3k.
