Now that you’ve looked at the early steps of starting life as an IT contractor (see part one), it’s time to take a closer look at some of the things you’ll need to consider in order to make the best possible choice.
Choose a contracting model
When the time comes to be offered a position, you’ll need to decide which contracting model works best for you. You can set yourself up as a limited company directly with the Companies Registration Office. This option can involve a lot of extra admin work if you choose to do this yourself, as you’ll also have to open a business bank account, arrange professional indemnity insurance, and you will need to register for VAT.
There are third-party firms that provide limited company contractor services including all of the steps above. You will usually only need to pay them when your client has paid your first invoice, so you won’t incur upfront charges before you start contracting. In addition, most will allow you to claim this cost as an expense.
An alternative option to the limited company is the umbrella company. This model involves using an umbrella company that handles all accountancy, tax and admin work for you. It will take care of deducting any tax and insurance contributions and pays you a net salary. There are many firms that specialise in working with contractors, and again, their costs can usually be expensed back.
Factor in free time
A couple of things to keep in mind: as a contractor, you won’t be paid for sick days or holidays, so you’ll need to factor this into your calculations. By all means take as much downtime as you feel you deserve – it’s one of the perks of contracting after all – but when you’re not working, you’re not earning, so your expected day rate will need to cover any shortfalls. Another point on annual leave: once you’ve agreed a contract with a client, you typically apply for time off by asking your line manager. Our advice is to put away one or two days of your salary per month to cover this time.
Keep in mind that your newly enhanced earning power might not translate directly into a fatter wallet. Unlike full-time positions that include pension contributions or health insurance cover, contract roles have no such benefits. You will need to set aside some of your income to offset the extra cost. For example, if you plan to carry on paying into a pension you had in a full-time role, the payments could increase as much as threefold. Can you afford to do that? (On the plus side, you may be able to claim some of these benefits back as business expenses.)
Speaking of expenses, contractors are entitled to claim for light and heating at a home office (usually between 25-30 per cent), travel between sites for work (but not to and from an office), and phone calls amongst many other things. There are numerous resources available to advise you in this area. If you use an umbrella company, they agency will certainly be able to provide a list of what you can claim.
Staying current with skills and certifications is a must for anyone in IT contracting but hiring companies don’t usually invest in expensive training courses for outside help. As a contractor, you are responsible for ongoing professional development. Fortunately, we can help: SureSkills has a training and certification division that will partner with you on training that’s relevant to the role at hand. Again, most training and conferences can be claimed back as expenses. Be sure to confirm before you sign up though – taking a carpentry course while working as a medical technician won’t be a claimable expense! J
Contracting is rewarding in many ways – not just financial – but as with all career decisions, it’s important to understand what’s involved before making the leap.