Since the shock EU referendum result in June, the number of people recruited into permanent roles has been in freefall, falling at its sharpest rate since 2009.
With the UK on shaky ground and many businesses not looking to commit to long term recruitment decisions, there are likely to be more opportunities for contractors than ever before.
Given the state of the jobs market and the current economic climate, if you’ve been thinking of becoming a contractor, now could be a great time to jump into the contractor lifestyle without looking back.
But there are no guarantees that your path to becoming a contractor will be paved with gold. There are a number of factors you should seriously consider before you wave goodbye to the security of life as a PAYE employee.
The good – It’s not a myth that contractors tend to earn more than permanent employees in equivalent positions. As well as charging higher rates for their expertise, contractors also benefit from lower taxes and more deductions.
As a contractor, you have the freedom to decide how you will pay yourself, using a tax-friendly combination of salary and dividends to take home the greatest proportion of earnings. The take home pay for a contractor is typically 70-80 percent of the contract value after deduction of VAT, Corporation Tax and other limited company expenditure.
The bad – In many ways, the greater earning potential a contractor can enjoy is compensation for the benefits they will have to do without. This includes perks like company pension schemes, car allowances, private health care and professional development funds.
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Flexibility and freedom
The good – As an independent contractor, you have far more control over your work schedule and the direction you want your career to take. You can choose what sector you work in, the skills you’d like to acquire, the duration of your contracts and the time you take off.
The bad – You will have to invest more effort in maintaining a steady workflow, and at some times it may be easier to find your next contract than others. The availability of work can depend on factors outside of your control, such as the state of the economy and the health of the sector.
Security and stability
The good – The financial benefits associated with becoming a contractor can help to improve your financial position. Your limited company can contribute to your pension on your behalf and you can receive tax relief of up to £40,000 on pension contributions. You also pay Corporation Tax rather than income tax, which can reduce your personal tax liability by up to 25 percent.
The bad – There are shorter notice periods, which mean you can be released from a contract with very little warning. There’s also no holiday pay, no sick pay, and no paid maternity or paternity leave.
Security and stability
Once you’ve decided life as a contractor is for you, you’ll then need to choose whether to set up a limited company, or operate under an umbrella company. You may also need a little help finding appropriate public indemnity and public liability insurance, registering for VAT and understanding IR35 and the proposed changes for public sector contractors.
Not sure where to start?
Call our contractor hotline on 0808 256 8973
Or visit: kpmgsmallbusiness.co.uk/contractors today.
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