The number of contractors in the UK has been rising steadily in recent years with research showing that contractor-owned businesses now contribute nearly £109 billion to the UK economy. With growing skills shortages stunting growth in sectors like IT and finance and with major doubts surrounding the resilience of the UK economy since Brexit, companies are now looking towards a more flexible workforce to plug gaps and lead recovery.
This increased demand for contracting positions is beginning to turn heads and more and more professionals are now looking to contract work as a more rewarding alternative to permanent employment. Whether it's the financial benefits or the increased flexibility and autonomy, switching codes and becoming a contractor has obvious benefits. However, leaving the comfort and security of a permanent job may seem daunting and many aspiring contractors worry about the complexities and risks which come with being your own boss.
So if you're thinking about taking the plunge and becoming a contractor, remember that the decision should not be made in haste. Read our guide to find out what you need to consider before leaving behind your permanent job.
"An 8.7% rise in the total number of independent professionals on the year and a huge 35.1% increase since 2008 has resulted in 1.88 million now working in the UK."
Leaving the comfort and security of a permanent job to become a contractor is a big step which requires careful thought and planning to ensure the transition is smooth. However, there are a lot of myths and misconceptions which surround the practicalities of contract work which often dissuade permanent employees from joining potentially lucrative contract markets. From concerns around experience and qualifications to the perils of obtaining the right insurance, many are put off by barriers which are less complicated than you might think and can easily be mitigated. Here are a few of the most common:
|Setting up a company means being responsible for endless paperwork||Working for an umbrella company or enlisting an accountant will allow you to alleviate the stress of tax and day to day admin and will free you up to focus on what you do best.|
|Contract work is devoid of perks and benefits||Contracting doesn't necessarily mean you "lose" all benefits, you are now the employer and can purchase the benefits that suit your lifestyle. If you're worried about sick leave, it's useful to remember that health insurance will protect you from long periods off work.|
|I'm too young and inexperienced||Timing your move into contracting is essential. If your skills meet a curve in demand, then you won't have to worry about your levels of experience.|
|I won't always find contract work||When working through a limited company, the risk of dry spells can be diminished by implementing careful tax planning buffers. These include claiming tax relief on expenses, alleviating NI costs and understanding what dividends you can take.|
|Contracting work is too risky||Although you'll always be liable for errors in your work, you can manage risk by ensuring you are covered by the right insurance. Professional indemnity insurance and public liability insurance are most likely to help mitigate risk.|
Before you make any big decisions about leaving your permanent job, it's important to understand your key strengths and marketable skills first. You will need to have complete confidence in your chosen specialism, so thinking objectively about what you have to offer and ensuring your skills are finely tuned is crucial. Doing this will obviously require a lot of market research to determine which skills are in demand as some clients will need highly skilled niche contractors whilst others might only require someone with less experience to cover an interim role or assist with temporary project work.
The simplest way to ensure that you're ready for contracting work is to ask other contractors about opportunities and their experiences in your sector. It's also important to gauge the supply and demand in your sector by familiarising yourself with contractor job descriptions and the common skills and requirements outlined in them. Regardless of how qualified you are, by doing this, you'll be able to get a thorough understanding of the skills you'll need to tune and those which are perceived to be less valuable.
As a prospective contractor, you should be committed to personal development and should always be looking to upskill and gather new and relevant qualifications. Keeping abreast of the latest software, tools and developments in your industry is key, but there are courses and qualifications you can consider taking which are less specialist but will improve your chances of standing out from the crowd. For example, you may want to consider completing a PRINCE2 project management qualification to show that you're capable of managing and controlling resources or you might want to acquire a M_o_R certification to prove you can effectively influence and shape risk management. Whatever additional courses you decide to enroll on, ensure that they complement your current skill set and add depth and value to your CV.
Whilst hard skills are the ones that usually land contracts, soft skills can often be neglected and underestimated and this can cause serious problems for anyone looking for their first contracting job. The nature of contract work means that prospective contractors will need an array of soft skills to ensure they excel at interviews, negotiate favourable rates and manage workloads effectively. Take a look at our skills tree to find out which soft skills you'll need to consider tuning before becoming a contractor:
Prospective contractors that are interested in leaving their current positions behind, should not jump to rash decisions but carefully assess the existing demand for their skills in the market. Timing your move is therefore essential as you may want to reconsider leaving your existing job if your skills and specialisms are no longer in demand.
Assessing any major developments in your industry and the current economic climate is important here as employers will tend to look for independent contractors in order to save money on staffing costs and plug pressing skills gaps. So, if a major piece of government legislation has started to change the standards of work in your industry or you notice slow economic recovery is forcing employers to look for professionals in your field, check the job boards, or enlist the help of a recruiter, to see if your skills are in demand and assess whether the time is right to make the switch.
You might also want to consider annual cycles in your industry as the financial year and certain holiday seasons usually bring in periods of high demand for contractors. For example, January and February tends to yield opportunities for some contractors as new budgets are usually approved and companies begin their search for new hires. However, in the summer months, where holidays disrupt hiring rhythms, savvy contractors might choose to wait until September to begin making their moves.
Three industries that currently show high demand for skilled contract talent in the UK are the IT, Finance and Engineering sectors. Read on to find out why the demand is growing, which skills are most desirable and how your salary would compare as a contractor within each sector.
CompTIA's annual workforce study revealed that 62% of UK executives plan to increase investment in IT products and services this year. This means that companies are now looking to contractors to help ease skills challenges brought about by the influx of new technology and operations.
The demand is therefore high for IT professionals, especially for candidates with expertise working in IT architecture, app development, big data, virtual reality, cloud computing and cyber security.
The number of IT professionals will grow from 1.2m to 1.6m by 2024
Recent studies have revealed that firms are turning to highly skilled foreign university graduates to help plug a looming skills gap in the finance sector. Statistics show that foreign university graduates now make up 28% of the graduate talent pool which seems to suggest firms are having a hard time filling technical roles in the UK. This means that finance contractors could soon play a big part in tackling the sector's skills gap and take advantage of the pressing need for specialist staff.
As more businesses need to adapt their accounting procedures to new reporting standards, an in-depth understanding of the FRS 102 is a good example of a highly specific skill which is in high demand this year. Expertise in data analytics, specialist knowledge in offshoring and experience dealing with regulators and risk management are also currently highly sought after in the finance sector.
Job adverts for senior finance contractors in London have risen by 23% quarter on quarter
Another field struggling to find the right talent to fill permanent positions are the engineering sectors. According to the government's shortage occupation list, a variety of roles are suffering severe shortages across the construction, oil and gas, aerospace, railway and automotive industries. Earlier this year, Nick Boles, former Minister of State for Skills, argued that these shortages "are compounded by insufficient numbers of young people, especially girls, choosing a career in engineering" as firms struggle to attract talent to deal with a growing skills crisis.
Professionals with expertise in civil engineering, geotechnical and tunnelling engineering, as well as mechanical and electrical engineering are therefore in high demand and in a position to build a thriving career as contractors.
The UK will need 830,000 new science, engineering and technology (SET) professionals between now and 2020
After weighing up your skills and specialisms and carefully assessing the demand in your market, it's time to get some practical advice on leaving your permanent role and starting your own business as a contractor.
Once you've made a decision to leave your permanent position and move into contracting, prospective contractors need to examine the necessary next steps to get their businesses up and running. In a complex tax and regulatory environment this alternative to permanent employment needs careful consideration and expert consultation to succeed. ContractingWISE can deliver expert advice and consultation on all aspects of setting up your contracting career so do not hesitate to get in touch if you need support. Otherwise, here are some of the most crucial aspects to consider.
Generally speaking, contractors need to be available within a period of about four weeks, as clients need to fill roles quickly, so current full-time employees with longer notice periods need to plan their transition strategy carefully. Always remember to review your contract of employment and the notice and termination clauses before you make any impulsive decisions and consider putting together a timetable for your resignation in order to ensure you allocate adequate time for a clean and professional departure.
One of the first decisions new contractors need to make is how to set up their new business in a way that minimises tax liabilities, maximises income and makes it easy for clients to work with them. The choice will usually fall between setting up a limited company or operating under an umbrella services company. The decision is determined by the needs of the individual contractor but consulting different suppliers and contractor accountants will give a good understanding of the options and the associated costs.
Setting up and running a limited company is tax efficient and with a good accountant it is not too difficult. It comes with statutory and financial obligations, such as the submission of annual accounts to Companies House and meeting HMRC tax deadlines. However, it has a number of advantages, such as the possibility to claim a range of expenses and access the flat rate VAT scheme. Accountancy fees are around £1,200 per year, irrespective of the turnover of the company.
Prospective contractors that prefer not to get involved in any paperwork, beyond timesheets and CVs, can consider the alternative of using an umbrella services company. By entering into a contract with an umbrella company the contractor becomes a PAYE employee and the company takes care of processes such as invoicing, payments and tax and National Insurance deductions. Fees of umbrella companies can reach up to 9% of the value of the contract and many will insist on minimum fees for their services.
Securing contract work can be very different to finding full-time employment, so to make sure you win the jobs you are after you need to switch gear, become more pro-active and start to sell yourself a little differently.
The important first step is to get your contractor CV ready. A winning CV is short and tailored to the roles you're after and should include a profile, an outline of your unique skills, achievements and a concise career history. However, keep in mind that potential clients are looking to buy your skills and industry knowledge on a short-term basis, so always bring a big focus on how you have helped deliver results on project work and helped companies solve problems.
Most contract work is sourced via agencies, so get your CV onto their databases, apply for specific roles and talk to recruiters. Additionally, upload your details to contractor job boards and professional platforms like LinkedIn and start networking online and face-to-face. You'll be surprised by how much of an impact networking will have on landing your first contract.
There is a lot of competition for good contracts, so make sure you follow up your applications by calling your contacts in agencies or client organisations. Having a conversation can help you build a relationship, get you on top of the pile of applications and really get to know the ins and outs of the role.
Keep initial conversations focused on securing interviews with clients, this is not the time to discuss rates or begin intense negotiations. Once the interview is secured, prepare thoroughly for the meeting, research the demands and motivations for the client and try and find out why they need you. You might also want to get a good understanding of the current market rate so you don't under or over sell yourself.
Securing work as a contractor requires you to be proactive, control the interview and sell yourself. The client most likely needs someone to start work quickly, so show that you understand the situation, have the skills to tackle all issues and bring results.
As a contractor you don't have time to waste and interviews can actually be very blunt processes. If you want the project, finish the conversation by asking directly for the work and try your best to close the deal. It's a competitive market, which means you need to be confident and bold. Just remember not too be too forceful and always respect the employer's decision.
IR35 was introduced in 2000 by the government to clamp down on 'disguised employment'. If your contract work is subject to IR35 then the benefits of contracting via a limited company are reduced, your net income can be decreased by up to 25% and using an umbrella company may be the better option.
Over the past years IR35 has become a highly complex area of employment and tax law, so seek expert opinion on the legislation and your circumstances before you sign new contracts.
"HMRC approaches IR35 compliance in two ways - first by randomly selecting companies and second, by looking for red flags that raise suspicion."
To ensure you're fully prepared for life as a contractor, take a look at some of our free resources:
A contractor's CV is no ordinary CV and you will need to ensure yours is up to scratch before you begin looking for contract work. Download our free CV template and make sure yours contains all the necessary requirements.DOWNLOAD NOW
If you're unsure about where you stand in your journey to becoming a fully-fledged contractor, download our contractor's checklist and tick off your tasks and milestones.DOWNLOAD NOW
If you've just got your first contract, download our free timesheet so you can easily log your hours and give your client visibility on the work you're doing.DOWNLOAD NOW
Making the move into contracting puts you in control of your career and enables you to design a lifestyle with the flexibility and autonomy you are looking for. As you establish your reputation as a contractor you have a good chance that, with the right skills, background, attitude and drive you can find varied work that keeps you engaged and on top of your game, while increasing your take home pay.