While contracting is generally a very positive and highly lucrative career step for many professionals, there are a few things to consider before making the switch from full-time employment.
The transition from permanent work to contracting can be daunting but if you have prepared properly there is no reason for to fear the change.
Compare your finances
To begin with it may be wise to make a financial comparison between your current wage and your potential contractor salary. This will allow you to account for living costs so you can prepare for the transition properly. A relatively easy way of obtaining this information is by using a contractor salary calculator. The calculator will help you work out what you NET salary as a contractor should be.
Read the current market
Now you have an idea of what you will be earning you can look to your target area. Look at the market you will be working in and assess its current climate. Is there a demand for your skills?
Signing up with a recruitment agency can be a good way for new contractors to locate work. They will be able to help find suitable contracts that fit with your skills. They will also inform you of the current trends within the market so you can see where your best job aspects are.
Another good way to assess the market is to ask other contractors in the sector. This will also allow you to begin networking and creating a contact list (both of which are essential in the contracting world). Online contracting forums can be a great way to see what’s happening in your sector.
Once you have a good understanding of your market area, you can start working on your CV properly. Knowing what skills are sought after can help you look at your own. You will be able to highlight your strengths and build your CV around these.
Always be honest about your skills when applying for a job – embellishing on what you can do may cause problems if you do secure the contract.
Get the most out of your finances
As a contractor you will now responsible for your own taxes and finances. In full-time work these things are taken care of by your employer so new contractors will have to prepare themselves for the added paper work. Getting paid is also now your own responsibility. It is up to you to invoice your client for the work you have done and the hours you have worked. This involves creating and maintaining time sheets for your client. You will also have to calculate and declare your tax on your earnings
An alternative to this is to use an umbrella company. Pursuing this avenue means contractors do not have to set up their own limited company as the umbrella company will process your PAYE payroll. Working through an umbrella company affords contractors certain expenses which they can claim against their taxes.
Umbrella companies generally work as your new employer and will be responsible for your pay and they will also take care of your tax and NI deductions. This affords you more time to focus on your work and less time to worry about paperwork!
IR35 legislation also taken care of by your umbrella company as they will ensure your earning are compliant with the HMRC measure.
For new contractors umbrella companies offer financial advice while insuring your interests are looked after in a correct and professional manner.