The Challenges and Benefits to Contracting

There are literally thousands of individuals around the UK who choose to contract their skills in order to make money. Many jump head first into contracting without first understanding the challenges involved. Although there are some tremendous benefits to contracting, there are also some risks. We will showcase what you can expect from your contracting business.

Contracting and the risks

An individual can contract themselves out for almost any job. Everything from painting to freelance writing can be considered a contract business. Starting on this road involves many risks and challenges including the following:

  • Some contracts extend past their original agreed upon time. You must consider this before you accept any job contracting. Expect for your time to go over the costs you considered if you want to get a fair deal out of the contract.
  • A greater amount of logistic challenges. From handling contracts to doing your taxes, the perks of contracting are significantly counterbalanced by the amount of paperwork and desk time it involves. You are solely responsible for reading contracts and keeping up with finances.
  • You are the only form of customer support. If an issue arises with the job you’ve done or if a customer has complaints, the responsibility falls on you to remedy it. Forget about an HR department, you are the HR department when you are a contractor.

Benefits of contracting

Although there are plenty of risks involved, many individuals believe that the benefits far outweigh the challenges of contracting. The ability to be your own boss and to have complete freedom over what job you take, entices many to jump into the game.

If you do decide contracting is right for you then the next step is to consider how you will set up your contracting business. There are two options:

1. Work for an “Umbrella company” – This is a third party agency that employs you and takes responsibility for collecting income. They charge a monthly administrative fee typically in the region of £100 per month. Your earnings will be deducted by Income Tax and National Insurance as if you were employed.

2. Set up a Limited Company – This is your own company and you are responsible for collecting income and paying yourself. Typically you would require an accountant who would charge in the region of £80 per month. Your earnings will typically be deducted by a lower level of tax as you are a Director and can take earnings of approx £40,000 without paying tax as an individual however are subject to Corporation Tax. This often works out the most cost effective option but depends on your circumstances and whom you are contracting with.

We would be happy to discuss these next steps with you and advise which option would be most cost effective for you.