Thinking of Contracting?

Introduction

This is a guide for those professionals who are in permanent employment and would be interested in understanding what it means to be a freelance contractor. Much of this guide may seem obvious to UK professionals, where contracting is more widespread. However, many people have not yet been exposed to the concept of "being freelance". The guide shall therefore seem very basic to many seasoned contractors, but should act as a serious guide to newcomers.

What is a "Contractor"?

IT contractors (or "freelancers") are consultants who provide specific IT services to a company for a set fee and duration, rather than being employed by that company.
Most contracts become long-term, often lasting for years at a time. Even if a contract starts as a short-term assignment, the nature of specific IT expertise is such that contract extensions are normal practice. Alternatively, if contractors have, say, holiday plans, they may opt for a short-term assignment as a "fill in" for a limited duration.

Traditionally, IT contractors are paid more (much more) than permanent employees, partly in order to compensate for the "uncertainty" of being independent and on a fixed-term contract. However, the current IT market-place insures that consultants can move from one contract to another without a break. Contractors are therefore always in work and earning high salaries, which makes contracting a very attractive option, compared to almost any position as an employee.

Why is there a need for so many contractors?

The Implementation, Development, or Support of any system stretches the personnel and expertise of any IT department to the limit. However, the skills are only temporary. Once the system Implementation, Support or Development has been successful, the head-count in the IT department drops. Many companies therefore prefer using contractors for their projects / problems to hiring new staff and investing money and resources into them (only for them to leave with all their know-how as soon as the project is over).

What are the advantages of being a contractor as opposed to a permanent employee?

The main reason that people choose to be a contractor in the world of IT is financial.
This is certainly the case in Niche Markets: as a freelancer working with specific skills and knowledge through a reputable agency, you can expect to earn up to several times what you can earn as a permanent employee. A contractor does not have to climb the management ladder in order to advance their career and income.

There is no hierarchy - an independent consultant may be well rewarded for technical abilities alone. As an independent contractor you are your own boss and therefore more able to develop your own business opportunities.

More variety - contractors need never be bored as they can choose which assignment they take.

Travel - It is the contractor's decision whether they travel the world or stay near their home.

Many consultants who have worked for large management consultancies are tired of being sent all over the world for months at a time and working ungodly hours in anonymous subsidiary companies. They find that being a contractor gives them more chance to find an interesting long term assignment near their home and be with their families and friends.
On the other hand, clients are located worldwide, from Asia to Europe the US and South America. If a consultant is willing to travel, he or she can have the pick of the contracts available and have the opportunity to sample new cultures and lifestyles.

Holidays and other planning considerations - as an independent contractor, everything is negotiable, so you are free to take a holiday whenever you wish, within the bounds of professional conduct of course.

The appeal of contracting is obviously very great, and so here is a brief explanation of how to go about starting as an independent contractor.

1. The first step is to prepare a detailed CV

Your CV is your most important sales document and should be very detailed and very technical - the more detail the better. There is no need to restrict the document to 2 or 3 pages. 10 pages are fine if it is relevant. Try always to focus on specific skills or experience and detail all systems modules and sub-modules, hardware, database and programming information etc. If you have a particular strength, focus on that - Remember nobody expects you to know everything!

2. It is also a good time to speak to financial advisors

Speak to Accountants, Services Companies, Tax Advisors & Bankers about finance and tax legislation in your country. A good agency can usually point you in the right direction. Being freelance on the kind of income generated by a contractor can mean starting a limited liability company. This need not be a very costly affair, and many such companies can be created in a matter of days.

3. Read your current employment contract

Find out what notice is required to terminate your current employment, and find out what other restrictions there are (e.g. are there any restrictions about working at previous clients of your employer?)

4. Find a contract vacancy

In Niche Markets this should be the easy bit. Hundreds of companies are looking for contractors, and there is no shortage of work to be done, however...

5. Finding out who is looking for Consultants

And then negotiating a satisfactory contract is somewhat more difficult. The easiest and safest way to obtain a contract is therefore through an agency. This is also the most common way to find a contract (thousands of other contractors can't be wrong!)

Here's why:

Agencies offer more choice of opportunity, many of which can be better paid than a contract that you dig up yourself. Agencies collect your money for you and pay you regularly, taking on all of the debtor risk. Large companies, on the other hand, make you run for your money. Many small enterprises go out of business as a result of payment delays by large companies. Agencies maintain good relations with clients on your behalf and smooth over any problems that arise. As soon as one project finishes, most agencies can guarantee a follow-on project, especially for Niche consultants. Many countries have tax laws that encourage the use of an agency as an intermediary and many clients only like to deal with freelance contractors through agencies.

IT contracting is big business for everybody.

Any business that is so lucrative has its fair share of cowboys, and so it is particularly important to be careful in your choice of agency when you consider becoming a contractor.

Here are some pointers to look out for:

1. When speaking to an agency, try to assess whether the agency really understands their Market. If you register with an agency that is a newcomer to the world of IT or Niche areas or is a general IT agency, there is always a danger that you will receive many proposals that are simply inappropriate for your skills.

2. Payment - how promptly can the agency pay you? This is a good barometer of both the agency's efficiency and its financial stability. There is a great deal of difference between payment after one week and payment after one (or more!) month (s), especially with the sums of money that are paid to contractors. Horror stories abound of consultants waiting for several months for their money or having to spend hours on the telephone chasing invoices.

3. Flexibility - how flexible can the agency be in terms of a contractor's particular fiscal circumstances?

4. Service - Can the agency guarantee the following?

• That all CVs are kept in the strictest confidentiality.
• That no CV is sent to any client without prior approval by the consultant.
• That all relevant information about any given opportunity is given to the consultant before he makes a decision about the role.
• That the result of any interview is always given to the consultant.
• That the consultant is not expected to resign from his current position until he has seen a signed copy of the contract.
• That once the consultant commences a contract with an agency, he can expect constant contact with a representative and sometimes a visit from the agency

5. That the standard contract used by the agency is based on a template is simple to read and understand and contains no hidden clauses or "added extras".

Financial/Business Advice

A good agency can give advice on finding accountants, setting up limited liability companies (in various countries on and off-shore if applicable), along with miscellaneous tax advice
Finally, it never hurts to talk to an agency about the kind of roles available to you as a consultant without committing yourself.

Receive your earnings in the most tax efficient, hassle free way possible...
There are a number of different methods of receiving your earnings. Its important that you choose the most tax efficient, compliant and hassle free way of being paid.

Danbro are one of leading providers of payroll and accounting solutions in the UK. They have a wide array of services for contractors and they always provide best advice on which solution will be most suited to your needs.

Below outlines some of the solutions you may want to consider:

Paye Umbrella

The Umbrella company option works for contractors who want to have some of the benefits and advantages of operating through their own limited company but dont want to be burdened with the bookkeeping.

How it works:

Under the umbrella solution, all you have to do is submit your timesheet and expenses to Danbro, allowing them to invoice us for the work you have done. As soon as they receive the funds from us, they process your payment on the same day, ensuring you receive your earnings in the quickest and most tax efficient manner.

Your Own Limited Company

Operating through a Limited Company is often the most tax efficient way for a contractor to work. There are a number of elements that must be considered when choosing this solution, these being; IR35, basis of payment, contract length and your working practice.

How it works:

You would become a director of your own Limited Company. As the director you would invoice us for the work your company has carried out. Funds are then paid into your business back account and it is at this point where your accountant would advise you on how to best distribute monies from your company.

Personal Umbrella Company

The Personal Umbrella works best for those contractors working within IR35 incurring little or no expenses, thus minimising the benefit of using a traditional umbrella solution. If these criteria apply to you, Danbros Personal Umbrella service is ideal because its effectively free!

How it works:

It is effectively your own limited company, with yourself as the sole director and employee. You would still receive your net pay directly into your personal bank account, similar to a traditional umbrella company. The main difference is that under the Personal Umbrella you will receive any financial advantage of operating your company flat rate VAT scheme. *In most cases the benefit passed onto you not only covers our fees but leaves you with a bit extra, in some cases, over 50 a week extra.

Contact Danbro for a free consultation & find out which solution is for you:
Call: 0800 731 3178
Email: enquiries@danbro.co.uk
Visit: www.danbro.co.uk

Accounting Process

Timesheet submission: Fax, post or email
Invoice submission: Fax, post or email
Submission deadline: 12.00am on Tuesday (Both timesheet and invoice)
Payment: Invoices are paid by BACS and funds will be received in your Ltd company account on the Friday

Accounts team contact details

Accounts Team: Gillian, Sarah and Louise
Address: Artis House, Fairways Business Park, Pittman Way, Fulwood, Preston, PR2 9LF
Phone: 01772 278050 Fax: 01772 278051
Email Addresses: admin@itworksrec.co.uk

N.B. If you have any payment related queries you can contact the accounts team on Tuesdays & Wednesdays or alternatively speak to your managing consultant at any time during office hours.