Moving from Permanent to Contracting

If you are considering becoming a contractor or if you have been made redundant and are finding yourself pushed in this direction, there are a number of reasons why contracting could be a very good move for you.

Potentially a higher daily rate compared to equivalent permanent employees, flexible working hours and the opportunity to build on and advance your skill set are just some of the advantages to becoming a contractor. The following provides a simple step by step guide along with hints, tips and advice on making the move from permanent to contracting.

Finding work as a Contractor

Making sure that you have an up to date CV, which is no more than two pages without any spelling mistakes or grammatical errors is an obvious starting point when trying to find work. In this competitive contractor market where at the click of a button anyone can upload a CV online, you need to make it as easy as possible for any recruiter or employee to find your CV through job boards and recruitment sites.

In order to attract that perfect job be sure to include ‘scannable’ keywords and industry buzzwords that are specific to your particular industry or skill set also using jargon and acronyms that you think recruiters may search for.

Be sure to sign up for free alerts on job boards where you are automatically sent an email when a new job becomes available in your particular niche.  Suggested jobsites include and

Check your IR35 status

After securing your first contract, it is advisable to check if your contract falls inside or outside IR35. IR35 was introduced by the government to stop ‘disguised employment’, this is when permanent employees would switch to contracting but still keep the same benefits, risks and working practices as an employee as well as being able to take more money home by working through their own Limited company. Most contractors will ask their recruitment consultant to see if their contract falls inside or outside IR35, or you could ask a specialist contractor accountant to review.  

How to contract – Limited company or Umbrella Company?

Umbrella companies are recommended for those on a short term contract of less than £25k per year. You submit time sheets to the Umbrella Company who will invoice the end client/agency for the work you have done. You will then be paid as a PAYE employee deducting the umbrella fee.

Using an Umbrella company means you will typically take home between 60% - 65% of your contract value with the option to claim on some basic expenses. Your take home pay is less through using an Umbrella company as you pay full income tax and full national insurance contributions on your entire earnings.

Working through your own Limited company is the most tax efficient way of contracting, meaning you keep more of your hard earned money. Typically your take home pay will be between 75% - 80% of your contract as there is greater opportunity for tax planning than PAYE Umbrella. You can claim on a wider range of expenses and are entitled to the Flat Rate VAT Scheme which can generate thousands of pounds of extra profit a year.

There is a certain amount of paperwork involved which usually takes about 10 – 15 minutes a month after the first few months, however this also means you are in complete control of your finances.

Setting up your own Limited company

You can set up your Limited company in just three easy steps...

  1. Choose a company name – your company name can be as simple or as complicated as you like.
  2. Form your Limited company – this only takes five minutes to complete online, with your company formed within a few hours..
  3. Appoint an accountant – using an accountant will save you time, money and stress worrying about your taxes. Appoint an accountant who offers you an all-inclusive package, this way you are guaranteed to know exactly how much money to allocate each month, without any additional charges and many accountants specialise in dealing with contractors.

Article supplied by SJD Accountancy