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Thinking about Contracting?

So you’ve thought about contracting but can’t quite make up your mind whether it is right for you. Well, you’re right to consider the decision carefully, the world of a contractor start up can be both one of reward and risk. Have a look through our independent contractor guide and find out for yourself if it’s for you.

What is a Contractor?

‘ A contractor works for someone else for an agreed period of time set out under a fixed contract, in order to help them complete a specific project.’

As a contractor you will be providing your skills and time in return for an agreed rate of pay; this is normally an hourly or daily rate, but can be a fixed amount specified to complete a project.

What Professions are suitable for Contracting?

There are a number of professions / sectors that are well suited to contracting. These include, but are by no means limited to, Information technology (IT), engineering, management consultancy, marketing, medical and pharmaceutical, construction and telecommunications to name a few.

Providing there is sufficient demand for specialist skills in a specific sector then people will generally be able to work successfully as contractors.

Why become a contractor? What are the Benefits of Contracting?

Let’s first take a look at the advantages and disadvantages of both permanent and contracting work. The table grid below sets out the advantages and disadvantages of permanent and contracting work.

Permanent vs. Contracting – What are the differences?








1. Job Security / Stability
2. Statutory benefits (including sick pay and holiday entitlement)
3. Additional benefits such as private healthcare, contributory pension scheme (dependant on the company)
4. Simplicity. You do not have to worry about tax or national insurance, this is done by your employer and you’re given an income net of tax and national insurance.

1. As a permanent employee you are unlikely to be maximising your earning potential.
2. Working as a permanent employee may not be the most tax efficient option.
3. Working for one company for a long time is unlikely to enable you to gain experience in different industries.





1. You get to decide when and where you want to work.
2. In essence you are your own boss.
3. Although dependant on skills and industry, contractors generally get paid significantly more than permanent employees with the same skills.
3. With a good contractor accountant you can reduce the amount of tax you pay.
4. By working for different companies and in different industries, contractors build up a lot of experience which can look impressive on their  CV.

1. Lack of job security – as a contractor you are not protected in the same way that permanent staff are.
2. Uncertainty – you will have to accept that there will be lean times when you’re waiting for the next contract. There are no guarantees of another contract once your current contract comes to an end.
3. Hassle & administration – depending on how you decide to operate you may have forms to complete, records to keep, rules to obey etc. However, solutions like our limited company contractor service now make this much easier.
4. You’re on your own – if you don’t work you won’t get paid, so you’ll need a buffer fund to cover those lean times and holidays or periods of illness.

Why do companies hire contractors?

There are a number of reasons why companies decide to hire contractors:

  • As a general rule contractors are more flexible that permanent staff. Companies can employ them for relatively short periods of time and then release them once the work or project is done. Unlike permanent employees, the company has no long term commitment to them.
  • Although contractors are usually paid more then permanent employees, the company actually ends up saving money by hiring contractors. Unlike permanent employees, when a company hires a contractor they do not have to pay sick pay, holiday pay, redundancy pay or employers national insurance.
  • A lot of the time companies are forced to hire contractors as the required skills or expertise are not available in-house. 

More from our Independent Contractor Guide

Unfortunately, contracting is not suited to everyone. As we’ve mentioned in the above independent contractor guide, there are a number of pitfalls that some people decide they cannot live with. For example, most contractors who return to permanent employment do so because of the uncertainty of when the next contract will come. The fear of the unknown and lack of financial planning normally drive contractors back into permanent positions. For those that are more disciplined with their money and can build up a “buffer fund” to fall back on during lean times are the ones best suited to the contracting lifestyle.

Below is a brief summary of the important traits that make a successful contractor…

  • You have the ability to go from company to company and find it easy to adapt to different working situations, cultures, people and tools.
  • You find it easy to get on with people and build working relationships and friendships easily.
  • You are motivated to help others without criticising their work.
  • You have the ability to know when your advice is wanted and when it is not.
  • You look for your own work rather than just letting agencies look for you.
  • You will have taken your opportunities over the years to pick up extra work from multiple clients, and will therefore be outside IR35 (see what is IR35 for more information…)
  • You will have built up or be building up a database of clients with up to date contact information, who you contact on a regular basis to secure new contracts.
  • You keep your clients up to date with your latest contact information, so they can reach you should a contract opportunity arise.
  • You are willing to brush up on existing skills (or train in new ones) in order to adapt to the changing marketplace.
  • Your work has a good reputation and you have a good rapport with clients such that your contracts are renewed whenever the client is able to.

Hopefully this independent contractor guide has been useful. If you think Contracting is for you then read our step by step guide to contracting, which discusses the steps you need to take to start contracting.

Freestyle Accounting – Limited Company Contracting Made Easy!

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