
Becoming a contractor programmer in the UK - medwezys
https://github.com/tadast/switching-to-contracting-uk/blob/master/README.md
======
monkeyprojects
As a contractor of many years standing (I started contracting when the
internet appeared in 1994) I started reading the article hoping it was correct
and finished it with my fingers covering my eyes in fear. Sadly I don't have
time to correct many of the misconceptions and total inaccuracies it contains.

Its a shame really as good articles are hard to find and I'm sure many
americans would find the differences between the UK and US markets very
interesting...

However if you really want to be a contractor
[https://www.ipse.co.uk/advice/articles/starting-
out](https://www.ipse.co.uk/advice/articles/starting-out) has a lot of advice
on starting out.

[http://www.contractoruk.com/first_timers/](http://www.contractoruk.com/first_timers/)
also has a lot of advice although as a new starter I would avoid the general
part of their forum...

And there is a reason why people use limited companies. You can work as a self
employed person but many clients stop when HMRC come knocking while agencies
have been legally barred from employing people as self employed since the
1970s...

~~~
amouat
It would be a lot more useful if said what these misconceptions and
inaccuracies were. It seemed generally accurate to me. I think you should
either back up this comment or delete it; otherwise it's unfair to the author.

(I don't mind to sound snarky here; the rest of your comment is genuinely
helpful).

~~~
monkeyprojects
Where to begin

Am I ready - The biggest bit is actually having the confidence to do it and a
CV good that will get you past both the gatekeeper (the agent) and the client
checking CVs... That means you should have real experience across both
multiple employers and multiple market sectors (retail, consultancy, banking
for instance) before thinking about it.

Timing -

Never understood this one. Projects have different life cycles so require
analysts before project managers before developers before testers.

Outside of the week between Christmas and New Year there are always some
companies looking to start projects or requiring another contractor to fix a
problem. In fact the only time I've found it difficult to get work is in April
which supposedly is a boom period due to new financial years...

Bureaucracy -

The easiest way to find contracts is through agencies. To do that you need
either a limited company or to use an umbrella. You don't however need to
create this before you get a contract as you can get a company created in
about 4 hours..

Getting an accountant

You need one but don't need 1 until you get that first contract. Crunch has a
lovely interface and is a good site but frankly I don't think they would be
that great if things went wrong as they haven't got many qualified
accountants. Look at IPSE or Freeagent for many other possible options..

Registering for VAT

On the flat rate scheme you don't keep 5.5% but rather .2 *.145 or 2.6% as the
14.5 is taken from the income including VAT..

Expenses

You don't need to do anything until you have a contract (as I've continually
said setting up a company can be done in 4 hours). You may need to wait before
you get paid (although some agencies still pay weekly) but if that is the case
you keep the expenses to a minimum, keep a record of them and take the money
from the company as soon as it receives that money.

Finding your first client

The first client isn't the hardest. The second one is. Especially when your
first client was a short term 3 month contract and they didn't renew you
because the work was done. With 1 3 month contract under your belt you then
start looking for a contract as your money starts running out. That is when
things are difficult.

And I'm out of time but just before I go

Mailing lists and communities

This is my real problem with this article. He doesn't seem to want to be a
contractor. He wants to be a freelancer working for multiple companies on
various projects. Perfectly acceptable but thats the world of code bunnies
doing work for start-ups and advertising agencies rather than contracting in a
consultancy firm or government department.

~~~
lifeisstillgood
A few things to add to this.

\- put aside money Before starting try, really try, to have saved at least 1
months expenses - preferably 2 and ideally six. You won't get paid (as in a
months salary in the bank) for a couple of months. companies have cycles for
payments and if you are on the wrong end it can hurt

\- know your tax liabilities Sit down with your accountant and write a
spreadsheet or a script that tells you exactly how much tax you owe to whom
given say 10,000 of monthly income. Do not leave until this is done. Read this
again. Trust me from bitter personal experience. Know your tax situation

\- tax "dodges". You will be approached within days by someone hoping they can
sell you on a scheme where you will pay 1% tax. Loans, off shore, forget all
of them. Until you can afford your own tax lawyer, you pay what HMRC tells
you. Possibly the only "dodge" is if your spouse works for you and you split
the shares of the company, each takin dividend payments - this way as a couple
you have about 80k of income before a top rate tax is applied instead of just
40k if you are the only dividend reciever.

\- good personal project management. No matter what half arsed system the
client has you must always know what tickets you have, what the acceptance
criteria are, and be able to report weekly to whomever. Even if you report to
your Collegue or your own inbox the discipline is vital.

\- have a "swapsies" partner. IR35 essentially says companies cannot exploit
workers by calling them contractors. So there are several tests, the most
convincing is substitutability - the idea if I am sick my company can send in
another contractor just as good. Have a comtractor friend act as this person -
it is a useful way to remember you are supposed to be a company not a person.

Wow - there is a lot more to talk about

~~~
superafroman
Shameless plug, but if you need to set up a substitution agreement with
another company, i.e. a "swapsies" partner, checkout
[https://agree.digital](https://agree.digital). It's generally a good idea to
have documentation in place you can use as proof if HMRC come knocking!

------
ed_blackburn
What this does not touch on is be prepared to be a grease monkey, roll your
sleeves up and get your hands dirty and most importantly learn how to make
recommendations but not take it personally if they’re ignored for seemingly
irrational reasons. Organisational dysfunction is the norm, not the exception.

Broadly speaking I’ve seen most of my work fall into these categories:

a) Help we need someone competent to aid us in a murky project b) We are a
dysfunctional organisation, who require transient developers to put up with
their modus operandi. c) We need your experience and expertise for a gap in
our project

I’ve found (c) is best but (b) pays best though it can be stressful if your
passionate about quality, engineering practices or process and (a) is often
relatively short term but can garner kudos and create better opportunities.

Most companies don’t hire contractors because they’re doing swimmingly. Often
it’s because they have some degree of dysfunction. For example large
institutions in the City regularly operate as a parody of the Mythical Man
Month. Expect Waterfall, PMO, silos of BA, Dev, QA; UAT (manual), Cookie
Cutter templates to everything. Expect most “business” interaction to be via a
PM and scrums to be lengthy tortious ordeals. (This is why companies like
Thought Works do so well and why I expect some serious disruption in the
coming years from Startup targeting City companies).

Expect people to ask you your advice and for you to mentor less experienced
developers. Do not expect your advice to be implemented, or rather expect it
to be watered down with compromise by non-technical councils.

I really like contracting. I enjoy the flexibility, variety and the
challenges. I enjoy the people and skills I learn and now my network has
expanded and I have earned a reasonable reputation I enjoy the better
projects.

I second the sentiment about going IPSE and of hiring a decent accountancy.
Don't worry about their portals or how shabby a website may look, pick them
based on their competency.

Bite the bullet. Go for it!

~~~
neverminder
I agree with you. This is why I will probably never go contracting. These my
observations:

You have to be an expert in the required area. Example: you have to be a Java
Developer. If you are a software engineer that uses Java as one of your tools,
it's not gonna fly, because god forbid you won't know by heart some java
specific library/method/quirk/etc during your interview - this will be
immediately filed under as a "NO" under "can hit the ground running" section,
no matter how good you are at software engineering as a whole. In the end you
will work with handful of "proven" (read "old, outdated") tools and become an
expert of handling all kinds of legacy mess.

~~~
monkeyprojects
You can't know everything and don't need to know everything.

What I offer is a lot of knowledge for the core items I currently use
(Dynamics CRM, C#, Javascript, SQL) and a very broad set of knowledge based on
20 years of been there done that seen what happens if you do it that way...

The requirement of any contractor (or consultant) is to convey a sense of
competency / trustworthiness that allows the interviewer to believe you either
fit the exact requirements or provide enough additional value (in my case 20
odd years of battle wounds and stories of utter disasters) that you are the
person who will add the most value....

------
jackgavigan
_> The fixed rate VAT does not let you reclaim VAT, but you pay a lower rate
than you charge your clients. So if you're a developer contractor you'll be
adding 20% VAT to your client invoices, but only pay 14.5% to HMRC, keeping
the remaining 5.5% to the business._

This is not correct. The way the flat rate VAT scheme works is you add VAT to
your bill, then pay 14.5% of your "flat rate turnover" to HMRC. Flat rate
turnover includes the VAT.

For example, let's say you did £100 worth of work for a client. You invoice
them for £100 + 20% VAT = £120 in total. You must then pay 14.5% of £120 to
HMRC (i.e. £17.40).

~~~
pjc50
It also doesn't mention that you don't need to register for VAT until you have
a turnover of £82k.

~~~
MatthewWilkes
But for coders it's almost always worth registering straight away and going
for the FRS.

Also, on FRS you can claim a single £2k expense annually.

------
rossriley
In terms of the recruiters section, whilst I appreciate you may not have had a
good experience, this is probably the way a lot of people get contracting
work, at least until you have a fairly big network of contacts.

I'd be more interested in knowing what agencies do have a good reputation /
good developer experience along with the note to beware of the cowboys.

~~~
boothead
In general the big ones suck and have a boiler room mentality. Good ones in my
experience:

Oxford Knight

Functional Works

GQR

Hays (They're big but have been good to work with)

I'll add more as I think of them.

If you're looking for work in finance - you will almost certainly be going
through a recruiter.

~~~
ed_blackburn
Funny. I've had lots of problems with Hays. Cancelling cheques, unenforceable
and ridiculous clauses in contracts for example.

The best agencies? None. Don't use them if you can help it. If you have to the
smaller the boutique ones tend to be better, if nothing else because they'll
have the better clients and more interesting projects.

------
Nursie
Why bother with a third party company registration service? You can do it
yourself pretty easily through companies house.

Do companiesmadesimple have any value-add?

While I do share your cynicism about recruiters, I have also got most of my
contracts through them. There are bad recruiters (vague job descriptions,
never call you back) and there are good ones (We need someone here, you fit
the bill, can we arrange a time to talk to my client?).

Learning to swallow your distaste and listen to them as if they were
worthwhile human beings is a useful skill. Some (few) of them actually are.

(--edit-- good guide in general! I don't just want to harp on the negatives!)

~~~
Nursie
A few more comments -

Rate - Daily is good, hourly can also work. My current client will pre-
authorise overpayment of a few hours a week if I work them. A little income
boost if I want it.

IR35 - The 'own equipment' thing is a guideline only, and I don't think you'll
fall foul of IR35 for using their equipment, particularly as many places only
allow their equipment to be used on their networks.

There are other reasons to avoid working for one client long-term too. At the
moment you sign up for a contract or contract renewal that takes you over the
two year mark, you can no longer claim day to day expenses.

I.E. I sign an initial 18 month contract, and at the end sign up for another
year. From the18 month point the client office will be considered my 'normal
place of work', regardless of IR35, so the company cannot pay for transport or
lunch any more.

~~~
new299
> Rate - Daily is good, hourly can also work. My current client will pre-
> authorise overpayment of a few hours a week if I work them. A little income
> boost if I want it.

How do you manage your hours with a day rate? Is a work day 8 hours, or is it
any day you worked for the company more than X hours?

I've been trying to move to logging time and equating 1 day to 8 hours work.

I find it fiddly to bill per day when perhaps I only needed to work 5 hours to
complete one job and 3 on another day.

~~~
Nursie
Good to get this stuff sorted out ahead of time I guess.

Last year I was on a no-questions, no deviating day-rate. The consultancy I
was working through wanted hourly accounting, I told them no and charged my
rate per day or part of a day I worked for them, and based my working
practices around 7.5 hour days. I put in the odd extra hour or ten here and
there because I liked them and enjoyed the project, and they never quibbled
about me clocking off early when the project didn't require a full day's
attention. Quid pro quo I guess.

For this current contract the agent demands an account of hours worked and
pays extra hours at day-rate/7.5, up until some maximum at which time I get to
charge double, but the time has to be authorised by the end-client.

But it sounds like you're doing much smaller chunks of stuff for multiple
clients? I tend to dedicate myself to one client at a time and work more or
less full time on one project. Serial monogamy one might call it... I'm not an
employee because I work on a project basis and then leave with no fuss :) I'm
definitely a contractor, are you more of a freelancer?

~~~
buserror
I do largely prefer the hourly rate myself. The reason is that it is way too
easy to work 'more' but it is very hard to work 'less' when paid daily. It was
a problem I had for all the years I was employed, and I hate it..

With the hourly rate, I can just go off at lunchtime if I feel like the
weather is good, and plonk in 12h on the following day if I like. And nobody
/minds/ because they know I'm on an hourly rate. Also, I have a 'primary'
client, so I can work there in the morning, and take on another contract from
home and work that in the afternoon for example. I've been doing that a lot
lately, and yes some days you end up doing silly hours, but they are all
/paid/ hours.

I used to charge (as a freelance) on 'project' and 'phases' and so on, but
very often, you always end up working more due to shifting specifications,
bugs etc. By sticking to an hourly rate, you remove that constrain, and if you
are 'expensive' companies will try not to waste your time -- while I see a lot
of 'daylies' being given menial jobs because they are considered 'cheap' and
expendables.

------
gadders
I'd also mention joining IPSE
([http://www.ipse.co.uk/](http://www.ipse.co.uk/)) which a is trade
organisation for freelancers. They provide various benefits including IR35
insurance that covers investigations.

Freeagent is a good online accounts package as well, but you need to find an
accountant that uses it.

~~~
gadders
One other thing I would say is that I'm not sure your points about IR35 are
correct. EG:

* Don't use equipment provided by the client; \-- This would be very hard to do. Most clients I've ever worked for supply you with a PC to use and won't allow non-corporate devices on their network.

* Be careful with paid-for meals or participating in company parties. \-- Never heard this mentioned before.

* Avoid working for one client for longer than a year when possible. \-- A lot of cients will enforce a maximum period of 2 years anyway, as after that you could theoretically claim benefits.

There are a lot of scare stories propogated about IR35, and a lot of it is by
companies that sell IR35 Contract Reviews, IR35 Insurance etc. The number of
IR35 investigations each year is in the low thousands, and there are 1.8m
contractors in the UK.

~~~
bencollier49
Re. IR35 investigations - that number is going to go up. The new
intermediaries legislation will give HMRC a ready-made list of likely targets.
I expect the first people to be hit will be in companies with a large number
of contractors supplied through the same company.

------
hunglee2
Good to see recruiters getting some love on the comments here. If there
remains a place for 3rd party recruiters its in the contract market. A few
reasons:

 _Payments processing - a lot of employers will not want to deal with
processing payments for contractors. Indeed, its often the main reason why
they might go for contract vs permanent resource in the first place. I 've
seen situations where contractor and employer have discovered each other, only
for the employer to then ask the contractor to 'go through agency X'. No one
likes admin load and we'd all get rid of it if we can.

_Reduce assessment load - job opportunities cycle much more frequently on the
contract market - typically 3-6 months. This means a lot more time involved in
opportunity sourcing / vetting, potentially a hugely time consuming exercise.
A good recruiter will be able to filter these opportunities for you, and only
get you the most suitable gigs

 _Reduce downtime - going without agencies entirely means relying on your own
market gravity as a developer of renown to secure job opportunities. This is
do-able for high profile developers, of course, especially those who live in
metropolitan areas and are prominent on the open source / community / events
scene. However, if you work on proprietary software, have heavy family
obligations and live outside of a big city, you're probably going to find
agents very useful indeed.

_Salary / Rate negotations - they are going to take their 15-20%. But they may
end up earning you more by negotiating hard with the end employer. Certainly
an inexperienced contractor is at risk of being exploited, but that's true in
whatever of the type of contract you sign. A good relationship with a trusted
agent can really help you make more on your rate, especially if you are not a
naturally comfortable at negotiating.

And I say all this as a maker of a tech hiring platform that doesn't allow 3rd
party recruiters on it. They have their place - just a smaller one than they
currently occupy.

Great article in all other areas

~~~
Nursie
What's your platform?

The payments thing is important, and sometimes recruiters provide a useful
buffer too - the end-client company might take their sweet time to pay, or be
unreliable. Contracting through a third party provides you with a buffer and I
know for a fact that I've been paid well ahead of the recruiter being paid on
several occasions.

~~~
Peroni
Knowing Hung, he'll be too humble to mention his platform directly so I'll do
it on his behalf: [http://workshape.io](http://workshape.io)

It's a brilliant platform & I've hired a few great people on there.

~~~
Nursie
Thanks, I'll take a look around...

------
kybernetyk
>A service like www.companiesmadesimple.com (aff.) will make the incorporation
process easy. It usually takes up to three business hours.

Yeah, better do it yourself. I'm from Germany and I set up a LTD directly with
Companies House myself. It's really (I mean really really) straight forward
and they even accept PayPal to pay the 15 GBP fee. It took me ~20 minutes and
the company was incorporated the next day.

Those formation companies usually just are an unnecessary middleman.

~~~
UK-AL
The formation companies are a left over from when it was quite hard

------
Wintamute
Uh oh, if it's one thing us brits like to do its wrangle over the finer points
of tax, employment and contractual law. This thread is going to get long,
involved and possibly slightly testy :)

------
celticninja
one thing I would say is that i have had good fortune with recruiters,
providing they are a decent recruiter they can ensure 0 downtime between
contracts and if financial stability is a concern then this should notbe
overlooked. One thing i have found is that finding a good recruitr and
sticking with them has ben more useful than calling a handful of agencies and
using the shotgun approach.

I would note that none have ever told me the name of a client prior to me
accepting to be represented by them and I have been introduced to a client
company who then asked me to work directly through them and to bypass the
recruiter (and any fees the client company would be paying to them). I refused
as it was a single contract for 6 months and burning bridges with anyone isnt
worth it for that sort of duration. Plus the recruiter had got me the
interview within 7 days of me getting in touch with them.

YMMV just my 2cents.

------
kifler
This looks incredibly helpful - I wish someone would do one for the US/Canada

~~~
a3camero
Becoming a Contract Programmer in Canada:
[http://www.cameronhuff.com/blog/becoming-a-contract-
programm...](http://www.cameronhuff.com/blog/becoming-a-contract-programmer-
in-canada/index.html).

------
martinald
Do not ever be a sole trader. It means you are personally liable for anything
that goes wrong.

Say you end up with a dreadful contract and everything goes wrong and the
client sues. If you're a ltd company you can dissolve the business and pay
them out of whatever assets your company has.

If you're a sole trader you're liable for all the costs. Until you're
personally bankrupt. Sure, there may be clauses in the contract etc, but if
someone is mean enough they can make your life very difficult and they will
exploit the fact you are a sole trader.

~~~
dublinclontarf
This is what business indemnity insurance is for, get covered to a minimum of
£50K.

If you don't own a house and are brining in less than £70K PA it may or may
not be worth registering a Limited company.

~~~
UK-AL
If you don't own a house, you probably have tons of cash which is even easier
for people to get their hands on.

------
tristanbailey
The post is good, covering many of the aspects, but if you are trying or just
started contracting there is not always a need to make the VAT registration
and Limited Company. As I have been freelancing for 4 years as a sole trader.
There are some tax benefits but you have to manage your pay and money very
differently as a Ltd, i.e. you have to hold money in the bank enough to cover
company bills that you cant spend. Unless you are a high paid contractor all
year you are unlikely to make £82,000 VAT base rate.

------
asherkin
> As far as I understand, it is important to have a contract that allows you
> to:

> [...]

> If the client insists on including the clauses above, be ready to move on.

These lines appear to contradict themselves, am I missing something?

------
laverick
Finding a good accountant isn't easy, but I would recommend looking for
something better than Crunch. They were the default option "just pick Crunch",
but I had to do a lot of tax research myself and recommend favorable
approaches to their accountants on certain non-standard things. I also felt
their first line of support is spread very thin and they put a lot of
bookkeeping work on me. Then a lot of services cost extra each month, making
their total pricing uncompetitive. In the end I got everything done and they
did their best to rectify issues, but it was a big burden on my time and
significant amounts of stress.

Maybe I would have had this issue with any accountants as a first time
contractor, but I know it could have been better and I would have happily paid
more to make it so. Do yourself a favor and pay extra to get an accountant
that handles more things on your behalf (bookkeeping, VAT filing, etc)
preferably with a simple non-proprietary interface.

I haven't tried these two services but if I go back to a UK accountant they'd
be at the top of my list.

[http://www.3wisebears.co.uk/](http://www.3wisebears.co.uk/) (contractor)
[http://www.proactive.uk.net](http://www.proactive.uk.net) (more startup
focused, very helpful via phone)

~~~
highace
I would also recommend not using Crunch. They're OK if you stay on the beaten
path, but if you start veering off it their juniors don't have a clue. It was
a painful experience for me.

------
kaolinite
I recently started working as a contractor (just for a few months to bring
some cash in so I can continue to work on my business).

As I have a business already, I was considering doing the contracting under
the business to reduce liability. Does anyone know whether this will increase
the amount of tax I have to pay? I figured that I would have to pay
corporation tax on any money I bring into the company as well as personal tax
on any money that I pay myself as a salary. Is that the case?

~~~
tommyd
Ask your accountant. Seriously, that's the best thing to do in a situation
like that - random strangers on the Internet have no idea of the ins and outs
of your company structure etc. and so could potentially give bad advice, even
if they don't intend to.

------
teknologist
Something called entrepreneurs' relief is also nice for those with ltds or
tech startups in the UK. It allows you to save massively on CG tax (10%
instead of the normal rate of 18% or 28%) when selling assets or liquidating
the business.

[https://www.gov.uk/entrepreneurs-relief](https://www.gov.uk/entrepreneurs-
relief)

------
tkyjonathan
You guys need to learn some accounting. Don't be afraid of book-keeping and be
keen on any rule that helps you save on taxes. Overall, a limited company can
save you around 20% on taxes over a salaried worker. That alone makes it
difficult to go back to full-time employment.

~~~
pkaler
I agree with you in principle, but not in practice.

Outsource your bookkeeping to Xero or Bench or wherever. As a consultant,
accounting is a cost centre. You should be focusing on sales, marketing, or
service delivery.

As a consultant, you are now a business. Ring the freaking bell or deliver
service. That's your new job.

~~~
roel_v
"As a consultant, accounting is a cost centre."

While I can't claim to know every jurisdiction, this is a very naive way of
looking at things. Situations in which I was first-hand witness to people
making (lots of) money from knowing the books well (i.e., much better than if
someone else would do it):

\- subsidies (like for 'innovation') \- in case of a tax audit - some junior
accountant who gets tasked with the small clients at a firm isn't going to be
able to defend some stuff as well as someone with skin in the game \- on
bankruptcy or when talking to a bank

And I'm sure there are more.

------
boothead
Good advice, especially the bit about crunch. First time I contracted I let my
accountant talk me into using their horrible spreadsheet. I couldn't make my
self use it it was that bad and my accounts were a mess. Now my accountant
(nimble jack) bundles freeagent (which when I looked into it was better than
crunch and has an API) and keeping on top of things is much easier.

One additional thing: If you're married make sure your spouse is a director of
the company as well (especially if they're not working). You can be hugely tax
efficient in this manner and can extract nearly £80k per year from the company
with no _personal_ tax to pay (there will still be corporation tax to pay on
profits).

~~~
tommyd
Other recommendations of accountants with decent online systems would be
greatly appreciated. My current ones (Nixon Williams) seem fairly good as
accountants, but the spreadsheet based expenses (and having to use email to
take dividends, check profit/loss, etc) are getting quite annoying, and they
want to charge extra to use their registered address rather than my own, which
leaves a bit of a bad taste when Crunch include this.

I have heard good things about Crunch's system but some mixed things about the
quality of their advice and how pro-active they are - any other feedback on
them or others?

The point about the registered address and fraud is a real one, someone I
worked with had this happen to them - will Crunch act as the service address
as well as the registered address?

~~~
Nursie
I've been using NW for about three years now and am deeply ambivalent about
them for similar reasons...

~~~
tommyd
I'm unsure if you'll see this reply with the topic being quite old, but I
found out today (via a Youtube ad, no less - well targeted, sort of!) that
Nixon Williams now have an online portal, called Vantage:
[http://www.nixonwilliams.com/vantage](http://www.nixonwilliams.com/vantage)
\- judging via the Wayback Machine, it has only been around since February
this year.

If you speak to your account controller, they'll be able to set you up a dummy
account to see if you like it - my understanding is that this would replace
the monthly submissions of expenses and invoices, and give you a better real
time view of your profit/loss, but you should still get the same level of
service and attention paid to your account and it costs no extra. I'm still
waiting for confirmation of all that (my worry being that I could make a
mistake and it wouldn't get spotted, whereas it would with a monthly
submission to a human) and for my account to be set up, so I can't comment any
more on it, but it's definitely worth a look!

------
new299
It's probably worth noting that you only need to register for VAT if you're
expecting to make > 82KGBP in VATable sales per year.

If you're contracting is mostly remote and outside the UK, you don't need to
register, or charge VAT (as I understand it).

~~~
Nursie
There is a financial incentive to do so, you charge VAT at 20% and you pay it
at 14.5%.

I.E. I do £100 of work, I charge £120 and pay the government 0.145 * 120 =
£17.4

Further, for the first year, you get to pay at 13.5%, £16.20 in the example,
effectively boosting company revenue by 3.8% for the first year, and 2.6%
thereafter.

~~~
new299
Specifically I was talking about the situation where your clients are outside
the EU and you wouldn't be charging them VAT anyway.

If you are working with UK clients I'd imagine it's most likely in your
interests to be VAT registered.

------
flog
Here's the printable PDF version: [https://gitprint.com/tadast/switching-to-
contracting-uk](https://gitprint.com/tadast/switching-to-contracting-uk)

------
ticksoft
I notice that business bank accounts are always mentioned in these sorts of
lists. To me they seem like an extra overhead for no reason. You essentially
have to ask a bank's permission and pay them just so they can accept your
payments? So weird.

I could understand it if you had a business with employees and you sold
products on a daily basis with loads of transactions, or if you plan to get
into debt... but for invoicing someone every month? Personal account seems
fine, and I'm sure people have several of them already.

~~~
Nursie
The business is a separate legal entity to you. A business bank account
clearly demarks what is your money and what is not. I wouldn't be at all
surprised if it's a requirement to work with a lot of companies, if not a
legal requirement for working with a ltd company.

Business bank accounts can be had for free - most contractor-friendly
accountants have an arrangement with Cater-Allen, for instance.

~~~
framp
It's not a legal requirement and they're certainly not free AFAIK.

It is a requirement for partecipating in certain contests (eg: Microsoft had a
program for investing in indie games company and they required to use a
business account entitled to the company) but I still haven't heard such
requirement from a client.

~~~
Nursie
>> It's not a legal requirement

I'd be surprised if it wasn't a requirement with many clients though, it shows
a level of professionalism.

>> and they're certainly not free AFAIK.

You haven't looked very hard then...

~~~
framp
> I'd be surprised if it wasn't a requirement with many clients though, it
> shows a level of professionalism.

Agree, but I've never seen such clause in a contract.

> You haven't looked very hard then... I guess it's a service provided by only
> certain accountants? All the (chartered) accountants I've talked to never
> offered a free business account. They offered introduction to paid business
> account but that's the usual.

If it's not and there is a free business banking account with a reputable bank
out somewhere I'll be happy to look into it.

~~~
Nursie
Ok so the the two things I know of are that HSBC will give you a free intro
year or two (but that's obviously only useful for a year or so) and that most
contractor-specialising accountants have some sort of promotion/deal on with
Cater-Allen to get you free business banking at their private bank.

------
Keats
I read that book [http://www.amazon.co.uk/Contractors-Handbook-Expert-Guide-
Fr...](http://www.amazon.co.uk/Contractors-Handbook-Expert-Guide-
Freelancers/dp/0956074529/) when I started contracting last year and thought
it covered quite a bit.

Another thing I'd recommend is finding an accountant that uses FreeAgent or
something similar rather than their homegrown system. Also, If you use an
accountant they will do the company registration for you

------
zimpenfish
My advice would be to use an umbrella company and let them deal with all the
tax hassles - they have an entire staff purely for this. You will take home
slightly less (no opportunity for tax "optimisation" but I disagree with that
on principle anyway) but then also have no exposure to HMRC coming after you 6
years later saying "Where's our £10,000?" (has happened to several people I
know.)

(edit for spelling)

~~~
monkeyprojects
Oh the joys of IR35 and its old ability to attract people into tax avoidance
schemes instead of setting up limited companies....

My advice and I've repeated it continually on Contractor UK for years is to
only use a proper umbrella company or use a limited company.

If someone says you'll receive more than 65-70% of you contract value from a
umbrella company or more than 80% from a limited company they are just lying
to you and wish to use your greed to initially grab money off you and then let
HMRC take you to court...

For details on proper umbrella companies see
[http://www.allumbrellacompaniesareequal.com/](http://www.allumbrellacompaniesareequal.com/)
. But if you are planning to do this long term start a limited company....

~~~
d_t_w
Good advice.

I contracted for about 10 years in the UK, finance mostly. Had my own Ltd,
took home about 65% of my day rate. No funny business, happened to move
clients about every two years which helped for IR35.

Nothing more complicated than that. Yes that means I paid 35% tax, which is
pretty much the equivalent I would have paid if I could have ever found anyone
who would pay me my day rate as a salary.

1\. I believe in a progressive tax system and public services 2\. I don't
believe in working for an umbrella based in Norther Cyprus which is owned by a
Trust of which I am a trustee which pays me loans on a semi-regular basis of
80-88% of my day rate with absolutely zero tax paid by me.

HMRC is cracking down on IT Contractor loans anyway, and quite a few people
are rightly being hit up for quite large amounts of tax.

If the UK public had any idea how many (roughly 50k contractors in the City)
avoided paying so much tax (billions) while they were being mugged by PAYE
there would be a total bun fight.

Me. I'm still wealthy, my dad was a teacher, my mum a stay-at-home mum. Went
to state schools, drove on state roads, took the benefit of people who
actually paid tax.

To all the "I could pay some of my extra money to a charity / local school"
brigade. Sure, but you never did - you parasite. Feel free to thank me for
providing all those public services for you if you like.

~~~
tommyd
> Had my own Ltd, took home about 65% of my day rate. No funny business

What do you define as "no funny business"? Just curious what you mean by that.

I operate a Ltd, take a low salary and the rest dividends (as recommended by
my accountant), claim the odd lunch and transport as expenses and that is
about it, which I think is fine (both legally and morally) as at the end of
the day, I am operating as a company rather than an employee, and am following
the letter of the law.

I actually don't think the difference in tax paid is that significant if you
operate that way, I've not worked it out exactly but I suspect I pay around
the same amount of tax as a contractor with an Ltd as I would in an equivalent
permanent position (in the sense that the perm salary would be lower but the
tax a bit higher), so I don't really feel bad about my contribution back in
terms of taxation.

Of course, I've worked with people who do take the p*ss and will put anything
and everything through as expenses and find all the tax loopholes they can -
seems like a lot of effort and risk and not sure I'd feel morally great about
it, but each to their own I guess!

~~~
d_t_w
My approach was exactly the same as yours and proportionally I paid roughly
(within 2-3%) as much tax as I would if I had earned the same amount as a full
time employee. About the only thing you are 'dodging' with a low salary as a
Director of a Ltd. company and dividends is NIC contributions, which would
likely be in the order of £2-3000/year.

The main advantages as I saw them to contacting were:

\- day rate roughly twice what I would have earned salary \- honest, mercenary
working relationship

What do I mean by funny business? I worked in the City of London for a decade,
contracting at some fantastic places and with some great colleagues. I would
say I was literally the only person I know (of say, 20 colleagues who's
affairs I was aware of) who paid tax the entire time. Most never paid any.

An absolute majority of my colleagues entered into the following arrangement,
which will be completely familiar to anyone who worked as a contractor in the
UK finance sector between 2000/2010:

1\. Invoice via an umbrella company which is based offshore 2\. Umbrella
preferably based inside Europe outside the EU, Northern Cyprus was very common
3\. Umbrella company is owned by a trust 4\. As a beneficiary of the trust you
will be paid a 'loan' roughly every six weeks, since that's not a salary,
right? 5\. Loans are not taxable. 6\. HMRC completely, totally aware of these
arrangements. 7\. Figure it out, everyone not on PAYE was in on it.

Via this arrangement you can often get 85%+ of your date rate returned to you
as 'loans'. I know people who were on these schemes for a decade and dodged in
the hundreds of thousands of pounds in personal income tax.

HMRC has sent letters offering to settle cases with 16,000 people, of the
people I know I assume they got caught with their hand in the cookie jar for a
couple of years, but overall are supremely better off for never having paid
tax for the most productive times of their lives.

These are people who often came through state education, drive on state roads,
use public services, in the UK which has a rich left/socialist history and
have absolutely compunction whatsoever in shirking all and every
responsibility they have to contribute in any way.

And as some people in this thread comment - "well, if I wanted to I could
write a check to a charity". I heard that so many times from colleagues who
had children at local schools, born in the NHS, earning £150k a year, for ten
years, who had never pay a cent in tax.

Enjoy being poor plebs, tax is optional. I chose to pay mine.

In the end, some of these people are still my closest friends, we just have
very different principles.

I'm relatively wealth in my peer group (disregarding the non-tax-payers who
I'm clearly behind). I could be wealthier, but I'm not a fucking parasite.

~~~
tommyd
Got you - I completely agree, I think that is a disgusting attitude. I wasn't
sure if you were referring to people saving a few extra £k a year by running a
Limited company and expensing things in a totally legal way, or something more
drastic - I was assuming the OP was referring to the former, probably read it
wrong.

And I absolutely agree about the advantages. I like the fact that I can work
for smaller companies on interesting projects who wouldn't be able to pay the
kind of permanent salary I would be looking for, and I like the flexibility
and potential for variety. I've always found leaving permanent jobs, even for
good reasons, a horrible experience - almost as if you are breaking up with
them! - so while I'm in a period of my life where I would like as much varied
experience as possible, I think contracting makes sense, as long as you are
willing to put in the work a) to deliver good results for clients and b) to
keep yourself up to speed with technologies.

One thing I haven't seen many people mention on here is that as a contractor,
you're much more responsible for your own personal development. If you aren't
a motivated self-learner (chances are, if you are reading HN then you at least
somewhat match that description though) then you could easily get stuck doing
one set of technology and not learning much new (which suits some people well,
of course), as companies are a lot less likely to "take a punt" on a
contractor who doesn't know their tech stack - they don't want to invest money
in getting someone up to speed who is only there for a short time period.

By the same token, I wouldn't expect any significant training to be provided
to you as a contractor, so if that kind of thing is important to someone,
maybe contracting is not for them. I've been quite lucky so far and been able
to move into new areas/technology based on evidence that I can pick new things
up, but some places definitely aren't interested in you unless you are already
well versed in their tech stack.

------
stefek99
I would all the formalities after landing the first contract.

It takes like 15 minutes online to establish limited company.

And when you buy insurance - how do you know which one? My current contract
requires me to have 10 million employer liability insurance (I don't hire
anyone) but I have to have it anyway.

I guess I'll add some comments in this thread... (if time allows)

~~~
keeran
Your consulting company employs you :)

------
ForHackernews
I've heard that in the UK, it's much more advantageous to work as a contractor
than a full-time employee. Is there any truth to that? What advice would HN
offer to a US-based developer looking to move to the UK?

~~~
stefek99
I'm in the UK for 4.5 years and one of my biggest dreams is move to the US...

Main advantage of being contractor? Much better pay... They say - "no job
security" \- but there is no such term anyway.

~~~
ForHackernews
Is the dev scene bad in the UK? Why are you so interested in moving to the US?

~~~
medwezys
The dev scene in the UK is not as great as it is in the US, but it's good.
Perhaps the second best after the US.

US is appealing because it's an english speaking country, has a good dev scene
and is an interesting country to live in.

------
kenshiro_o
Very good guide. I am thinking of becoming a contractor but had not idea you
needed so much saved up!

Looks like I am gonna have to scrap my lavish summer holiday plans to put
money aside...

------
antouank
What do you think is the percentage of contract dev jobs? ( vs permanent )

------
thruflo
Tax.

You invoice £4k. It gets paid into your bank. Congratulations. You just earned
£3k.

------
collyw
Anyone know if there is much of a contractor market in Spain?

------
M8
The salary ceiling is very low in UK.

~~~
Peroni
Almost every salary ceiling is low compared to SV but it's all relative.

It's not particularly difficult to achieve a £100k+ salary in London and you
can have a very comfortable lifestyle on a six figure income.

~~~
randomname2
Just out of interest, how?

For a developer, £100k+ as a contractor is not particularly difficult, but as
an employee this would be rare, no?

~~~
buserror
I agree; unless working for google or something, the ceiling for a super-duper
dev at hiring time seems to be around 65k -- perhaps a bit more if you stay
and negotiate well, but I topped up at 75k before I became a contractor.

Now, this company tax year, I invoiced 120k ex-vat so far, managed to buy a
rather large amount of kit on the company (like, that 4k£ dream workstation..)
and I finally have the feeling I'm getting paid what I'm worth, without having
to do any politics.

I can concentrate on pure engineering, and I don't have to ponder whether I
should become some sort of 'manager' to crack up the engineer pay ceiling.

~~~
Peroni
>the ceiling for a super-duper dev at hiring time seems to be around 65k

Not in London. Don't get me wrong, £65k will get you a decent developer but
£60k is the starting point for good quality developers in London right now.
I'm currently hiring a senior iOS developer and our aim is to hire someone
around the £70k mark but I honestly think we'll need to pay more to get the
calibre we need.

I've spent the last few years hiring developers in London and I also help run
the HN London meet-up and based on first-hand experience along with the huge
number of developers I've met through HN London, I can assure you that I'm not
exaggerating the figures.

~~~
buserror
Oh I'm sure in London it's likely to be the case, but I'm around the Thames
Valley here. Just the train ticket to London offsets any gain I would have
made tho :-)

