How I got into IT contracting

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The title should probably be "how I fell into IT contracting"...

Anyway, I hope the following will start a discussion or answer some questions which some of you may have when it comes to "how do I get into IT contracting?". Many, including myself, would have thought that getting into contracting required planning and research. Certainly, back in my permie days I used to lurk over at Contractor UK boards and think that I would need to plan out the following:

- Ltd Company
- Accountant
- Business bank account
- Insurance

and on and on and on...just looking into contracting can be enough for some folk to think "I can't be bothered, it's just too much hassle" and yes, that included me too. So how did I become an IT contractor?

Well, in back in mid 2013 I had the opportunity to move to London and be based approx. a 25 minute train ride from London Bridge station, which connects to the major tube lines such as the Northern Line and the Jubilee. However, I was still in permie mindset and so took the first permie job offer which came my way. Fortunately, that job did not work out and I left after 2 weeks. Approx 3 weeks later I scored another permie job, more money and over looking the Gherkin building. I thought "this is it, I've done it" but two weeks later and I walked out the door...lol. Both roles were just nowt but massive politics and something which I hadn't quite seen being in IT in the Midlands?

A week after I left permie job number 2, I was sat here in this very room and drowning my sorrows. My CV was up on the job boards such as Jobsite and I suddenly got a call about an "Exchange Admin contract" from an agent. Now bear in mind that I was advertising myself for permie roles. He said to me "I know you're looking for perm jobs but would you consider a contract?", I said "err...yeah" and he said "well what's your rate?". Me being totally unprepared I mumbled "err £300 a day" and he said "great, we can do that". I found out later on that I could have got £400...but I just was not savvy but he was very happy to put me forward for the role. Maybe that was because he was making an extra £100 a day out of me, oh well.

So there's your first lesson, prepared to get a bit ripped off on your first gig.

Within 10 minutes, he was back on the blower and told me that "the client" loved my CV and wanted to do a telephone interview the next day. Now this is something that those who are looking at contracting have to bear in mind, it's that "things" move fast...very fast when it comes to contractor recruitment. As permies we're used to an "HR process" when it comes to interviews but in the land of contracting, HR is out of the window and you will be grilled on previous experience and given an abundance of tech questions during telephone and face-to-face interviews. Call it "the market" because that is exactly what you're dealing with, not HR, the market.

The telephone interview happened the next day and it was nothing but near 30 minutes of technical questions on Exchange 2010. The interview was handled by a project manager (contractor) and an Exchange guy (contractor)...yeah, no permies.

All went well and I was asked to attend a face to face the next day. The face to face consisted of the same two contractors plus the dept's IT director. More tech questions and then I was told "we'll let you know next week" by the IT director, to which the project manager forcibly came in with "no, we'll let him know today because we need someone to start on Monday"...that was the Friday before the Monday.

Within 20 minutes of leaving the premises (the place is a well know media outfit in C London) the agent called me to advise "they'd like you to start on Monday, well done". Yeah...things happened very fast. No reference checks, no background checks just "start on Monday". You'll find that some gigs are like that whereas others, mainly in finance, will do background checks.

The agent then asked me to email over my Ltd Co, VAT etc. details, but I didn't have any. OK, this is where the lack of contracting experience and naivety set in. The agent then started to put on the pressure that I couldn't start on Monday unless I had such stuff in place. It's an impossibility to get a Ltd Co, VAT (back when flat rate was worth it), accountant and business bank account in place over a weekend. So I asked him "what are my options?" and he said "go with an umbrella".

For a first gig, this can be a good option because you may not like contracting and so decide to go back to permie-land after the first gig. Using an umbrella means you don't have HMRC to deal with like you would as a Ltd Co contractor, you don't have a Ltd Co to shut down etc if you decide contracting isn't for you. Yes, you lose out financially and I suspect my lack of prep was music to the ears of the agent who got a kick back for pushing me onto an Umbrella that he recommended. However, the Umbrella I used was very good and is still one of the biggest brolly firms out there.

Within a few hours, all the paper work was signed/agreed and I was ready to start on the Monday. I didn't do an "IR35" review and I "opted out", really didn't make a difference to me. The brolly paid weekly and I needed cash...fast...because my London dream was about to go down the pan.

For the first time in my life I was earning something like 850 quid per week which was quite something for me who was last on £24k PA up in the Midlands. Yes, you lose out with an Umbrella company because you're on the hook for Employer and Employee NI not to mention PAYE. But you can offset stuff with day to food and travel expenses, not to mention the holiday pay thing they do - never quite figured that one out.

After a few months on the gig, I decided I liked contracting and so decided to set up the following:

- Ltd Company
- Business Bank Account (Cater Allen because they're free but are slow on transfers)
- Accountant
- Insurance
- Registered for VAT (when flat rate paid, don't bother with VAT if you're a new contractor today)

I decided to ride out the first gig using the Umbrella company. In total, the first gig lasted 6 months. Apparently, the 2nd gig is the hardest to get...so they say. But I got the 2nd gig within a month of finishing the first gig but I was still wet behind the ears when it came to negotiating the "rate". However, this time around I was ready to go in as a Ltd Co contractor.

I'm not going to mention "accountant" firms but I would advise that people look to use an accountancy who use FreeAgent. Back in the day, my first accountant was spreadsheet based, the 2nd was using their cr*p system and the 3rd is FreeAgent which is brilliant!

So there you go. No preparation, no planning...nothing...I just fell into contracting but I felt that using a brolly (umbrella) was a good option because it allowed me to set up the Ltd Co stuff in more of a relaxed state. You could say that under the brolly I was a semi-contractor and semi-permie but by the time the 2nd gig came up, I was ready to go "full contractor".

I really hope this helps and I hope this thread kicks off some questions from you all which I'll be glad to answer.

Thanks

D_D

 

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FreeAgent is awesome! Easy to see how much you can take out after tax and tax timeline to see when the VAT returns is due etc.

How I got into contracting is I applied for a contract on a job board website in my local area. I didn't really paid attention that it was a contract because I needed a local job for a easier commute.

I choose limited over umbrella and it was brilliant. More money etc.

But then the IR35 changes came in and completely f*** it up for everyone who was limited.

I had to change to umbrella because going limited wasn't worth it anymore.

I'm so happy that I work in the private sector now, I'm limited again and enjoying my pay rise haha.

 

This is incredibly detailed and interesting. I've been considering going into contracting for a little while, probably isn't right for me just at the moment, but this is great info for the future. Cheers mate.

 

Thanks @Pseudonym

The key here is to "just do it". You'll learn the ins and outs of running a Ltd as you go along. I would recommend that those who want to give it a crack go with a brolly on the first gig. Bear in mind that if you're "renewed" on the first gig, you can tell the agency that you're going to go Ltd. So, it would be something like go with a brolly for the first 3/6 month gig, during that time if you like contracting then set up your Ltd, accountant etc. and if there is a renewal on offer then switch to Ltd.

Bear in mind that a renewal is simply a new contract. The renewal stage is basically your chance to renegotiate everything such as rate and your status (brolly or Ltd). What was agreed in the last contract is irrelevant because you have fulfilled the agreement which has expired- just in case an agent tries it on and says that nothing is negotiable...and believe me, they will do exactly that.

 

TBH mate, contracting is great because one can bypass HR, dumb employee rights laws and this ever increasing PC nonsense e.g. "quotas". The more that this PC govt. ramp up "employee rights" the more employers will prefer to opt for contractors. As for IR35, the "market" will figure out a way around that nonsense because the market is always one step ahead of HMRC and .gov.uk.

When it comes to contracting, you're literally dealing with market forces where the client can terminate you in an instant and YOU can terminate them in an instant.

A contractor has to "perform" from day 1, which so far, in my experience, is simply achieved by being at your desk before the permies...lol

All the places a contractor will work at are normally chaotic. That fits in with the contractor motto:

"Chaos equals contracts"

 

This is one of the reasons why my previous manager loved hiring contractors! Keeps hiring costs down too. He even bragged about firing a contractor because he said something he didn't like and got rid of him for it lol.

Well he didn't take kindly when I did this to him even though plenty of contractors have left on short notice before but when I did it because I wasn't get paid properly he came after me with legal action....

 

And there you go, the "market" is "human nature" and the reward is based on "risk". In permie-land, there is minimal risk and there are laws all around you, hence the lower pay when compared to a contractor. People have to make the decision, do I want an easy life or do I want to earn a lot of money? You can't really have both.

Places like the Soviet Union tried to outlaw "the market" and went bust, just like the EU today.

As for the legal action stuff, yes I've had that before and it's why I'm a member of IPSE. A quick call to them and their legal team will shut the mouth of mouthy permie team leader in no time.

Contractors are mercenaries and that's the way you have to think.

 

I completely understand why you recommend going with an umbrella first before a limited company. I made mistakes when I went straight into limited however I do not regret it. I learnt from those mistakes and Free Agent is amazing. I wish I had it with my first limited company.

I personally recommend anyone going into contracting is to go limited as long as you can manage the money and understand the responsibilities and take advantage of expenses.

 

Not a silly question at all.

You pay yourself a salary which is at the limit of attracting no PAYE tax and no NI, in this current tax year that is £702 per month. So you basically pay yourself your tax free allowance per month.

You put all costs such as lunch, home as office, mobile phone (in company name), company PC, company laptop and travel etc. down as an expense and claim that back from yourself. It basically lowers your Corporation Tax yearly bill.

You pay yourself "dividends" from the business which attracts less tax than being paid a salary as a permie. You still pay tax on dividends though.

You are no longer you, you're Ltd Co and so profit and loss is your friend.

However, the key here is that you earn more than your permie counterpart but, to the client, you should cost no more than a permie in real terms. Does that make sense? A permie has lots of costs associated with him/her: salary, sick pay, holiday pay, training courses, pension, employer NI (that's a huge cost) employee benefits, HR overhead and payroll overhead. For a contractor, all of that is bundled up as a "daily rate" and that is what the contractor gets as gross daily payment. It's up to the contractor what he/she does with their money and the contractor is simply a valid business expense to the client who, oddly enough, can use that expense to lessen their own corporation tax bill.

Don't think for moment that your salary alone is what you cost your employer - you cost far more. But because you have an employment contract, are protected by employment laws, you see much less of what you actually cost.

The killer is employer NI and that is what the contractor can avoid and is what HMRC hate and want to stop.

 

And this is why the IR35 came into force, currently only affecting the public sector.

Your invoices get taxed to the source so they reduce income tax and NI and pay you the rest.

It sucks! And I'm now happy back into the private sector.

 

The first £2000 dividends is tax free. I don't have the exact figures but after that it's about 7.5% tax for dividends up to £30K-£40K and then the tax increases after that.

If you have an accountant, I'm sure they can advise on this.

 

Hmm...contractor tax and pay might make a good future thread.

I'll see what I can come up with.

 

This is where I made a huge mistake.

My previous contract was extended multiple times during the 2.5 years I was there and my rate was raised once for all contractors by the "client" (manager) by £0.31p per hour lmao.

And the funny thing is the desktop engineers on contracts complain that their rate should be higher! Why they accepted a contract if they are not happy with the pay is beyond me.

I was thinking like a permie and I regret it.