Why contract

Freelancing can be far more rewarding than permanent roles. As a contractor you have greater control over your career and are more independent and flexible than your permanent counterparts. It may also just happen to you suit the current stage in your life - you may just require the flexibility or higher pay in the short term.

New to contracting

Getting a contract

Most contractors turn to the Internet to access contract opportunities. There are numerous job boards you can access as well as a huge range of recruitment companies that also display their contract vacancies through their websites. Many other channels of information are available to help you find that first elusive contract and you will most likely find that once you have started contracting you will start to use familiar channels to look for the next contract opportunity. Talking to other contractors is also an ideal way of finding out where the best contract opportunities are - and this also helps you gauge the market for what typical contract rates are for someone with your experience and training. You may also be able to find contract work directly with the client. This will usually occur when you can leverage an existing relationship you have with someone within a business who is looking to hire. As your contracting career progresses you will find these sorts of relationships become more and more valuable, and may eventually lead to you being contacted by a potential new client rather that you having to look for work yourself.

Recruitment companies

This is the most common route for contractors to secure contract work. Once you have decided to commence contracting keep in mind it is often a good idea to express interest in a number of roles. This will increase your chances of securing a contract that is right for you, and remember to keep a record of your contacts and chase them regularly. Remember to be realistically priced (especially for your first contract), but do not be afraid to push for the rate you want if you think your client especially wants you.

Freelancing can be far more rewarding than permanent roles. As a contractor you have greater control over your career and are more independent and flexible than your permanent counterparts. It may also just happen to you suit the current stage in your life - you may just require the flexibility or higher pay in the short term.

The most commonly known benefit to contracting is your ability to get paid more than what you would normally as a full-time employee. There are however numerous benefits to contracting - and you need to decide if they sufficiently offset the disadvantages.

Contracting benefits

More money

Contractors earn more than their full-time counterparts because they forgo things such as income security, holiday pay, sick pay, and benefits. For most contractors however, the financial gain they enjoy outweighs these downsides, and overall the contractor enjoys higher levels of personal income. Some contractors find that their specialist skill sets are particularly valued in some industries making their contract rate even higher.


As a contractor you get to negotiate the terms of your contract. As a first-timer this may seem daunting, and you may just be happy to secure a contract. However, as you develop confidence in the contracting market you will find yourself negotiating terms such as pay, working hours, and additional benefits to ensure your contract suits your personal needs. Changing contracts is also much simpler than changing full-time positions, and you can use this to factor in things such as holiday breaks that you want.

Professional development

Contractors often work for a variety of clients over the course of their contracting life, and in a variety of roles. This helps expand your experience as you may find yourself working in different industries from the ones you are used to. This helps give you great exposure to different companies, processes, and the way things are done - you can then cherry pick the best ideas and apply them to your next contract role. Over time the accrual of this knowledge will set you apart from your peers, and will make you much more valuable as a contractor (or further down the road, as a permanent employee).

Claiming expenses

When you work through a limited company, your company will pay corporation tax on the net profits of the company. Claiming expenses reduces your net profit, and so helps reduce your company's corporation tax. Once you start contracting, there are numerous expense claims you can make that help reduce the amount of tax paid It is often difficult for new contractors to understand, but just like any business, you will incur costs in undertaking contract work for your clients. Such costs include travel, mobile phone, postage, stationary, insurance, home office costs, new IT equipment and software, training, industry publications, and professional membership fees. Each client of Capital City Accountancy receives a copy of our Expenses Guide when they join our accounting service, and this guide helps explain the different types of expenses that can be claimed during the course of your contracting life. All you need to do is keep all your receipts, and ensure the expenses you are incurring are directly related to your business. If you are unsure about this, you can simply phone or email your dedicated accountant for advice.


All Contractors need to consider the IR35 issue, the application of which depends upon the engagement and the individual contractor's business. As you would expect, most contractors do not have a strong understanding of employment law and the principles involved, making it very difficult to determine whether you are caught by IR35 or not.

What its about

"IR35" is a piece of tax legislation announced in 1999, which took effect from April 2000. HM Revenue & Customs (HMRC) intention was to tackle tax and National Insurance (NIC) avoidance schemes through the use of intermediaries, such as a Limited Company. We can explain the general concepts to you, and help you decide what kind of risk IR35 poses to you and your business. If you want a more in-depth look at your IR35 status we will help put you in touch with IR35 specialists. Because this is an area of employment law (and not accounting or tax) we suggest your IR35 status is handled by experts.

Help your IR35 position

Get the right contract

If you are using an agency it is likely they will have an 'IR35 friendly' contract. Ensure they use this for the provision of your company's contracted services. Note, however, while an important factor, the right contract alone will not ensure you are free of IR35. The onus is on you, the contractor, and not the agency to ensure you are on an 'IR35 friendly' contract.

Work right

Large companies contracting small companies to provide specialist knowledge or manpower resource is a way of life in the business world. These 'specialists' are usually a separate, unrelated entity, brought in for a specific role or task. Your limited company is no different, and should be treated as such. This means you don't get a door with your name on it, you don't enjoy employee benefits, and you can exercise the choice to accept or decline further work with your client. Working within this frame of reference ensures you minimise the risk of being labeled a 'disguised employee', and thereby avoid falling foul of IR35. Indicators that you are in business of your own accord:

Advertise your Business
Advertising your business services shows you are committed to being in business. It does not have to be expensive, and where you choose to advertise depends on what market your business serves. Whilst free advertising is a good start the Inland Revenue are unlikely to consider it a factor if you do not actually spend anything on advertising.
Company web site
Similar to advertising, having a company web site is helpful in showing you are in business of your own accord. It helps show you have put some thought into your business and are actively seeking additional clients.
Your home office
Having a designated home office is very useful - preferably a room set aside with desk, chair, PC, printer, internet, filing cabinet etc – things you would expect to see in any modern office. An additional benefit of the home office is claiming a proportion of associated costs such as rent, council tax, heating/lighting bills etc as business-related expenses so long as the office is used for fee earning work.
Training is an excellent way of ensuring the services your company offers is up to date and ready to meet the needs of your clients. This need not only be in your own field of expertise, but also other areas that expand your skills, and allow you to expand your offering to your clients. Keep a record of any training you do.
Company stationery
Company letterheads, business cards, and invoices all make your company look professional and show you are serious about being in business.
Others indicators
Insurances, such as professional indemnity, employers insurance (no longer compulsory for single Director Companies), public liability insurance, registration for VAT. Included in your monthly fee with CCA is the preparation of VAT returns, if you decide, or your company turnover requires you to become VAT registered. CCA does not provide any insurance products, and we cannot recommend any as we are not regulated by the Financial Services Authority (FSA). However there are a few insurance providers that we know provide packages specifically to the contracting market. If you would like to know more concerning this, please give us a call or send us an email. As always, we will be happy to answer your questions.