Contracting, especially within the UK, is a very attractive proposition to many workers due to the good daily contract rates and flexible employment structure.
Contractors will generally be paid considerably higher rates than a full-time employee, but while this may seem perfect, there are also a number of things to consider before making the jump.
Contracts generally last between 1 month and a year before the contract will expire or require renegotiation. This allows a contractor to work on a range of projects and will expose them to a very dynamic environment resulting in gaining experience fast. It does, however, also mean the contractor will continually need to find new contracts, negotiate rates, and manage their tax and finances.
While there are many tax benefits in contracting, such as expense deductions, you will also need to provide for your own pension fund to ensure your future is taken care of.
It should be noted that contractors are paid for the days they work and therefore do not receive employee benefits, holiday pay or sick leave. It is vital that these are factored in when calculating your day rates, and that you account for this properly during your years of contracting. The upside is that contractors get paid overtime and this can provide a lucrative income stream in times when deadlines loom.
One of the negative sides to contracting is the risk of alienating future employers, who will often avoid hiring former contractors. The reason for this is often due to higher salary demands and the risk of losing you to a higher offer from a competitor.
Another factor to consider is the state of the market. During slow periods of economic growth, you could be subject to struggling to find a contract, or be the first in line for cuts when budgets need to be trimmed.
Adminstration and accounting are other issues to consider. You will need to keep track of your financial situation and will be responsible for your tax. You will need to decide on the best vehicle for you, usually choosing between an umbrella company or limited company, depending on the value of your contract and your specific terms of employment.
Getting advice from a qualified UK accountant will help you in making the best decision, most of which will offer some advice for free if you are evaluating their services.