What do I need to do to become a software contractor in the UK?

Question

What do I need to know if I want to be a software contractor (in the UK)?

Do I need to set up a business?

What's the best way to get contracts?

What taxes do I need to pay? Should I get an accountant? If so, where do I find one?

Answer 1

Contract jobs are handled by the same agencies that handle permanent jobs.

The simplest way is to contact one (or more) agency with your CV and details of where you'd be willing to work and what rate you're looking for (I won't quote a rate as this will depend on where you are and when you reading this). Most contract roles come with the rate the employer is willing to pay so you'll be able to decide whether it is worth it (for you) to go for a role.

Once you get the contract they agency will more than likely offer to put you in touch with an umbrella company that will handle the pay and tax for you - you will effectively become an employee of that company. For your first two or three contracts it would probably be a good idea to use this company.

Once you are established then talk to an accountant about setting up your own company - that way you'll cut out the middle man and your clients either won't have to pay a fee to the holding company or you'll be able to receive more of the rate the client pays. The accountant will help you with the tax etc. for this company - or at least a good one will.

As to how to find an accountant - look one up in the phone book or online. Get quotes from several, they should know what they are doing.

Answer 2

There are basically three main options:

• Register with HMRC as self-employed.
• Sign-up for an umbrella company.
• Create your own limited company.

The umbrella company is probably the easiest as they will deal with payroll taxes, charging VAT and processing of expenses for you for a monthly fee. They may also provide insurance. Legally you are an employee of the umbrella company and they will invoice the client for the work that you do and then pay that money (less their fees) to you as a salary. They should also help you to avoid any problems with IR35.

If you register as self-employed, you will just invoice your clients directly and then complete a tax return at the end of the year. There is some risk in this approach as, unlike working via a limited company, you will not be protected by limited liability. That means that if you get into a dispute with your client and they sue you, your personal assets (e.g. your house) are at risk. For this reason, if you go down this route, you really should get professional indemnity insurance (in fact, clients may refuse to deal with you if you don't have this). If you were working via a limited company and doing everything legally, only the company's assets would be vulnerable.

You can incorporate a new company online for as little as £30. Setting up a limited company is potentially the most efficient way of operating but it also means more work. You have to file accounts and annual returns and maintain various registers. You'll probably need to involve an accountant, if not for incorporation then certainly for drawing up accounts. For both the self-employed route and the limited company you need to be aware of the implications of the IR35 legislation and, if you are turning over any serious money, you'll need to register for VAT.

The ByteStart website has several articles about the various options for becoming self-employed, incorporating a company, etc., and Contractor UK has specific advice for IT contractors. The final word on these issues belongs, of course, to HMRC.

Answer 3

Head over to the PCG web site, download their guide and read it. I can't recommend it enough. It covers everyting you need to know about contracting in a mostly independant fashion (no accountancy, agency, or HMRC spin).

They also have advice about company structure, accountants, tax, IR35 (its vital you know about this as a lot of accountants don't), mortgages, insurance, dealing with agents, collecting debts, etc.