Becoming a contractor programmer in the UK

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&#x27;t have time to correct many of the misconceptions and total inaccuracies it contains.<p>Its a shame really as good articles are hard to find and I&#x27;m sure many americans would find the differences between the UK and US markets very interesting...<p>However if you really want to be a contractor <a href="https:&#x2F;&#x2F;www.ipse.co.uk&#x2F;advice&#x2F;articles&#x2F;starting-out" rel="nofollow">https:&#x2F;&#x2F;www.ipse.co.uk&#x2F;advice&#x2F;articles&#x2F;starting-out</a> has a lot of advice on starting out.<p><a href="http:&#x2F;&#x2F;www.contractoruk.com&#x2F;first_timers&#x2F;" rel="nofollow">http:&#x2F;&#x2F;www.contractoruk.com&#x2F;first_timers&#x2F;</a> also has a lot of advice although as a new starter I would avoid the general part of their forum...<p>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...

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.<p>Broadly speaking I’ve seen most of my work fall into these categories:<p>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<p>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.<p>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).<p>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.<p>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.<p>I second the sentiment about going IPSE and of hiring a decent accountancy. Don&#x27;t worry about their portals or how shabby a website may look, pick them based on their competency.<p>Bite the bullet. Go for it!

<i>&gt; The fixed rate VAT does not let you reclaim VAT, but you pay a lower rate than you charge your clients. So if you&#x27;re a developer contractor you&#x27;ll be adding 20% VAT to your client invoices, but only pay 14.5% to HMRC, keeping the remaining 5.5% to the business.</i><p>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 &quot;flat rate turnover&quot; to HMRC. Flat rate turnover includes the VAT.<p>For example, let&#x27;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).

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.<p>I&#x27;d be more interested in knowing what agencies do have a good reputation &#x2F; good developer experience along with the note to beware of the cowboys.

Why bother with a third party company registration service? You can do it yourself pretty easily through companies house.<p>Do companiesmadesimple have any value-add?<p>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?).<p>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.<p>(--edit-- good guide in general! I don&#x27;t just want to harp on the negatives!)

I&#x27;d also mention joining IPSE (<a href="http:&#x2F;&#x2F;www.ipse.co.uk&#x2F;" rel="nofollow">http:&#x2F;&#x2F;www.ipse.co.uk&#x2F;</a>) which a is trade organisation for freelancers. They provide various benefits including IR35 insurance that covers investigations.<p>Freeagent is a good online accounts package as well, but you need to find an accountant that uses it.

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:<p><i>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&#x27;ve seen situations where contractor and employer have discovered each other, only for the employer to then ask the contractor to &#x27;go through agency X&#x27;. No one likes admin load and we&#x27;d all get rid of it if we can.<p></i>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 &#x2F; 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<p><i>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 &#x2F; community &#x2F; events scene. However, if you work on proprietary software, have heavy family obligations and live outside of a big city, you&#x27;re probably going to find agents very useful indeed.<p></i>Salary &#x2F; 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&#x27;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.<p>And I say all this as a maker of a tech hiring platform that doesn&#x27;t allow 3rd party recruiters on it. They have their place - just a smaller one than they currently occupy.<p>Great article in all other areas

&gt;A service like www.companiesmadesimple.com (aff.) will make the incorporation process easy. It usually takes up to three business hours.<p>Yeah, better do it yourself. I&#x27;m from Germany and I set up a LTD directly with Companies House myself. It&#x27;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.<p>Those formation companies usually just are an unnecessary middleman.

Uh oh, if it&#x27;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 :)

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.<p>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.<p>YMMV just my 2cents.

This looks incredibly helpful - I wish someone would do one for the US&#x2F;Canada

Do not ever be a sole trader. It means you are personally liable for anything that goes wrong.<p>Say you end up with a dreadful contract and everything goes wrong and the client sues. If you&#x27;re a ltd company you can dissolve the business and pay them out of whatever assets your company has.<p>If you&#x27;re a sole trader you&#x27;re liable for all the costs. Until you&#x27;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.

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.

&gt; As far as I understand, it is important to have a contract that allows you to:<p>&gt; [...]<p>&gt; If the client insists on including the clauses above, be ready to move on.<p>These lines appear to contradict themselves, am I missing something?

Finding a good accountant isn&#x27;t easy, but I would recommend looking for something better than Crunch. They were the default option &quot;just pick Crunch&quot;, 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.<p>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.<p>I haven&#x27;t tried these two services but if I go back to a UK accountant they&#x27;d be at the top of my list.<p><a href="http:&#x2F;&#x2F;www.3wisebears.co.uk&#x2F;" rel="nofollow">http:&#x2F;&#x2F;www.3wisebears.co.uk&#x2F;</a> (contractor) <a href="http:&#x2F;&#x2F;www.proactive.uk.net" rel="nofollow">http:&#x2F;&#x2F;www.proactive.uk.net</a> (more startup focused, very helpful via phone)

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).<p>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?

Something called entrepreneurs&#x27; 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.<p><a href="https:&#x2F;&#x2F;www.gov.uk&#x2F;entrepreneurs-relief" rel="nofollow">https:&#x2F;&#x2F;www.gov.uk&#x2F;entrepreneurs-relief</a>

You guys need to learn some accounting. Don&#x27;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.

Good advice, especially the bit about crunch. First time I contracted I let my accountant talk me into using their horrible spreadsheet. I couldn&#x27;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.<p>One additional thing: If you&#x27;re married make sure your spouse is a director of the company as well (especially if they&#x27;re not working). You can be hugely tax efficient in this manner and can extract nearly £80k per year from the company with no <i>personal</i> tax to pay (there will still be corporation tax to pay on profits).

It&#x27;s probably worth noting that you only need to register for VAT if you&#x27;re expecting to make &gt; 82KGBP in VATable sales per year.<p>If you&#x27;re contracting is mostly remote and outside the UK, you don&#x27;t need to register, or charge VAT (as I understand it).

Here&#x27;s the printable PDF version: <a href="https:&#x2F;&#x2F;gitprint.com&#x2F;tadast&#x2F;switching-to-contracting-uk" rel="nofollow">https:&#x2F;&#x2F;gitprint.com&#x2F;tadast&#x2F;switching-to-contracting-uk</a>

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&#x27;s permission and pay them just so they can accept your payments? So weird.<p>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&#x27;m sure people have several of them already.

I read that book <a href="http:&#x2F;&#x2F;www.amazon.co.uk&#x2F;Contractors-Handbook-Expert-Guide-Freelancers&#x2F;dp&#x2F;0956074529&#x2F;" rel="nofollow">http:&#x2F;&#x2F;www.amazon.co.uk&#x2F;Contractors-Handbook-Expert-Guide-Fr...</a> when I started contracting last year and thought it covered quite a bit.<p>Another thing I&#x27;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

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 &quot;optimisation&quot; but I disagree with that on principle anyway) but then also have no exposure to HMRC coming after you 6 years later saying &quot;Where&#x27;s our £10,000?&quot; (has happened to several people I know.)<p>(edit for spelling)

I would all the formalities after landing the first contract.<p>It takes like 15 minutes online to establish limited company.<p>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&#x27;t hire anyone) but I have to have it anyway.<p>I guess I&#x27;ll add some comments in this thread... (if time allows)

I&#x27;ve heard that in the UK, it&#x27;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?

Very good guide. I am thinking of becoming a contractor but had not idea you needed so much saved up!<p>Looks like I am gonna have to scrap my lavish summer holiday plans to put money aside...

The salary ceiling is very low in UK.

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

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

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