Home Contractor Advice The advantages and disadvantages of contracting in the UK

The advantages and disadvantages of contracting in the UK

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advantages and disadvantages of contracting

Contracting in the UK has often been a popular way for self-employed professionals to operate. Traditionally, there have been plenty of advantages of being a contractor and only a few drawbacks. However, with changes to IR35, perhaps the tides have turned a little. Are there as many benefits to contracting in the UK compared to 10 years ago? In this blog, we will summarise the main advantages and disadvantages of contracting in the UK.

Advantages of contracting in the UK

Higher earning potential

Contractors tend to be higher earners when compared to professionals in permanent employment. This is due to several factors, including shorter contracts (hirers may have higher budgets), specialisms (higher paid), and tax-efficient payment options. For example, the most tax-efficient way to operate as a contractor is outside IR35 and working through a personal service company – compared to permanent employees who are taxed with PAYE (HMRC’s tax system).

More control

Contractors are not tied down in a full-time position and have the freedom to choose how often they work. Contracts typically vary between a few months or up to a year, and contractors have complete control. This leads to the next point – work/life balance.

Work/life balance

One of the main benefits of being a contractor is the increased work/life balance. Providing you get it right, you’ll be able to have more say about when you work and when you take time off. And, you can take as much holiday as you like, and have far more freedom over your time off. This is a primary reason people choose to become contractors. However, make sure you do use it to your advantage. It’s not uncommon for contractors to work longer hours than permanent employees, as the temptation to check your emails or finish a specific task may impact you.

Development opportunities

Contractors are in control of their professional development. This allows contractors to focus on developing the skills they want to – unlike permanent employees who might not have a say. This is an essential advantage of contracting in the UK because it allows you to prioritise learning a new skill to add to your CV, and it could help you earn more money in the future. Finally, you can work around your existing schedule to learn the new skill.

Traditionally, contractors work for many clients throughout their careers and will interact with thousands of people. These people, or “colleagues”, will undoubtedly prove to be essential assets to a contractor because they’ll be valuable sources of knowledge and skills. Ongoing interaction with like-minded professionals working on niche projects will aid a contractor significantly.

Easy return to permanent work at a later date

Becoming a contractor is something you should be excited about. However, while it may be a big responsibility and one that’s got its pros and cons, it’s not as big of a deal as you may think. You’re free to return to permanent employment at a later date, should you prefer that way of working. Therefore, you have nothing to lose when dabbling in the contracting sector for the first time!

Office politics

One of the most significant issues with full-time work is office politics. Wherever you work, there is usually politics within the office environment. As a contractor, you’re free to work on your assignments for the agreed length of time, and you can turn your back on office politics. If you enjoy working for a particular client, you can seek another contract soon after. If you don’t like working for a client, you can shake hands and move on after just one assignment – waving goodbye to the workplace politics and unpleasant working environment.

Disadvantages of contracting in the UK

IR35

IR35 is government legislation that is designed to stop ‘disguised employees’ from taking advantage of tax breaks that aren’t intended for them. Contractors outside IR35 can pay themselves with a combination of dividends and salary through a limited company. This is the most tax-efficient way for contractors to get paid. However, due to recent changes to IR35 (off-payroll in the private sector), more and more contractors are finding themselves inside IR35, and consequently, their pay retention is lower.

IR35 is complex, and you must be up to speed with the legislation before committing to a career as a contractor. IR35 is a real concern for many contractors, and it’s no surprise. We’ve written an article called ‘The difference between being inside and outside IR35’ and it’s worth a read.

Lack of employee benefits

Contractors usually have less support than workers in permanent roles. While earning potential is higher, support in terms of employee rights, etc. Contractors who use an umbrella company (PAYE) will get employee rights. Still, these are statutory and are not as generous as many packages that many organisations offer their permanent staff (for example, a specific amount of sick leave while on full pay).

Seeking new assignments

Contractors are required to find their assignments. And, because contracts are usually short term – this may be a frequent occurrence. A lot depends on the contractor’s area of expertise. Some fields have high demand, and therefore, finding an assignment shouldn’t be difficult. However, if there is a low demand for a specific skillset – there could be a long period between jobs, and ultimately, between paydays.

It’s also crucial for contractors to make a good impression for every hirer they ever work for. A contractor is essentially a one-band business and it’s the individual’s responsibility to build a brand that hirers want to engage with. This is a big commitment and will require a lot of hours. After all, Rome wasn’t built in a day!

Administration

Contractors usually have a lot of paperwork. Paying tax as a contractor is far more complex compared to full-time staff. You must understand your responsibilities as a contractor, including paying taxes and National Insurance Contributions to HMRC.

Not always, but usually, most of the administration will occur if you’re a limited company director. There is a lot of responsibility associated with running a limited company, but it’s the best way to maximise pay retention (depending on IR35 status). The other primary payroll method for contractors is using an umbrella company. There is far less paperwork when using an umbrella, but pay retention is lower. And, if you use an umbrella, administrative responsibilities still exist.

Extensive budgeting and planning

Budgeting is perhaps far more important for contractors compared to perm workers. For example, contractors have to take into account a series of costs and scenarios. As well as additional costs including insurance and accountancy fees/umbrella margins, contractors don’t get paid annual leave. With no annual leave, contractors must plan accordingly and ensure their rate of pay is adequate.

Further reading

Advantages of limited company contracting

Disadvantages of limited company contracting

Umbrella company advantages and disadvantages

A guide to contracting in the UK

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