Contracting in the UK
The UK is a wonderful place to be a contractor. With high demand and attractive rates, more and more highly-skilled professionals are turning to contracting, and there are plenty of reasons why.
At the end of 2019, the Office of National Statistics found there were over 5 million self-employed professionals (not receiving wage from employer) – up from 3.2 million in 2000. Over two-thirds of these workers categorise themselves as “working for themselves”, almost 20% confirmed they run a small business, 15% said they were the director of a limited company, and over 12% said they were freelancers.
Keep reading, on this page we discuss:
- What is a contractor in the UK?
- What do you need in place to be a contractor in the UK?
- How do contractors get paid in the UK?
- Sourcing a contract assignment in the UK
- Understanding the differences between permanent work and contracting in the UK
What is a contractor in the UK?
A contractor is self-employed worker who takes on short-term assignments. Unlike a permanent employee, contractors tend to look for short term roles – typically up to 12-18 months, and they’re able to work for multiple clients simultaneously.
Contractors are popular among clients with short term projects on the go. Where a series of professionals are required to complete a specific project – contractors are often the first port of call. This is because they are generally regarded as specialists in their field. Clients will often hire contractors assuming the contractors will use their expertise to help achieve their goal. A length of contract and rate of pay will be agreed between the client and the contractor before the assignment is given the go-ahead.
Interestingly, contractors can also be “employees”. Suppose a contractor decides to use an umbrella company for their payroll (a common and popular choice amongst contractors in the UK). In that case, they will become an employee of that umbrella company while getting paid by them. As a result, umbrella company contractors gain access to Employee Benefits (such as sick pay maternity/paternity pay).
Nowadays, it’s common for most contract roles to be sourced by recruitment agencies on behalf of an end-client.
Usually, contractors will be paid through their personal service company (PSC), by an umbrella company, or by an agency (often referred to as being on the agency’s payroll). Where there is an agency involved, the end client will send their contractors’ fund to either the agency to take care of payroll (or pass on to an umbrella company) or pay the contractor directly (into their PSC). However, it’s worth reading up on the changes to off-payroll in the public and private sectors – as this legislation has changed the way contractors are paid – depending on their IR35 status.
To summarise the above – a contractor is a professional who organisations source to come in and work on a specific project (with a short-term lifespan). Frequently, contractors are required for complex and niche projects that require them to come and bring their knowledge to the table – to complete the clients’ requirement. Therefore, contractors are considered high-earners and tend to earn more than workers in permanent employment.