Are you a software engineer in the UK, tired of the employee grind and ready to take control of your career? It's time to break free from the myths and dive into the world of contracting outside IR35. Forget the notion that you need years of experience or a grand graduation from permanent roles. Contracting is a path you can embark on from day one, and it's not as daunting as it may seem.
Embracing the Business Mindset
First and foremost, contracting outside IR35 means running a business. It's not about masquerading as an employee; it's about providing value, pursuing growth, and maximising profits. The government recognises and supports this entrepreneurial spirit, rewarding you with tax benefits for your contribution to the economy.
As a skilled professional, contracting is your gateway to shedding the employee mentality and seizing control of your future. Inside IR35 "contracting"? That's just being an employee without the perks. No, thank you.
Breaking the Experience Barrier
Contrary to popular belief, you don't need a decade of experience to start contracting. Just like you don't need to be a Michelin-star chef to run a successful catering business. As a junior developer, contracting offers higher pay, diverse experiences, and the chance to operate independently. It's a fantastic stepping stone to entrepreneurial ventures and a faster way to build a stellar CV.
Sure, contracting comes with its challenges – a bit of self-reliance, adaptability, and some extra accounting responsibilities. But the benefits far outweigh the drawbacks. Embrace the opportunity to redefine your career trajectory from the start.
Your Contracting Starter Kit
So, what do you need to kick off your contracting journey? Here's your essential checklist:
- Register your LTD company (the hardest part is picking a name!)
- Set up a business bank account (go traditional or embrace the FinTech revolution)
- Secure essential business insurance (Professional Indemnity, Public/Product Liability, Employers Liability)
- Prove your right to work in the UK (British passport or settled status document)
- Obtain a background check (DBS) if required by your client
- Occasionally, some types of clients may require Security Clearance
- Register for VAT (don't sleep on the flat rate scheme)
- Find a savvy accountant or learn the ropes yourself
Forming Your LTD Company: The Foundation of Your Contracting Journey
One of the first steps in your contracting journey is forming your own Limited Company (LTD). This is your business entity, your vehicle to navigate the world of contracting outside IR35. But don't let the process intimidate you – it's simpler than you might think.
The most common structure for contractors is a private limited company (LTD). This structure offers you limited liability, safeguarding your personal assets in case your company faces financial challenges, while providing maximum flexibility.
Once you have all your documents and information ready, it's time to submit them to Companies House. You can do this online, and the process usually takes less than 24 hours. And just like that, your LTD is born!
Navigating the VAT Maze
VAT, or "value added tax" (also known as "indirect tax,") can be a source of confusion when you start contracting with your own UK LTD. Once your business exceeds £90,000 in revenue (which is likely in your first year as an IT contractor), you will be required to register for VAT with HMRC.
But here's a pro tip: consider registering for VAT from day one, even if it's optional, to take advantage of HMRC's "flat rate" VAT scheme. It simplifies accounting and can potentially put a little extra cash in your pocket. Instead of tracking and calculating VAT on every single purchase and sale, you just apply a fixed percentage to your gross turnover (usually 14.5% for IT contractors).
Setting Up Your Business Bank Account: Traditional vs. FinTech Options
If you want your LTD to get paid, you're going to need to open a dedicated business bank account. This is absolutely crucial for keeping your personal and business finances separate. You have two main options: traditional high-street banks (Barclays, HSBC, etc.) and newer, digital-first FinTech providers (Tide, Starling, etc.). Traditional banks may offer more comprehensive services but often have a slower application process, whereas FinTechs offer speed, simplicity, and powerful mobile apps but may lack in-person support.
Protecting Your Business: The Essential Insurance Coverage
As a business owner, you need to protect yourself from potential risks. Most clients will require two key types of insurance: Professional Indemnity (PI) Insurance and Public Liability Insurance. PI Insurance protects you against claims of negligence or errors in your work, while Public Liability covers you against claims of third-party injury or property damage. You can get quotes from your bank or specialist insurers like Hiscox and Simply Business, with basic policies starting from around £5-8 per month.
Following the Contrarian Path
Contracting outside IR35 is not for the faint of heart, but it's a path filled with opportunity and rewards. It's about breaking free from the employee mold, embracing a business mindset, and taking control of your career. Remember, contracting isn't a destination reserved for the seasoned veterans; it's a journey you can embark on from the very beginning. Embrace the contrarian path, and watch your career soar to new heights.