If you can secure an outside IR35 contract then, using a limited company, the main benefits are a vastly increased level of income. Also, due to the way that an outside IR35 contract is worded, you can take on more than one contract at a time – as long as you can complete all the deliverables as agreed with each client, so there is also a lot of money that you can make. On an inside IR35 contract basis via an umbrella company, whilst the financial advantages, compared to a permanent job, are reduced you will generally receive a much better ‘wage’ in terms of the money deposited in your account every pay day. You can also choose to be paid weekly or monthly, allowing more flexibility.
One of the main benefits of contracting is that you don’t have any HR accountability. There are no formal 1-2-1’s, objectives or line management responsibilities to take care of, allowing you to focus fully on the job in hand with a lot less distraction! As a result of not being employed directly by the end client you can also avoid a lot of the politics that exist, particularly in large organisations. The strategy of the overall business is not your concern, as you are just there to complete the work you’re being assigned which some contractors find very liberating.
If you are on an inside IR35 contract then you don’t need to register your own limited company, as you will need to register with an umbrella company. If you have previously worked through a limited company on an outside IR35 contract, you don’t have to close the company down but you will still need to come through an umbrella company. This is the case even if you pay yourself via PAYE in your own limited company.
An umbrella company is a PAYE payroll service for contractors and freelancers. The contractor will become an employee of the umbrella company and will be paid by them, minus deductions including tax and National Insurance Contributions (NIC). The beauty of an umbrella company is that it takes care of all the administration that would be involved in calculating payroll, managing tax returns and almost removes the need for an accountant. Your umbrella company will sign a contract with the recruitment agency you were initially contacted by. The end client will pay your recruitment agency their agreed rate, the recruitment agency will then pay the umbrella company, before the umbrella company pays you your wages, minus deductions.
When you work through an umbrella company you are entitled to the same benefits as those who are in full-time employment including Holiday Pay, Sick Pay, Maternity Pay and Paternity Pay. Holiday Pay is calculated at 12.07% of your own pay and it is reallocated to you on your payslip, meaning you are no better or worse of.
There is always an element of risk when it comes to contracting but the financial rewards can be great. The notice periods are generally shorter (around 2 weeks) although these can be negotiated particularly on an inside IR35 role. There may also be periods in between contracts where you haven’t secured an engagement at the end of one, or a project is unexpectedly canned, which you will need to budget for. However, if you are good at what you do then there is generally a likelihood that your contract will be extended if the work is there to do. Even when a project ends, if you’ve done a good job and other projects come up, you will find your clients will reach out to you further down the line. There will always be contract opportunities in the project space because of the nature of that work and actually, given the hybrid/remote working options that are now available, the market is probably as active as it ever has been as location is no longer a limit. Whilst permanent employment is definitely more secure, this market has been more volatile over recent years so, in terms of security, the gap has reduced significantly.
As with any role, the day rates that you can command depend on your skills & experience, the industry or market the contract exists in, and the client themselves. To give you an indication of the day rates available in the IT Project space, the below table highlights the rough bandings for a few roles and levels.
|Indicative Day Rate
|5+ years experience as a Programme Manager leading large scale IT and/or Business change programmes with budgets >£5m
|IT, Business or Data
|5+ years experience as a Programme Manager leading large scale IT and/or Business change programmes with budgets >£1m
|10+ years experience managing large scale IT and/or Business change projects with budgets >£2m
|IT, Business or Data
|5+ years experience managing medium to large scale IT and/or Business change projects with budgets >£1m
|2+ years experience managing small IT and/or Business change projects
|10+ years experience being responsible for the Solution/Business/Data architecture on enterprise level programme/projects
|5+ years experience being responsible for the Solution/Business/Data architecture on any programme/projects
|10+ years Analysis experience in field e.g. Business, Systems or Data in Insurance market, incl. 3+ years Team Lead experience
|IT, Business or Data
|5+ years Analysis experience in field e.g. Business, Systems or Data in Insurance market
|2+ years Analysis experience in field e.g. Business, Systems or Data
|10+ years Analysis experience in field e.g. IT or Data in Insurance market, potentially Developer Lead experience
|Front End, Back End, Data & BI et al
|5+ years Analysis experience in field e.g. IT or Data in Insurance market
|3+ years Analysis experience in Developer role – skillset specific to requirement
This can depend on the lender but whether working on an inside or outside IR35 basis, a contractor who has switched from a permanent role will find it harder to secure a competitive mortgage than someone in permanent employment. This is usually the case until a contractor has built up around 2 years worth of history as a contractor and has a 6 month contract (or thereabouts) in place. Obviously other factors are also taken into account by lenders e.g. personal credit rating which will always have an impact but if you’re looking to secure a mortgage or re-mortgage in the near future, it may be worth waiting until after that to move into the contract market.
The short answer is “yes”. This protects the umbrella company and ultimately the end client from any liability coming from your work on the contract. The required limits may vary from client to client depending on the size of the project but, generally speaking, the cost for all of these should be in the region of £500-£700 for the year as a general rule of thumb. There maybe some specific insurances required by clients in certain market, industries e.g. Cyber insurance so it’s worth confirming this before signing up to anything.
Employers are legally required to enrol their employees into a workplace pension so, as the employer, an umbrella company is legally required to auto-enrol their employees into a workplace pension scheme. When you register with your umbrella company, you’ll be sent information regarding pensions and auto-enrolment. Each umbrella company will have a preferred pension provider but you should expect to be auto-enrolled to NEST – the workplace pension scheme set up by the government.