Switching Codes: How to move from a permanent to a contract role, part two

In part one of this article, I discussed some of the fundamentals of switching from permanent employment to a contracting role.

In this second part, I will look in more detail at some of the technical and administrative decisions that will need to be made as you embark on your contracting career. We’ll also take a brief look at what you can expect on your first day on site with a new client.

I’m a Contractor – What Kind of Contractor Am I?

One of the earliest decisions you will need to make is how you wish to trade. For the majority of contractors, this means choosing between forming your own limited company and contracting through an Umbrella Company.

A useful indicator to which is the best trading model for you is to consider your reasons for entering the contracting market. If your main motivation is to escape the corporate merry-go-round, become your own boss and maximise your earning potential, then a limited company may suit you best. This gives you the greatest degree of independence and control, at the cost of taking on full responsibility for your affairs.

If your main reason for making the switch is to widen your exposure to new challenges and working environments, with maximising your income less of a priority, or if you are initially unconfident about taking on the full range of administrative and managerial roles that a limited company directorship implies, then working through an Umbrella Company may be the best option.

More detail on the relative merits of limited and Umbrella Company trading can be found here.

Know Your Limits

Setting up a limited company is by far the most popular option for contractors.

While this requires you to take a greater degree of responsibility for your financial and business affairs, it need not necessarily be a complex or forbidding task. There are a variety of easy-to-use online resources, such as Contractor UK’s Online Company Registration and Formation Agent, available to step you through the process, but whether you choose to use an online tool or the old-fashioned route via Companies House, the basic steps are the same.

1. Form your limited company.
2. Open a business bank account.
3. Appoint an accountant.
4. Register for Corporation Tax and (if applicable) VAT.
5. Set up your company’s payroll.

Other recommended tasks to complete at the outset include taking out business insurance, setting up income protection against the possibility that you are unable to meet your contractual obligations, and investigating your options for a contractor pension.

More detail on all the considerations involved in setting up a limited company can be found on Contractor UK’s First Timers pages and Limited Company Guide.

One area that will need careful consideration is your relationship with the ‘intermediaries legislation’, otherwise known as IR35.

There’s not the room here for a detailed discussion of this complex topic, but it is crucial to ensure that your trading model and contracts are composed with one eye on the relevant requirements and conditions if you do not wish to find yourself facing an investigation and the possibility of a large bill further down the line. Your accountant should be able to provide guidance, and there is a wealth of practical advice and details of other contractors’ IR35 experiences to be found online.

New Kid In Town

With all the mechanics of setting up in business out of the way and your first contract secured, the next challenge will be your first day on site.

For many new contractors, this is the most nerve-wracking part of the process. Getting it right is important, as the early impression that the client and their staff form of you (and you of them) will define the whole of your working relationship.

If you have selected your contract carefully and have done your homework, then you should find it straightforward to fit in. Your client has hired you for your skills to achieve a specific goal, so let that define your relationship. Ensure that you have all the information you need to start work straight away; the client will appreciate a confident and knowledgeable attitude, even more so if you can show that you have taken the time to learn about them and their business.

Remember that whatever the client’s corporate culture, you are representing yourself and your own professional standards. This isn’t just a matter of turning up on time and having clean shoes; it can be a vital self-preservation technique. Contractors often occupy an ambiguous position within the client’s business; while your skills are needed and your work is important, there can be resentment from the permanent staff. This is a particular hazard when the contractor’s role involves changes to the way in which those permanent staff will be required to work.

Your best technique for diverting any potential opposition is to establish yourself as a reliable, competent and professional addition to the team from the very outset.

Ensure that you get to know the roles and responsibilities of the people you will be working with and for as quickly as possible; your new colleagues will be far less inclined to use you as a target for any resentment they may feel towards the project in general if they are reassured that you understand and are respectful of their concerns.

Maintain a dignified distance from any in-project politicking, and avoid being drawn into any partisan discussion. While these can often give you valuable information about the underlying attitudes towards the project you are working on and the potential practical and cultural risks that could prevent a successful conclusion, being perceived to be aligned with one faction or another can be fatal to your efforts to maintain good relations with all the project stakeholders.

As with so much else in the world of contracting, preparation is everything. The better you equip yourself with information about the contract, the client and the working environment before your first day, the better able you will be to ensure that the relationship starts well and remains professional and productive for the lifetime of the contract.

More insight into the day-to-day experience of contracting can be found in our Successful Contracting section.

Moving from permanent employment to a contractor’s lifestyle can be rewarding, frustrating, challenging, educational, profitable, nerve-wracking and fulfilling – by turns, or all at once. I hope that these articles have helped to clothe the outline of a contractor’s career with practical details – and if you decide to go this route, wish you the very best of luck.

Doug Brett-Matthewson

Wednesday 10th Nov 2010