Career Assistance

Contracting vs Permanent employment in the UK

Contracting or as it is known by many of you as freelancing or temping is a very big industry in the UK. If you work as a contractor in the UK you benefit from:

• Increased rate of pay
• Flexibility of work and travelling whilst in the UK
• Variety of employment work with the UK

Choosing the best tax option is dependent on many personal and circumstantial factors, some of which are:

• Your rate of pay
• Your clients' requirements and flexibility with payment options
• Average hours/day of work each week
• The type of work and manner in which you work taking into account the IR35 rule
• How much involvement you wish to have in the process, and your financial astuteness

One Size Does Not Fit All

One of the benefits of doing contract/freelance work is that it affords a degree of freedom and flexibility not associated with permanent employment. In keeping with this, there are a number of different payment options available to contractors. Tax structures such as Umbrella and Limited Companies seem to be more a popular choice. See Umbrella vs. Limited Company.

As to which is the best option will depend on individual circumstances as well as the nature of the work undertaken.

Particular attention should be paid to the Intermediaries Legislation – commonly known as IR35.

The IR35 rules seek to determine the circumstances under which a contractor should be treated as “self employed” or “employed” for tax purposes. If deemed “outside” of IR35, a contractor is viewed as self employed and can be subject to business levels of tax. If “inside” IR35, they should pay employee levels of tax, which can be considerably higher. Unfortunately the underlying terms and conditions of many contracts do not fall into a neat black and white definition of “self employed” or “employed.”

Therefore it is very important to seek professional advice in order to ensure that you keep on the right side of the taxman.

Furthermore you can have the benefit of working through tax structures such as an Umbrella or Limited company. Please, if you have more questions about these types of tax structures, don't hesitate to contact 1st Contact on 0808 141 2341 .

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