29 ms·

Becoming a contractor programmer in the UK

216 points by medwezys 11y ago

kifler 11y ago
This looks incredibly helpful - I wish someone would do one for the US/Canada
- icpmacdo 11y ago
  +1 for canada
- peter303 11y ago
  Theres a lot out there on starting your own business in the USA. The US tax gotcha that is similar to VAT is quarterly payroll and income tax on your NET income. People get several $10Ks behind on taxes, especially the doubled social security part, and could be penalized by the IRS.
- wintorez 11y ago
  +1 Canada
- a3camero 11y ago
  Becoming a Contract Programmer in Canada: http://www.cameronhuff.com/blog/becoming-a-contract-programmer-in-canada/index.html http://www.cameronhuff.com/blog/becoming-a-contract-programm....
boothead 11y ago
Good advice, especially the bit about crunch. First time I contracted I let my accountant talk me into using their horrible spreadsheet. I couldn't make my self use it it was that bad and my accounts were a mess. Now my accountant (nimble jack) bundles freeagent (which when I looked into it was better than crunch and has an API) and keeping on top of things is much easier. One additional thing: If you're married make sure your spouse is a director of the company as well (especially if they're not working). You can be hugely tax efficient in this manner and can extract nearly £80k per year from the company with no personal tax to pay (there will still be corporation tax to pay on profits).
- new299 11y ago
  Yep, having set consulting companies a couple of times now having something like Freeagent is invaluable. Getting a good accountant is important as well, after switching once I now use 3wisebears who I'd recommend.
- tommyd 11y ago
  Other recommendations of accountants with decent online systems would be greatly appreciated. My current ones (Nixon Williams) seem fairly good as accountants, but the spreadsheet based expenses (and having to use email to take dividends, check profit/loss, etc) are getting quite annoying, and they want to charge extra to use their registered address rather than my own, which leaves a bit of a bad taste when Crunch include this. I have heard good things about Crunch's system but some mixed things about the quality of their advice and how pro-active they are - any other feedback on them or others? The point about the registered address and fraud is a real one, someone I worked with had this happen to them - will Crunch act as the service address as well as the registered address?
  - gadders 11y ago
    I use an accountant that is "Freeagent Compatible". I'd suggest having a look at the list on the Freeagent website (http://www.freeagent.com/ http://www.freeagent.com/).
  - Stoo 11y ago
    I've used Crunch since I began contracting towards the end of 2009. So I was one of their early customers. I would say their software keeps getting better but their service as a whole has worsened as they've got bigger. That's not to say their service is bad, it's just not as good as it was when they had less than 100 customers. I've had a couple of instances in the past (around two years ago) where I've had to correct my account manager when he's told me something I've known to be wrong. Having said that, just about everything is automated or part of their software now and I haven't had to speak to anyone there since last summer. Maybe their service hasn't gotten any worse, it's just become less personal.
  - Nursie 11y ago
jackgavigan 11y ago
> The fixed rate VAT does not let you reclaim VAT, but you pay a lower rate than you charge your clients. So if you're a developer contractor you'll be adding 20% VAT to your client invoices, but only pay 14.5% to HMRC, keeping the remaining 5.5% to the business. This is not correct. The way the flat rate VAT scheme works is you add VAT to your bill, then pay 14.5% of your "flat rate turnover" to HMRC. Flat rate turnover includes the VAT. For example, let's say you did £100 worth of work for a client. You invoice them for £100 + 20% VAT = £120 in total. You must then pay 14.5% of £120 to HMRC (i.e. £17.40).
- medwezys 11y ago
  Oops, it's good I didn't trust myself and got Crunch to do that for me :) Thanks a lot, I'll update the guide when I get a chance.
- pjc50 11y ago
  It also doesn't mention that you don't need to register for VAT until you have a turnover of £82k.
  - dav-id 11y ago
    Within the EU. For example if you have a turnover of £100k all from outside of the EU you don't need to register.
  - MatthewWilkes 11y ago
    But for coders it's almost always worth registering straight away and going for the FRS. Also, on FRS you can claim a single £2k expense annually.
  - gambiting 11y ago
    You don't have to,but you might want to - if you want to do any business with EU companies you have to give them your VAT number to be properly paid and invoiced. My company doesn't make anywhere near 82k,but it has to be VAT-registered for this very reason.
- 10dpd 11y ago
gadders 11y ago
I'd also mention joining IPSE (http://www.ipse.co.uk/ http://www.ipse.co.uk/) which a is trade organisation for freelancers. They provide various benefits including IR35 insurance that covers investigations. Freeagent is a good online accounts package as well, but you need to find an accountant that uses it.
- gadders 11y ago
  One other thing I would say is that I'm not sure your points about IR35 are correct. EG: * Don't use equipment provided by the client; -- This would be very hard to do. Most clients I've ever worked for supply you with a PC to use and won't allow non-corporate devices on their network. * Be careful with paid-for meals or participating in company parties. -- Never heard this mentioned before. * Avoid working for one client for longer than a year when possible. -- A lot of cients will enforce a maximum period of 2 years anyway, as after that you could theoretically claim benefits. There are a lot of scare stories propogated about IR35, and a lot of it is by companies that sell IR35 Contract Reviews, IR35 Insurance etc. The number of IR35 investigations each year is in the low thousands, and there are 1.8m contractors in the UK.
  - amouat 11y ago
    I've heard all those points mentioned, including by an accountant. Remember it is a points based system, not hard and fast rules. Agree about scare stories, but it is a scary topic.
  - bencollier49 11y ago
    Re. IR35 investigations - that number is going to go up. The new intermediaries legislation will give HMRC a ready-made list of likely targets. I expect the first people to be hit will be in companies with a large number of contractors supplied through the same company.
new299 11y ago
It's probably worth noting that you only need to register for VAT if you're expecting to make > 82KGBP in VATable sales per year. If you're contracting is mostly remote and outside the UK, you don't need to register, or charge VAT (as I understand it).
- tonyedgecombe 11y ago
  On the other hand if you do register then you can claim back the VAT on any expenses.
  - Nursie 11y ago
    Not quite that simple, unfortunately. You can only claim it back on large expenditures if you're on the fixed-rate scheme (I think that's what it's called). Computer equipment is the prime one, but it has to be over £2K in a single spend. AFAICT most VAT on everyday expenses doesn't come back to you. OTOH you can charge the company for your lunch every day, which means you get that paid for before corporation tax, income tax or anything else...
    - new299 11y ago
      > OTOH you can charge the company for your lunch every day, which means you get that paid for before corporation tax, income tax or anything else... Hmmm. I think my last accountant told me things like lunch every day were not billable to the company. But they weren't very good accountants. :) I didn't realise it was only spends over 2K that could be claimed back. Do you have a reference for that? Overall, VAT registration didn't seem to offer me much (given that my clients are all outside the UK) but I'm curious to know if there are circumstances where it might make sense.
      - Nursie 11y ago
        It was guidance from my accountant and other contractors have said the same. Receipted lunch and travel expenses are reclaimable when I am on a client site. Which I am most days, as I prefer to work closely with the client's team, though reserve the right to work from wherever I want. Most notably, last year, I did a few days work from a rented office in Australia where I was on holiday at the time! I claimed the office rental too... Best I can find on VAT in a ten-second search is this - https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses https://www.gov.uk/government/publications/vat-notice-733-fl... Sections 15.1 and 15.2 are where you'll want to look. Oh, and the overview section from this much simpler guide :) https://www.gov.uk/vat-flat-rate-scheme https://www.gov.uk/vat-flat-rate-scheme --edit-- This £2K thing probably does only apply to companies on flat-rate schemes. The idea is that for a small business, the overheads of processing all the VAT refund stuff are just too large, so you give relief on large purchases only, and the income boost I mentioned in the other post is probably supposed to make up for it. Or something. I don't claim to fully understand!
celticninja 11y ago
one thing I would say is that i have had good fortune with recruiters, providing they are a decent recruiter they can ensure 0 downtime between contracts and if financial stability is a concern then this should notbe overlooked. One thing i have found is that finding a good recruitr and sticking with them has ben more useful than calling a handful of agencies and using the shotgun approach. I would note that none have ever told me the name of a client prior to me accepting to be represented by them and I have been introduced to a client company who then asked me to work directly through them and to bypass the recruiter (and any fees the client company would be paying to them). I refused as it was a single contract for 6 months and burning bridges with anyone isnt worth it for that sort of duration. Plus the recruiter had got me the interview within 7 days of me getting in touch with them. YMMV just my 2cents.
rossriley 11y ago
In terms of the recruiters section, whilst I appreciate you may not have had a good experience, this is probably the way a lot of people get contracting work, at least until you have a fairly big network of contacts. I'd be more interested in knowing what agencies do have a good reputation / good developer experience along with the note to beware of the cowboys.
- boothead 11y ago
  In general the big ones suck and have a boiler room mentality. Good ones in my experience: Oxford Knight Functional Works GQR Hays (They're big but have been good to work with) I'll add more as I think of them. If you're looking for work in finance - you will almost certainly be going through a recruiter.
  - jimduk 11y ago
    I did a quick review of agencies 2 yrs back to use as we started to run out of organic references in London - Oxford Knight, Burns Sheehan, Recworks (Java and grads) seemed decent. Stack Overflow is also worth using carefully
  - ed_blackburn 11y ago
    Funny. I've had lots of problems with Hays. Cancelling cheques, unenforceable and ridiculous clauses in contracts for example. The best agencies? None. Don't use them if you can help it. If you have to the smaller the boutique ones tend to be better, if nothing else because they'll have the better clients and more interesting projects.
- wumbernang 11y ago
  They're all pretty good as an ex-contractor in the UK. Even getting paid is quite easy if you sub your timesheets quickly. The killer is simply making sure that if you do the entire 6 month contract in 2 weeks that you still get paid for the rest or have a massive termination fee in the contract. The agents don't care; they pass all costs on.
  - 11y ago
zimpenfish 11y ago
My advice would be to use an umbrella company and let them deal with all the tax hassles - they have an entire staff purely for this. You will take home slightly less (no opportunity for tax "optimisation" but I disagree with that on principle anyway) but then also have no exposure to HMRC coming after you 6 years later saying "Where's our £10,000?" (has happened to several people I know.) (edit for spelling)
- boothead 11y ago
  You disagree with following the letter of the law and taking home extra thousands of pounds per year? Personally my attitude it that I'll apply whatever optimizations my accountant says I can without being too creative :-) Also, some companies that masquerade as umbrellas are doing some pretty shady things. If they promise some un-feasibly large percentage of take home pay (over 80%) they're probably doing some dodgy Isle of Man scheme and you'll be left holding the can.
  - zimpenfish 11y ago
    It's a moral/ethical stance, I guess - tax funds social infrastructure and I think we need more of that. Good point about the shady "base pay + loan you never* have to repay" shenanigans - I suspect HMRC will be onto them soon enough though.
    - boothead 11y ago
      I agree that we do need more of that. I balk at the bombastic talk from the government, (who make the laws in the first place) that it's somehow immoral to optimize your tax affairs. I would much rather see them put simpler legislation in place that means that large companies pay their "fair" share of tax, and tax is easier to deal with for small companies. If I ended up paying a bit more tax under that regime and the current large tax avoiders ended up paying a lot more that could be put towards social infrastructure, that would make me happy.
    - Nursie 11y ago
      I get calls about these every so often, people who sound lot like recruiters but give away the fact they're selling dodgy schemes after a while. "We can enable you to take home more than 90%!" "Err, Right, how can you do that then?" "By structuring your profits through our scheme! We use a combination of tax-haven bank accounts and directors..." "I'll stop you right there, isn't this what Jimmy Carr off the tv just got spanked for? No thanks, sounds highly unethical to me." That said I do do things the 'usual' way and pay myself a small salary, with the rest coming in as share dividends. I'm not sure exactly what proportion I pay in taxes vs a salaried employee, but it's non negligible - 20% Corporation tax on all profits (before I get paid), and 25% dividend tax on anything I get paid over the Higher Rate threshold.
Nursie 11y ago
Why bother with a third party company registration service? You can do it yourself pretty easily through companies house. Do companiesmadesimple have any value-add? While I do share your cynicism about recruiters, I have also got most of my contracts through them. There are bad recruiters (vague job descriptions, never call you back) and there are good ones (We need someone here, you fit the bill, can we arrange a time to talk to my client?). Learning to swallow your distaste and listen to them as if they were worthwhile human beings is a useful skill. Some (few) of them actually are. (--edit-- good guide in general! I don't just want to harp on the negatives!)
- wumbernang 11y ago
  They do all the annoying paperwork for you at the registration service like the initial transfer of directors capital and appointments and crap like that. It's worth it. (I've killed 5 limited companies now so I have lots of experience ;-) IR35 is the only PITA IMHO of doing all this and that's easily sorted by doing the odd phone/laptop repair at the same time and invoicing it.
  - Nursie 11y ago
    >> IR35 is the only PITA IMHO of doing all this and that's easily sorted by doing the odd phone/laptop repair at the same time and invoicing it. ?? Oh, a phone/laptop repair for someone else, and invoicing them for it? In just under three years I've taken on 5 contracts of varying lengths and billed for a small amount of casual consultancy work on the side too. I'm clearly not acting as an employee, hopefully I'm in the clear :)
  - monkeyprojects 11y ago
    No it won't.. IR35 is explicitly contract by contract based... In theory (and in practice) you could be working at 3 places at the same time and 2 of them would be outside IR35 and 1 would be inside it... There are a lot of old wives tales and myths around IR35 http://www.contractoruk.com/ir35/top_ten_ir35_myths_debunked.html http://www.contractoruk.com/ir35/top_ten_ir35_myths_debunked... shows a few of them. And sorry for posting links to the same two sites but that is where the real information is from people who have operated this way for years...
hunglee2 11y ago
Good to see recruiters getting some love on the comments here. If there remains a place for 3rd party recruiters its in the contract market. A few reasons: Payments processing - a lot of employers will not want to deal with processing payments for contractors. Indeed, its often the main reason why they might go for contract vs permanent resource in the first place. I've seen situations where contractor and employer have discovered each other, only for the employer to then ask the contractor to 'go through agency X'. No one likes admin load and we'd all get rid of it if we can. Reduce assessment load - job opportunities cycle much more frequently on the contract market - typically 3-6 months. This means a lot more time involved in opportunity sourcing / vetting, potentially a hugely time consuming exercise. A good recruiter will be able to filter these opportunities for you, and only get you the most suitable gigs Reduce downtime - going without agencies entirely means relying on your own market gravity as a developer of renown to secure job opportunities. This is do-able for high profile developers, of course, especially those who live in metropolitan areas and are prominent on the open source / community / events scene. However, if you work on proprietary software, have heavy family obligations and live outside of a big city, you're probably going to find agents very useful indeed. Salary / Rate negotations - they are going to take their 15-20%. But they may end up earning you more by negotiating hard with the end employer. Certainly an inexperienced contractor is at risk of being exploited, but that's true in whatever of the type of contract you sign. A good relationship with a trusted agent can really help you make more on your rate, especially if you are not a naturally comfortable at negotiating. And I say all this as a maker of a tech hiring platform that doesn't allow 3rd party recruiters on it. They have their place - just a smaller one than they currently occupy. Great article in all other areas
- Nursie 11y ago
  What's your platform? The payments thing is important, and sometimes recruiters provide a useful buffer too - the end-client company might take their sweet time to pay, or be unreliable. Contracting through a third party provides you with a buffer and I know for a fact that I've been paid well ahead of the recruiter being paid on several occasions.
  - Peroni 11y ago
asherkin 11y ago
> As far as I understand, it is important to have a contract that allows you to: > [...] > If the client insists on including the clauses above, be ready to move on. These lines appear to contradict themselves, am I missing something?
ticksoft 11y ago
I notice that business bank accounts are always mentioned in these sorts of lists. To me they seem like an extra overhead for no reason. You essentially have to ask a bank's permission and pay them just so they can accept your payments? So weird. I could understand it if you had a business with employees and you sold products on a daily basis with loads of transactions, or if you plan to get into debt... but for invoicing someone every month? Personal account seems fine, and I'm sure people have several of them already.
- Nursie 11y ago
  The business is a separate legal entity to you. A business bank account clearly demarks what is your money and what is not. I wouldn't be at all surprised if it's a requirement to work with a lot of companies, if not a legal requirement for working with a ltd company. Business bank accounts can be had for free - most contractor-friendly accountants have an arrangement with Cater-Allen, for instance.
  - framp 11y ago
    It's not a legal requirement and they're certainly not free AFAIK. It is a requirement for partecipating in certain contests (eg: Microsoft had a program for investing in indie games company and they required to use a business account entitled to the company) but I still haven't heard such requirement from a client.
    - Nursie 11y ago
      >> It's not a legal requirement I'd be surprised if it wasn't a requirement with many clients though, it shows a level of professionalism. >> and they're certainly not free AFAIK. You haven't looked very hard then...
      - framp 11y ago
        > I'd be surprised if it wasn't a requirement with many clients though, it shows a level of professionalism. Agree, but I've never seen such clause in a contract. > You haven't looked very hard then... I guess it's a service provided by only certain accountants? All the (chartered) accountants I've talked to never offered a free business account. They offered introduction to paid business account but that's the usual. If it's not and there is a free business banking account with a reputable bank out somewhere I'll be happy to look into it.
monkeyprojects 11y ago
As a contractor of many years standing (I started contracting when the internet appeared in 1994) I started reading the article hoping it was correct and finished it with my fingers covering my eyes in fear. Sadly I don't have time to correct many of the misconceptions and total inaccuracies it contains. Its a shame really as good articles are hard to find and I'm sure many americans would find the differences between the UK and US markets very interesting... However if you really want to be a contractor https://www.ipse.co.uk/advice/articles/starting-out https://www.ipse.co.uk/advice/articles/starting-out has a lot of advice on starting out. http://www.contractoruk.com/first_timers/ http://www.contractoruk.com/first_timers/ also has a lot of advice although as a new starter I would avoid the general part of their forum... And there is a reason why people use limited companies. You can work as a self employed person but many clients stop when HMRC come knocking while agencies have been legally barred from employing people as self employed since the 1970s...
- amouat 11y ago
  It would be a lot more useful if said what these misconceptions and inaccuracies were. It seemed generally accurate to me. I think you should either back up this comment or delete it; otherwise it's unfair to the author. (I don't mind to sound snarky here; the rest of your comment is genuinely helpful).
  - ig1 11y ago
    You should absolutely not have your business bank with the same bank you use personally. If your business account ever gets frozen (for litigation, tax investigation, etc.) many banks will also freeze any personal accounts you hold with them. IMO many of the services he recommends also suck. I've used Crunch before and wouldn't recommend it and Barclays Business banking has a terrible reputation. £50 cashback isn't a good basis on which to chose a bank account. Get a proper accountant that specialises in contractors (Nixon Williams and SJD have decent reputations). It also doesn't address withdrawing money out of the company (taxes, NI, pension, etc) which is a fairly important part of being a contractor.
    - 11y ago
Nope5005 11y ago
I comment OP for trying this, but there are so many glaring omissions which could bite the ignorance of a minnow. - Let's start with Crunch IT. Affiliated with the OP. They (like the rest) are surrounded by low paid interns and similar - they don't know the answer to your questions. Their accountants are rare as gold and have no time for you. That is fair enough given the price they charge (which has increased and become more 'diverse' each year) - This isn't a game. The HMRC don't have an army of people, but they are gaining a machine of features who can see when you expense a TV. - The HMRC are entirely ignorant to our work. They want a nice clean line between your work and life. What they don't appreciate is it is entirely a waste of resources. I buy two laptops - great. Fucked the HMRC and the environment - nice work :/ Lets start with this... total bullshit Here's my favourite one: - If you’ve spent more than 40% working at a client site - You’ve been there over 2 years - You ‘intent’ to work there for more than 2 years
M8 11y ago
The salary ceiling is very low in UK.
- Peroni 11y ago
  Almost every salary ceiling is low compared to SV but it's all relative. It's not particularly difficult to achieve a £100k+ salary in London and you can have a very comfortable lifestyle on a six figure income.
  - Nursie 11y ago
    Comfortable? Something of an understatement. There are very few in the UK earn that much... --edit-- though I do agree money on offer here generally is a joke. Hence going into contracting.
  - randomname2 11y ago
    Just out of interest, how? For a developer, £100k+ as a contractor is not particularly difficult, but as an employee this would be rare, no?
    - Peroni 11y ago
      Anything relatively senior in FinTech encroaches on the six figure salary mark. Plus there are plenty of experienced Data Scientists getting six figure offers lately. In the past twelve months the market has shifted quite quickly. £60-£70k is becoming the norm for a decent, experienced engineer. Add 'lead' to that title and you'll struggle to find great people for less than £100k. Considering that £300-£400 per day is a pretty standard contracting rate, companies are ramping up salaries in order to tempt contractors back into salaried roles.
    - buserror 11y ago
      I agree; unless working for google or something, the ceiling for a super-duper dev at hiring time seems to be around 65k -- perhaps a bit more if you stay and negotiate well, but I topped up at 75k before I became a contractor. Now, this company tax year, I invoiced 120k ex-vat so far, managed to buy a rather large amount of kit on the company (like, that 4k£ dream workstation..) and I finally have the feeling I'm getting paid what I'm worth, without having to do any politics. I can concentrate on pure engineering, and I don't have to ponder whether I should become some sort of 'manager' to crack up the engineer pay ceiling.
ForHackernews 11y ago
I've heard that in the UK, it's much more advantageous to work as a contractor than a full-time employee. Is there any truth to that? What advice would HN offer to a US-based developer looking to move to the UK?
- stefek99 11y ago
  I'm in the UK for 4.5 years and one of my biggest dreams is move to the US... Main advantage of being contractor? Much better pay... They say - "no job security" - but there is no such term anyway.
  - bitwize 11y ago
    Why would you ever want to move here? You think the NHS is bad, you ain't seen nothing yet.
  - ForHackernews 11y ago
    Is the dev scene bad in the UK? Why are you so interested in moving to the US?
    - medwezys 11y ago
      The dev scene in the UK is not as great as it is in the US, but it's good. Perhaps the second best after the US. US is appealing because it's an english speaking country, has a good dev scene and is an interesting country to live in.
- d_t_w 11y ago
  London is a world of her own, my advice relates to her. The only thing you need to be an IT Contractor in London (other than some skills) is confidence. I worked a number of contracts over ten years in the finance sector in London. I never had a client pull a contract on me, I always left on my terms. On average I lasted two years until I moved on. Major Retail, Funds management, Investment banking was my progression. My background was Java (I work almost exclusively with Clojure now, and love it). Java was the language of business in London and I presume it still is. If you want to get a well paid gig in a smart office for a bank or funds management firm then Ruby is not your friend. Why was I motivated to move towards Investment Banking? Well, I'm competitive and it's the hardest market to crack, and it pays a premium. That's it. If you want to stay pure to one language or another and not use your rare skills for the best economic result for yourself that's another choice. The market is huge, once you've got a recruiter who likes you you'll be offered work fairly continuously. My contractor rate was roughly double what I would have earned permanent. The contractors I worked with were no better or worse than the permanent staff I worked with, they just had the confidence to strap on their contractor pants and go to work. That. is. all. Advice like this article is useful enough I guess, but in reality you either have the confidence to go for it or not, and once you have you will never imagine why you waited so long (as long as you've got the ability to land work and impress people). IR35? Just move every couple of years. Tax? Don't take the piss and HMRC will not bother you. Accountants? Have a crap one for a while and swap. Recruiters? Don't piss them about, realise they are all liars, but necessary. Find a good one and impress their clients. Timing? There's a couple of luls towards Xmas and the EOY, but there are always projects looking to spend money. It is all confidence, you either do it or you don't, all this other crap follows.
kybernetyk 11y ago
>A service like www.companiesmadesimple.com (aff.) will make the incorporation process easy. It usually takes up to three business hours. Yeah, better do it yourself. I'm from Germany and I set up a LTD directly with Companies House myself. It's really (I mean really really) straight forward and they even accept PayPal to pay the 15 GBP fee. It took me ~20 minutes and the company was incorporated the next day. Those formation companies usually just are an unnecessary middleman.
- UK-AL 11y ago
  The formation companies are a left over from when it was quite hard
martinald 11y ago
Do not ever be a sole trader. It means you are personally liable for anything that goes wrong. Say you end up with a dreadful contract and everything goes wrong and the client sues. If you're a ltd company you can dissolve the business and pay them out of whatever assets your company has. If you're a sole trader you're liable for all the costs. Until you're personally bankrupt. Sure, there may be clauses in the contract etc, but if someone is mean enough they can make your life very difficult and they will exploit the fact you are a sole trader.
- dublinclontarf 11y ago
  This is what business indemnity insurance is for, get covered to a minimum of £50K. If you don't own a house and are brining in less than £70K PA it may or may not be worth registering a Limited company.
  - Keats 11y ago
    Lots of companies will not want to deal with you if you don't have a ltd though.
  - UK-AL 11y ago
    If you don't own a house, you probably have tons of cash which is even easier for people to get their hands on.
Wintamute 11y ago
Uh oh, if it's one thing us brits like to do its wrangle over the finer points of tax, employment and contractual law. This thread is going to get long, involved and possibly slightly testy :)
kaolinite 11y ago
I recently started working as a contractor (just for a few months to bring some cash in so I can continue to work on my business). As I have a business already, I was considering doing the contracting under the business to reduce liability. Does anyone know whether this will increase the amount of tax I have to pay? I figured that I would have to pay corporation tax on any money I bring into the company as well as personal tax on any money that I pay myself as a salary. Is that the case?
- tommyd 11y ago
  Ask your accountant. Seriously, that's the best thing to do in a situation like that - random strangers on the Internet have no idea of the ins and outs of your company structure etc. and so could potentially give bad advice, even if they don't intend to.
stefek99 11y ago
I would all the formalities after landing the first contract. It takes like 15 minutes online to establish limited company. And when you buy insurance - how do you know which one? My current contract requires me to have 10 million employer liability insurance (I don't hire anyone) but I have to have it anyway. I guess I'll add some comments in this thread... (if time allows)
- keeran 11y ago
  Your consulting company employs you :)
tkyjonathan 11y ago
You guys need to learn some accounting. Don't be afraid of book-keeping and be keen on any rule that helps you save on taxes. Overall, a limited company can save you around 20% on taxes over a salaried worker. That alone makes it difficult to go back to full-time employment.
- pkaler 11y ago
  I agree with you in principle, but not in practice. Outsource your bookkeeping to Xero or Bench or wherever. As a consultant, accounting is a cost centre. You should be focusing on sales, marketing, or service delivery. As a consultant, you are now a business. Ring the freaking bell or deliver service. That's your new job.
  - roel_v 11y ago
    "As a consultant, accounting is a cost centre." While I can't claim to know every jurisdiction, this is a very naive way of looking at things. Situations in which I was first-hand witness to people making (lots of) money from knowing the books well (i.e., much better than if someone else would do it): - subsidies (like for 'innovation') - in case of a tax audit - some junior accountant who gets tasked with the small clients at a firm isn't going to be able to defend some stuff as well as someone with skin in the game - on bankruptcy or when talking to a bank And I'm sure there are more.
WoMaameTwe 11y ago
Another one for the clueless bandwagons to hop on as the new sexy. This type of content on HN is getting tiring and played out. Please desist from mounting this type of bullshit on HN its misleading.
thruflo 11y ago
Tax. You invoice £4k. It gets paid into your bank. Congratulations. You just earned £3k.
Keats 11y ago
I read that book http://www.amazon.co.uk/Contractors-Handbook-Expert-Guide-Freelancers/dp/0956074529/ http://www.amazon.co.uk/Contractors-Handbook-Expert-Guide-Fr... when I started contracting last year and thought it covered quite a bit. Another thing I'd recommend is finding an accountant that uses FreeAgent or something similar rather than their homegrown system. Also, If you use an accountant they will do the company registration for you
laverick 11y ago
Finding a good accountant isn't easy, but I would recommend looking for something better than Crunch. They were the default option "just pick Crunch", but I had to do a lot of tax research myself and recommend favorable approaches to their accountants on certain non-standard things. I also felt their first line of support is spread very thin and they put a lot of bookkeeping work on me. Then a lot of services cost extra each month, making their total pricing uncompetitive. In the end I got everything done and they did their best to rectify issues, but it was a big burden on my time and significant amounts of stress. Maybe I would have had this issue with any accountants as a first time contractor, but I know it could have been better and I would have happily paid more to make it so. Do yourself a favor and pay extra to get an accountant that handles more things on your behalf (bookkeeping, VAT filing, etc) preferably with a simple non-proprietary interface. I haven't tried these two services but if I go back to a UK accountant they'd be at the top of my list. http://www.3wisebears.co.uk/ http://www.3wisebears.co.uk/ (contractor) http://www.proactive.uk.net http://www.proactive.uk.net (more startup focused, very helpful via phone)
- highace 11y ago
  I would also recommend not using Crunch. They're OK if you stay on the beaten path, but if you start veering off it their juniors don't have a clue. It was a painful experience for me.
flog 11y ago
Here's the printable PDF version: https://gitprint.com/tadast/switching-to-contracting-uk https://gitprint.com/tadast/switching-to-contracting-uk
ed_blackburn 11y ago
What this does not touch on is be prepared to be a grease monkey, roll your sleeves up and get your hands dirty and most importantly learn how to make recommendations but not take it personally if they’re ignored for seemingly irrational reasons. Organisational dysfunction is the norm, not the exception. Broadly speaking I’ve seen most of my work fall into these categories: a) Help we need someone competent to aid us in a murky project b) We are a dysfunctional organisation, who require transient developers to put up with their modus operandi. c) We need your experience and expertise for a gap in our project I’ve found (c) is best but (b) pays best though it can be stressful if your passionate about quality, engineering practices or process and (a) is often relatively short term but can garner kudos and create better opportunities. Most companies don’t hire contractors because they’re doing swimmingly. Often it’s because they have some degree of dysfunction. For example large institutions in the City regularly operate as a parody of the Mythical Man Month. Expect Waterfall, PMO, silos of BA, Dev, QA; UAT (manual), Cookie Cutter templates to everything. Expect most “business” interaction to be via a PM and scrums to be lengthy tortious ordeals. (This is why companies like Thought Works do so well and why I expect some serious disruption in the coming years from Startup targeting City companies). Expect people to ask you your advice and for you to mentor less experienced developers. Do not expect your advice to be implemented, or rather expect it to be watered down with compromise by non-technical councils. I really like contracting. I enjoy the flexibility, variety and the challenges. I enjoy the people and skills I learn and now my network has expanded and I have earned a reasonable reputation I enjoy the better projects. I second the sentiment about going IPSE and of hiring a decent accountancy. Don't worry about their portals or how shabby a website may look, pick them based on their competency. Bite the bullet. Go for it!
- MortenK 11y ago
  This is incredibly accurate, and applies equally well to contracting in other roles than as a developer.
- boothead 11y ago
  Clearly we have worked in some of the same places! Very accurate!
- 11y ago
teknologist 11y ago
Something called entrepreneurs' relief is also nice for those with ltds or tech startups in the UK. It allows you to save massively on CG tax (10% instead of the normal rate of 18% or 28%) when selling assets or liquidating the business. https://www.gov.uk/entrepreneurs-relief https://www.gov.uk/entrepreneurs-relief
antouank 11y ago
What do you think is the percentage of contract dev jobs? ( vs permanent )
collyw 11y ago
Anyone know if there is much of a contractor market in Spain?
kenshiro_o 11y ago
Very good guide. I am thinking of becoming a contractor but had not idea you needed so much saved up! Looks like I am gonna have to scrap my lavish summer holiday plans to put money aside...
tristanbailey 11y ago
The post is good, covering many of the aspects, but if you are trying or just started contracting there is not always a need to make the VAT registration and Limited Company. As I have been freelancing for 4 years as a sole trader. There are some tax benefits but you have to manage your pay and money very differently as a Ltd, i.e. you have to hold money in the bank enough to cover company bills that you cant spend. Unless you are a high paid contractor all year you are unlikely to make £82,000 VAT base rate.

216 points by medwezys 11y ago

kifler 11y ago

This looks incredibly helpful - I wish someone would do one for the US/Canada

icpmacdo 11y ago
+1 for canada
peter303 11y ago
Theres a lot out there on starting your own business in the USA. The US tax gotcha that is similar to VAT is quarterly payroll and income tax on your NET income. People get several $10Ks behind on taxes, especially the doubled social security part, and could be penalized by the IRS.
wintorez 11y ago
+1 Canada
a3camero 11y ago
Becoming a Contract Programmer in Canada: http://www.cameronhuff.com/blog/becoming-a-contract-programmer-in-canada/index.html http://www.cameronhuff.com/blog/becoming-a-contract-programm....

boothead 11y ago

Good advice, especially the bit about crunch. First time I contracted I let my accountant talk me into using their horrible spreadsheet. I couldn't make my self use it it was that bad and my accounts were a mess. Now my accountant (nimble jack) bundles freeagent (which when I looked into it was better than crunch and has an API) and keeping on top of things is much easier. One additional thing: If you're married make sure your spouse is a director of the company as well (especially if they're not working). You can be hugely tax efficient in this manner and can extract nearly £80k per year from the company with no personal tax to pay (there will still be corporation tax to pay on profits).

new299 11y ago
Yep, having set consulting companies a couple of times now having something like Freeagent is invaluable. Getting a good accountant is important as well, after switching once I now use 3wisebears who I'd recommend.
tommyd 11y ago
Other recommendations of accountants with decent online systems would be greatly appreciated. My current ones (Nixon Williams) seem fairly good as accountants, but the spreadsheet based expenses (and having to use email to take dividends, check profit/loss, etc) are getting quite annoying, and they want to charge extra to use their registered address rather than my own, which leaves a bit of a bad taste when Crunch include this. I have heard good things about Crunch's system but some mixed things about the quality of their advice and how pro-active they are - any other feedback on them or others? The point about the registered address and fraud is a real one, someone I worked with had this happen to them - will Crunch act as the service address as well as the registered address?
- gadders 11y ago
  I use an accountant that is "Freeagent Compatible". I'd suggest having a look at the list on the Freeagent website (http://www.freeagent.com/ http://www.freeagent.com/).
- Stoo 11y ago
  I've used Crunch since I began contracting towards the end of 2009. So I was one of their early customers. I would say their software keeps getting better but their service as a whole has worsened as they've got bigger. That's not to say their service is bad, it's just not as good as it was when they had less than 100 customers. I've had a couple of instances in the past (around two years ago) where I've had to correct my account manager when he's told me something I've known to be wrong. Having said that, just about everything is automated or part of their software now and I haven't had to speak to anyone there since last summer. Maybe their service hasn't gotten any worse, it's just become less personal.
- Nursie 11y ago

jackgavigan 11y ago

> The fixed rate VAT does not let you reclaim VAT, but you pay a lower rate than you charge your clients. So if you're a developer contractor you'll be adding 20% VAT to your client invoices, but only pay 14.5% to HMRC, keeping the remaining 5.5% to the business. This is not correct. The way the flat rate VAT scheme works is you add VAT to your bill, then pay 14.5% of your "flat rate turnover" to HMRC. Flat rate turnover includes the VAT. For example, let's say you did £100 worth of work for a client. You invoice them for £100 + 20% VAT = £120 in total. You must then pay 14.5% of £120 to HMRC (i.e. £17.40).

medwezys 11y ago
Oops, it's good I didn't trust myself and got Crunch to do that for me :) Thanks a lot, I'll update the guide when I get a chance.
pjc50 11y ago
It also doesn't mention that you don't need to register for VAT until you have a turnover of £82k.
- dav-id 11y ago
  Within the EU. For example if you have a turnover of £100k all from outside of the EU you don't need to register.
- MatthewWilkes 11y ago
  But for coders it's almost always worth registering straight away and going for the FRS. Also, on FRS you can claim a single £2k expense annually.
- gambiting 11y ago
  You don't have to,but you might want to - if you want to do any business with EU companies you have to give them your VAT number to be properly paid and invoiced. My company doesn't make anywhere near 82k,but it has to be VAT-registered for this very reason.
10dpd 11y ago

gadders 11y ago

I'd also mention joining IPSE (http://www.ipse.co.uk/ http://www.ipse.co.uk/) which a is trade organisation for freelancers. They provide various benefits including IR35 insurance that covers investigations. Freeagent is a good online accounts package as well, but you need to find an accountant that uses it.

gadders 11y ago
One other thing I would say is that I'm not sure your points about IR35 are correct. EG: * Don't use equipment provided by the client; -- This would be very hard to do. Most clients I've ever worked for supply you with a PC to use and won't allow non-corporate devices on their network. * Be careful with paid-for meals or participating in company parties. -- Never heard this mentioned before. * Avoid working for one client for longer than a year when possible. -- A lot of cients will enforce a maximum period of 2 years anyway, as after that you could theoretically claim benefits. There are a lot of scare stories propogated about IR35, and a lot of it is by companies that sell IR35 Contract Reviews, IR35 Insurance etc. The number of IR35 investigations each year is in the low thousands, and there are 1.8m contractors in the UK.
- amouat 11y ago
  I've heard all those points mentioned, including by an accountant. Remember it is a points based system, not hard and fast rules. Agree about scare stories, but it is a scary topic.
- bencollier49 11y ago
  Re. IR35 investigations - that number is going to go up. The new intermediaries legislation will give HMRC a ready-made list of likely targets. I expect the first people to be hit will be in companies with a large number of contractors supplied through the same company.

new299 11y ago

It's probably worth noting that you only need to register for VAT if you're expecting to make > 82KGBP in VATable sales per year. If you're contracting is mostly remote and outside the UK, you don't need to register, or charge VAT (as I understand it).

tonyedgecombe 11y ago
On the other hand if you do register then you can claim back the VAT on any expenses.
- Nursie 11y ago
  Not quite that simple, unfortunately. You can only claim it back on large expenditures if you're on the fixed-rate scheme (I think that's what it's called). Computer equipment is the prime one, but it has to be over £2K in a single spend. AFAICT most VAT on everyday expenses doesn't come back to you. OTOH you can charge the company for your lunch every day, which means you get that paid for before corporation tax, income tax or anything else...
  - new299 11y ago
    > OTOH you can charge the company for your lunch every day, which means you get that paid for before corporation tax, income tax or anything else... Hmmm. I think my last accountant told me things like lunch every day were not billable to the company. But they weren't very good accountants. :) I didn't realise it was only spends over 2K that could be claimed back. Do you have a reference for that? Overall, VAT registration didn't seem to offer me much (given that my clients are all outside the UK) but I'm curious to know if there are circumstances where it might make sense.
    - Nursie 11y ago
      It was guidance from my accountant and other contractors have said the same. Receipted lunch and travel expenses are reclaimable when I am on a client site. Which I am most days, as I prefer to work closely with the client's team, though reserve the right to work from wherever I want. Most notably, last year, I did a few days work from a rented office in Australia where I was on holiday at the time! I claimed the office rental too... Best I can find on VAT in a ten-second search is this - https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses https://www.gov.uk/government/publications/vat-notice-733-fl... Sections 15.1 and 15.2 are where you'll want to look. Oh, and the overview section from this much simpler guide :) https://www.gov.uk/vat-flat-rate-scheme https://www.gov.uk/vat-flat-rate-scheme --edit-- This £2K thing probably does only apply to companies on flat-rate schemes. The idea is that for a small business, the overheads of processing all the VAT refund stuff are just too large, so you give relief on large purchases only, and the income boost I mentioned in the other post is probably supposed to make up for it. Or something. I don't claim to fully understand!

celticninja 11y ago

one thing I would say is that i have had good fortune with recruiters, providing they are a decent recruiter they can ensure 0 downtime between contracts and if financial stability is a concern then this should notbe overlooked. One thing i have found is that finding a good recruitr and sticking with them has ben more useful than calling a handful of agencies and using the shotgun approach. I would note that none have ever told me the name of a client prior to me accepting to be represented by them and I have been introduced to a client company who then asked me to work directly through them and to bypass the recruiter (and any fees the client company would be paying to them). I refused as it was a single contract for 6 months and burning bridges with anyone isnt worth it for that sort of duration. Plus the recruiter had got me the interview within 7 days of me getting in touch with them. YMMV just my 2cents.

rossriley 11y ago

In terms of the recruiters section, whilst I appreciate you may not have had a good experience, this is probably the way a lot of people get contracting work, at least until you have a fairly big network of contacts. I'd be more interested in knowing what agencies do have a good reputation / good developer experience along with the note to beware of the cowboys.

boothead 11y ago
In general the big ones suck and have a boiler room mentality. Good ones in my experience: Oxford Knight Functional Works GQR Hays (They're big but have been good to work with) I'll add more as I think of them. If you're looking for work in finance - you will almost certainly be going through a recruiter.
- jimduk 11y ago
  I did a quick review of agencies 2 yrs back to use as we started to run out of organic references in London - Oxford Knight, Burns Sheehan, Recworks (Java and grads) seemed decent. Stack Overflow is also worth using carefully
- ed_blackburn 11y ago
  Funny. I've had lots of problems with Hays. Cancelling cheques, unenforceable and ridiculous clauses in contracts for example. The best agencies? None. Don't use them if you can help it. If you have to the smaller the boutique ones tend to be better, if nothing else because they'll have the better clients and more interesting projects.
wumbernang 11y ago
They're all pretty good as an ex-contractor in the UK. Even getting paid is quite easy if you sub your timesheets quickly. The killer is simply making sure that if you do the entire 6 month contract in 2 weeks that you still get paid for the rest or have a massive termination fee in the contract. The agents don't care; they pass all costs on.
- 11y ago

zimpenfish 11y ago

My advice would be to use an umbrella company and let them deal with all the tax hassles - they have an entire staff purely for this. You will take home slightly less (no opportunity for tax "optimisation" but I disagree with that on principle anyway) but then also have no exposure to HMRC coming after you 6 years later saying "Where's our £10,000?" (has happened to several people I know.) (edit for spelling)

boothead 11y ago
You disagree with following the letter of the law and taking home extra thousands of pounds per year? Personally my attitude it that I'll apply whatever optimizations my accountant says I can without being too creative :-) Also, some companies that masquerade as umbrellas are doing some pretty shady things. If they promise some un-feasibly large percentage of take home pay (over 80%) they're probably doing some dodgy Isle of Man scheme and you'll be left holding the can.
- zimpenfish 11y ago
  It's a moral/ethical stance, I guess - tax funds social infrastructure and I think we need more of that. Good point about the shady "base pay + loan you never* have to repay" shenanigans - I suspect HMRC will be onto them soon enough though.
  - boothead 11y ago
    I agree that we do need more of that. I balk at the bombastic talk from the government, (who make the laws in the first place) that it's somehow immoral to optimize your tax affairs. I would much rather see them put simpler legislation in place that means that large companies pay their "fair" share of tax, and tax is easier to deal with for small companies. If I ended up paying a bit more tax under that regime and the current large tax avoiders ended up paying a lot more that could be put towards social infrastructure, that would make me happy.
  - Nursie 11y ago
    I get calls about these every so often, people who sound lot like recruiters but give away the fact they're selling dodgy schemes after a while. "We can enable you to take home more than 90%!" "Err, Right, how can you do that then?" "By structuring your profits through our scheme! We use a combination of tax-haven bank accounts and directors..." "I'll stop you right there, isn't this what Jimmy Carr off the tv just got spanked for? No thanks, sounds highly unethical to me." That said I do do things the 'usual' way and pay myself a small salary, with the rest coming in as share dividends. I'm not sure exactly what proportion I pay in taxes vs a salaried employee, but it's non negligible - 20% Corporation tax on all profits (before I get paid), and 25% dividend tax on anything I get paid over the Higher Rate threshold.

Nursie 11y ago

Why bother with a third party company registration service? You can do it yourself pretty easily through companies house. Do companiesmadesimple have any value-add? While I do share your cynicism about recruiters, I have also got most of my contracts through them. There are bad recruiters (vague job descriptions, never call you back) and there are good ones (We need someone here, you fit the bill, can we arrange a time to talk to my client?). Learning to swallow your distaste and listen to them as if they were worthwhile human beings is a useful skill. Some (few) of them actually are. (--edit-- good guide in general! I don't just want to harp on the negatives!)

wumbernang 11y ago
They do all the annoying paperwork for you at the registration service like the initial transfer of directors capital and appointments and crap like that. It's worth it. (I've killed 5 limited companies now so I have lots of experience ;-) IR35 is the only PITA IMHO of doing all this and that's easily sorted by doing the odd phone/laptop repair at the same time and invoicing it.
- Nursie 11y ago
  >> IR35 is the only PITA IMHO of doing all this and that's easily sorted by doing the odd phone/laptop repair at the same time and invoicing it. ?? Oh, a phone/laptop repair for someone else, and invoicing them for it? In just under three years I've taken on 5 contracts of varying lengths and billed for a small amount of casual consultancy work on the side too. I'm clearly not acting as an employee, hopefully I'm in the clear :)
- monkeyprojects 11y ago
  No it won't.. IR35 is explicitly contract by contract based... In theory (and in practice) you could be working at 3 places at the same time and 2 of them would be outside IR35 and 1 would be inside it... There are a lot of old wives tales and myths around IR35 http://www.contractoruk.com/ir35/top_ten_ir35_myths_debunked.html http://www.contractoruk.com/ir35/top_ten_ir35_myths_debunked... shows a few of them. And sorry for posting links to the same two sites but that is where the real information is from people who have operated this way for years...

hunglee2 11y ago

Good to see recruiters getting some love on the comments here. If there remains a place for 3rd party recruiters its in the contract market. A few reasons: Payments processing - a lot of employers will not want to deal with processing payments for contractors. Indeed, its often the main reason why they might go for contract vs permanent resource in the first place. I've seen situations where contractor and employer have discovered each other, only for the employer to then ask the contractor to 'go through agency X'. No one likes admin load and we'd all get rid of it if we can. Reduce assessment load - job opportunities cycle much more frequently on the contract market - typically 3-6 months. This means a lot more time involved in opportunity sourcing / vetting, potentially a hugely time consuming exercise. A good recruiter will be able to filter these opportunities for you, and only get you the most suitable gigs Reduce downtime - going without agencies entirely means relying on your own market gravity as a developer of renown to secure job opportunities. This is do-able for high profile developers, of course, especially those who live in metropolitan areas and are prominent on the open source / community / events scene. However, if you work on proprietary software, have heavy family obligations and live outside of a big city, you're probably going to find agents very useful indeed. Salary / Rate negotations - they are going to take their 15-20%. But they may end up earning you more by negotiating hard with the end employer. Certainly an inexperienced contractor is at risk of being exploited, but that's true in whatever of the type of contract you sign. A good relationship with a trusted agent can really help you make more on your rate, especially if you are not a naturally comfortable at negotiating. And I say all this as a maker of a tech hiring platform that doesn't allow 3rd party recruiters on it. They have their place - just a smaller one than they currently occupy. Great article in all other areas

Nursie 11y ago
What's your platform? The payments thing is important, and sometimes recruiters provide a useful buffer too - the end-client company might take their sweet time to pay, or be unreliable. Contracting through a third party provides you with a buffer and I know for a fact that I've been paid well ahead of the recruiter being paid on several occasions.
- Peroni 11y ago

asherkin 11y ago

> As far as I understand, it is important to have a contract that allows you to: > [...] > If the client insists on including the clauses above, be ready to move on. These lines appear to contradict themselves, am I missing something?

ticksoft 11y ago

I notice that business bank accounts are always mentioned in these sorts of lists. To me they seem like an extra overhead for no reason. You essentially have to ask a bank's permission and pay them just so they can accept your payments? So weird. I could understand it if you had a business with employees and you sold products on a daily basis with loads of transactions, or if you plan to get into debt... but for invoicing someone every month? Personal account seems fine, and I'm sure people have several of them already.

Nursie 11y ago
The business is a separate legal entity to you. A business bank account clearly demarks what is your money and what is not. I wouldn't be at all surprised if it's a requirement to work with a lot of companies, if not a legal requirement for working with a ltd company. Business bank accounts can be had for free - most contractor-friendly accountants have an arrangement with Cater-Allen, for instance.
- framp 11y ago
  It's not a legal requirement and they're certainly not free AFAIK. It is a requirement for partecipating in certain contests (eg: Microsoft had a program for investing in indie games company and they required to use a business account entitled to the company) but I still haven't heard such requirement from a client.
  - Nursie 11y ago
    >> It's not a legal requirement I'd be surprised if it wasn't a requirement with many clients though, it shows a level of professionalism. >> and they're certainly not free AFAIK. You haven't looked very hard then...
    - framp 11y ago
      > I'd be surprised if it wasn't a requirement with many clients though, it shows a level of professionalism. Agree, but I've never seen such clause in a contract. > You haven't looked very hard then... I guess it's a service provided by only certain accountants? All the (chartered) accountants I've talked to never offered a free business account. They offered introduction to paid business account but that's the usual. If it's not and there is a free business banking account with a reputable bank out somewhere I'll be happy to look into it.

monkeyprojects 11y ago

As a contractor of many years standing (I started contracting when the internet appeared in 1994) I started reading the article hoping it was correct and finished it with my fingers covering my eyes in fear. Sadly I don't have time to correct many of the misconceptions and total inaccuracies it contains. Its a shame really as good articles are hard to find and I'm sure many americans would find the differences between the UK and US markets very interesting... However if you really want to be a contractor https://www.ipse.co.uk/advice/articles/starting-out https://www.ipse.co.uk/advice/articles/starting-out has a lot of advice on starting out. http://www.contractoruk.com/first_timers/ http://www.contractoruk.com/first_timers/ also has a lot of advice although as a new starter I would avoid the general part of their forum... And there is a reason why people use limited companies. You can work as a self employed person but many clients stop when HMRC come knocking while agencies have been legally barred from employing people as self employed since the 1970s...

amouat 11y ago
It would be a lot more useful if said what these misconceptions and inaccuracies were. It seemed generally accurate to me. I think you should either back up this comment or delete it; otherwise it's unfair to the author. (I don't mind to sound snarky here; the rest of your comment is genuinely helpful).
- ig1 11y ago
  You should absolutely not have your business bank with the same bank you use personally. If your business account ever gets frozen (for litigation, tax investigation, etc.) many banks will also freeze any personal accounts you hold with them. IMO many of the services he recommends also suck. I've used Crunch before and wouldn't recommend it and Barclays Business banking has a terrible reputation. £50 cashback isn't a good basis on which to chose a bank account. Get a proper accountant that specialises in contractors (Nixon Williams and SJD have decent reputations). It also doesn't address withdrawing money out of the company (taxes, NI, pension, etc) which is a fairly important part of being a contractor.
  - 11y ago

Nope5005 11y ago

I comment OP for trying this, but there are so many glaring omissions which could bite the ignorance of a minnow. - Let's start with Crunch IT. Affiliated with the OP. They (like the rest) are surrounded by low paid interns and similar - they don't know the answer to your questions. Their accountants are rare as gold and have no time for you. That is fair enough given the price they charge (which has increased and become more 'diverse' each year) - This isn't a game. The HMRC don't have an army of people, but they are gaining a machine of features who can see when you expense a TV. - The HMRC are entirely ignorant to our work. They want a nice clean line between your work and life. What they don't appreciate is it is entirely a waste of resources. I buy two laptops - great. Fucked the HMRC and the environment - nice work :/ Lets start with this... total bullshit Here's my favourite one: - If you’ve spent more than 40% working at a client site - You’ve been there over 2 years - You ‘intent’ to work there for more than 2 years

M8 11y ago

The salary ceiling is very low in UK.

Peroni 11y ago
Almost every salary ceiling is low compared to SV but it's all relative. It's not particularly difficult to achieve a £100k+ salary in London and you can have a very comfortable lifestyle on a six figure income.
- Nursie 11y ago
  Comfortable? Something of an understatement. There are very few in the UK earn that much... --edit-- though I do agree money on offer here generally is a joke. Hence going into contracting.
- randomname2 11y ago
  Just out of interest, how? For a developer, £100k+ as a contractor is not particularly difficult, but as an employee this would be rare, no?
  - Peroni 11y ago
    Anything relatively senior in FinTech encroaches on the six figure salary mark. Plus there are plenty of experienced Data Scientists getting six figure offers lately. In the past twelve months the market has shifted quite quickly. £60-£70k is becoming the norm for a decent, experienced engineer. Add 'lead' to that title and you'll struggle to find great people for less than £100k. Considering that £300-£400 per day is a pretty standard contracting rate, companies are ramping up salaries in order to tempt contractors back into salaried roles.
  - buserror 11y ago
    I agree; unless working for google or something, the ceiling for a super-duper dev at hiring time seems to be around 65k -- perhaps a bit more if you stay and negotiate well, but I topped up at 75k before I became a contractor. Now, this company tax year, I invoiced 120k ex-vat so far, managed to buy a rather large amount of kit on the company (like, that 4k£ dream workstation..) and I finally have the feeling I'm getting paid what I'm worth, without having to do any politics. I can concentrate on pure engineering, and I don't have to ponder whether I should become some sort of 'manager' to crack up the engineer pay ceiling.

ForHackernews 11y ago

I've heard that in the UK, it's much more advantageous to work as a contractor than a full-time employee. Is there any truth to that? What advice would HN offer to a US-based developer looking to move to the UK?

stefek99 11y ago
I'm in the UK for 4.5 years and one of my biggest dreams is move to the US... Main advantage of being contractor? Much better pay... They say - "no job security" - but there is no such term anyway.
- bitwize 11y ago
  Why would you ever want to move here? You think the NHS is bad, you ain't seen nothing yet.
- ForHackernews 11y ago
  Is the dev scene bad in the UK? Why are you so interested in moving to the US?
  - medwezys 11y ago
    The dev scene in the UK is not as great as it is in the US, but it's good. Perhaps the second best after the US. US is appealing because it's an english speaking country, has a good dev scene and is an interesting country to live in.
d_t_w 11y ago
London is a world of her own, my advice relates to her. The only thing you need to be an IT Contractor in London (other than some skills) is confidence. I worked a number of contracts over ten years in the finance sector in London. I never had a client pull a contract on me, I always left on my terms. On average I lasted two years until I moved on. Major Retail, Funds management, Investment banking was my progression. My background was Java (I work almost exclusively with Clojure now, and love it). Java was the language of business in London and I presume it still is. If you want to get a well paid gig in a smart office for a bank or funds management firm then Ruby is not your friend. Why was I motivated to move towards Investment Banking? Well, I'm competitive and it's the hardest market to crack, and it pays a premium. That's it. If you want to stay pure to one language or another and not use your rare skills for the best economic result for yourself that's another choice. The market is huge, once you've got a recruiter who likes you you'll be offered work fairly continuously. My contractor rate was roughly double what I would have earned permanent. The contractors I worked with were no better or worse than the permanent staff I worked with, they just had the confidence to strap on their contractor pants and go to work. That. is. all. Advice like this article is useful enough I guess, but in reality you either have the confidence to go for it or not, and once you have you will never imagine why you waited so long (as long as you've got the ability to land work and impress people). IR35? Just move every couple of years. Tax? Don't take the piss and HMRC will not bother you. Accountants? Have a crap one for a while and swap. Recruiters? Don't piss them about, realise they are all liars, but necessary. Find a good one and impress their clients. Timing? There's a couple of luls towards Xmas and the EOY, but there are always projects looking to spend money. It is all confidence, you either do it or you don't, all this other crap follows.

kybernetyk 11y ago

>A service like www.companiesmadesimple.com (aff.) will make the incorporation process easy. It usually takes up to three business hours. Yeah, better do it yourself. I'm from Germany and I set up a LTD directly with Companies House myself. It's really (I mean really really) straight forward and they even accept PayPal to pay the 15 GBP fee. It took me ~20 minutes and the company was incorporated the next day. Those formation companies usually just are an unnecessary middleman.

UK-AL 11y ago
The formation companies are a left over from when it was quite hard

martinald 11y ago

Do not ever be a sole trader. It means you are personally liable for anything that goes wrong. Say you end up with a dreadful contract and everything goes wrong and the client sues. If you're a ltd company you can dissolve the business and pay them out of whatever assets your company has. If you're a sole trader you're liable for all the costs. Until you're personally bankrupt. Sure, there may be clauses in the contract etc, but if someone is mean enough they can make your life very difficult and they will exploit the fact you are a sole trader.

dublinclontarf 11y ago
This is what business indemnity insurance is for, get covered to a minimum of £50K. If you don't own a house and are brining in less than £70K PA it may or may not be worth registering a Limited company.
- Keats 11y ago
  Lots of companies will not want to deal with you if you don't have a ltd though.
- UK-AL 11y ago
  If you don't own a house, you probably have tons of cash which is even easier for people to get their hands on.

Wintamute 11y ago

Uh oh, if it's one thing us brits like to do its wrangle over the finer points of tax, employment and contractual law. This thread is going to get long, involved and possibly slightly testy :)

kaolinite 11y ago

I recently started working as a contractor (just for a few months to bring some cash in so I can continue to work on my business). As I have a business already, I was considering doing the contracting under the business to reduce liability. Does anyone know whether this will increase the amount of tax I have to pay? I figured that I would have to pay corporation tax on any money I bring into the company as well as personal tax on any money that I pay myself as a salary. Is that the case?

tommyd 11y ago
Ask your accountant. Seriously, that's the best thing to do in a situation like that - random strangers on the Internet have no idea of the ins and outs of your company structure etc. and so could potentially give bad advice, even if they don't intend to.

stefek99 11y ago

I would all the formalities after landing the first contract. It takes like 15 minutes online to establish limited company. And when you buy insurance - how do you know which one? My current contract requires me to have 10 million employer liability insurance (I don't hire anyone) but I have to have it anyway. I guess I'll add some comments in this thread... (if time allows)

keeran 11y ago
Your consulting company employs you :)

tkyjonathan 11y ago

You guys need to learn some accounting. Don't be afraid of book-keeping and be keen on any rule that helps you save on taxes. Overall, a limited company can save you around 20% on taxes over a salaried worker. That alone makes it difficult to go back to full-time employment.

pkaler 11y ago
I agree with you in principle, but not in practice. Outsource your bookkeeping to Xero or Bench or wherever. As a consultant, accounting is a cost centre. You should be focusing on sales, marketing, or service delivery. As a consultant, you are now a business. Ring the freaking bell or deliver service. That's your new job.
- roel_v 11y ago
  "As a consultant, accounting is a cost centre." While I can't claim to know every jurisdiction, this is a very naive way of looking at things. Situations in which I was first-hand witness to people making (lots of) money from knowing the books well (i.e., much better than if someone else would do it): - subsidies (like for 'innovation') - in case of a tax audit - some junior accountant who gets tasked with the small clients at a firm isn't going to be able to defend some stuff as well as someone with skin in the game - on bankruptcy or when talking to a bank And I'm sure there are more.

WoMaameTwe 11y ago

Another one for the clueless bandwagons to hop on as the new sexy. This type of content on HN is getting tiring and played out. Please desist from mounting this type of bullshit on HN its misleading.

thruflo 11y ago

Tax. You invoice £4k. It gets paid into your bank. Congratulations. You just earned £3k.

Keats 11y ago

I read that book http://www.amazon.co.uk/Contractors-Handbook-Expert-Guide-Freelancers/dp/0956074529/ http://www.amazon.co.uk/Contractors-Handbook-Expert-Guide-Fr... when I started contracting last year and thought it covered quite a bit. Another thing I'd recommend is finding an accountant that uses FreeAgent or something similar rather than their homegrown system. Also, If you use an accountant they will do the company registration for you

laverick 11y ago

Finding a good accountant isn't easy, but I would recommend looking for something better than Crunch. They were the default option "just pick Crunch", but I had to do a lot of tax research myself and recommend favorable approaches to their accountants on certain non-standard things. I also felt their first line of support is spread very thin and they put a lot of bookkeeping work on me. Then a lot of services cost extra each month, making their total pricing uncompetitive. In the end I got everything done and they did their best to rectify issues, but it was a big burden on my time and significant amounts of stress. Maybe I would have had this issue with any accountants as a first time contractor, but I know it could have been better and I would have happily paid more to make it so. Do yourself a favor and pay extra to get an accountant that handles more things on your behalf (bookkeeping, VAT filing, etc) preferably with a simple non-proprietary interface. I haven't tried these two services but if I go back to a UK accountant they'd be at the top of my list. http://www.3wisebears.co.uk/ http://www.3wisebears.co.uk/ (contractor) http://www.proactive.uk.net http://www.proactive.uk.net (more startup focused, very helpful via phone)

highace 11y ago
I would also recommend not using Crunch. They're OK if you stay on the beaten path, but if you start veering off it their juniors don't have a clue. It was a painful experience for me.

flog 11y ago

Here's the printable PDF version: https://gitprint.com/tadast/switching-to-contracting-uk https://gitprint.com/tadast/switching-to-contracting-uk

ed_blackburn 11y ago

What this does not touch on is be prepared to be a grease monkey, roll your sleeves up and get your hands dirty and most importantly learn how to make recommendations but not take it personally if they’re ignored for seemingly irrational reasons. Organisational dysfunction is the norm, not the exception. Broadly speaking I’ve seen most of my work fall into these categories: a) Help we need someone competent to aid us in a murky project b) We are a dysfunctional organisation, who require transient developers to put up with their modus operandi. c) We need your experience and expertise for a gap in our project I’ve found (c) is best but (b) pays best though it can be stressful if your passionate about quality, engineering practices or process and (a) is often relatively short term but can garner kudos and create better opportunities. Most companies don’t hire contractors because they’re doing swimmingly. Often it’s because they have some degree of dysfunction. For example large institutions in the City regularly operate as a parody of the Mythical Man Month. Expect Waterfall, PMO, silos of BA, Dev, QA; UAT (manual), Cookie Cutter templates to everything. Expect most “business” interaction to be via a PM and scrums to be lengthy tortious ordeals. (This is why companies like Thought Works do so well and why I expect some serious disruption in the coming years from Startup targeting City companies). Expect people to ask you your advice and for you to mentor less experienced developers. Do not expect your advice to be implemented, or rather expect it to be watered down with compromise by non-technical councils. I really like contracting. I enjoy the flexibility, variety and the challenges. I enjoy the people and skills I learn and now my network has expanded and I have earned a reasonable reputation I enjoy the better projects. I second the sentiment about going IPSE and of hiring a decent accountancy. Don't worry about their portals or how shabby a website may look, pick them based on their competency. Bite the bullet. Go for it!

MortenK 11y ago
This is incredibly accurate, and applies equally well to contracting in other roles than as a developer.
boothead 11y ago
Clearly we have worked in some of the same places! Very accurate!
11y ago

teknologist 11y ago

Something called entrepreneurs' relief is also nice for those with ltds or tech startups in the UK. It allows you to save massively on CG tax (10% instead of the normal rate of 18% or 28%) when selling assets or liquidating the business. https://www.gov.uk/entrepreneurs-relief https://www.gov.uk/entrepreneurs-relief

antouank 11y ago

What do you think is the percentage of contract dev jobs? ( vs permanent )

collyw 11y ago

Anyone know if there is much of a contractor market in Spain?

kenshiro_o 11y ago

Very good guide. I am thinking of becoming a contractor but had not idea you needed so much saved up! Looks like I am gonna have to scrap my lavish summer holiday plans to put money aside...

tristanbailey 11y ago

The post is good, covering many of the aspects, but if you are trying or just started contracting there is not always a need to make the VAT registration and Limited Company. As I have been freelancing for 4 years as a sole trader. There are some tax benefits but you have to manage your pay and money very differently as a Ltd, i.e. you have to hold money in the bank enough to cover company bills that you cant spend. Unless you are a high paid contractor all year you are unlikely to make £82,000 VAT base rate.