Is this a good strategy for me to get into contracting?

[jamsandwich]

Newbie here. I've been a permie C# & ASP.NET developer for years and am now wanting to go contracting. My motivations are:

1. To be able to move on every 12 months (or even more frequently) if I want to, rather than being stuck with the same company for years
2. The option to take a few weeks (or months) off every now and then if I fancy a break
3. To feel more independent and not be dragged into the appraisal/personal-development-plan/HR nonsense
4. To earn better money (or the same money for less hours) than I was as a permie
5. Finding that permie benefits are largely non-existent nowdays (e.g. tiny employer pension contribution, tiny pay rise once in month of sundays, no sick pay in the first 12 months, no private health care)

I'm thinking that my strategy will be as follows...

1. Get "inside IR35" contract work via agencies
2. Use umbrella company (agency might insist on this)
3. Get professional indemnity insurance (to cover risks such as breach of contract, negligence, defamation, data loss)
4. Get public liability insurance (to cover risks such as someone tripping over by rucksack or laptop cable when I'm on client site)
5. Use pension contributions into my own stakeholder pension if I can get higher rate tax relief on them (probably claim back via self assessment)
6. Only consider home based or within reasonable commute (don't want to pay for hotel out of my net pay)
7. Keep within the HMRC rules (I don't want the risk of being hit with demands for back tax, interest, penalties, loan repayments)

Some things to think about:

1. Confusion over what rate of pay the agency are offering. For example: when agency quotes the rate of pay, is that my gross PAYE salary, or the amount they will pay the umbrella? If it's the amount they pay the umbrella, then does that include VAT? Also the umbrella would have to deduct their fee and the employer's N.I. before they are left with what would be my gross PAYE salary. All this could make it difficult to know what rate of pay I would be earning.

2. Do I get to choose which umbrella company I use or do agencies insist on me using theirs (I'd rather choose one myself)?

3. What if the umbrella company goes bust before they pay me?

Are there any gotchas or pitfalls that I've missed?

[hobnob]

Newbie here. I've been a permie C# & ASP.NET developer for years and am now wanting to go contracting. My motivations are:

1. To be able to move on every 12 months (or even more frequently) if I want to, rather than being stuck with the same company for years
2. The option to take a few weeks (or months) off every now and then if I fancy a break
3. To feel more independent and not be dragged into the appraisal/personal-development-plan/HR nonsense
4. To earn better money (or the same money for less hours) than I was as a permie
5. Finding that permie benefits are largely non-existent nowdays (e.g. tiny employer pension contribution, tiny pay rise once in month of sundays, no sick pay in the first 12 months, no private health care)

For items 1 and 2, be aware that it's not just up to you. E.g. if you get a 3 month contract and then the client says "thank you and goodbye", that means you have to move on, ready or not. Related to that, when you have a gap between contracts, it might not feel like a holiday because you'll be hunting for your next role.

Regarding item 5, I'd hope that the employer is at least paying statutory sick pay (£96.35/week) even if it's not your full salary.

1. Get "inside IR35" contract work via agencies
2. Use umbrella company (agency might insist on this)
3. Get professional indemnity insurance (to cover risks such as breach of contract, negligence, defamation, data loss)
4. Get public liability insurance (to cover risks such as someone tripping over by rucksack or laptop cable when I'm on client site)

If you're inside IR35, then yes you will need to use an umbrella company. (You can ignore the "deemed payments" edge case for now.) That also means that you can ignore items 3 and 4, because they apply at company level rather than personal level, so the umbrella company will sort that out.

Some things to think about:

1. Confusion over what rate of pay the agency are offering. For example: when agency quotes the rate of pay, is that my gross PAYE salary, or the amount they will pay the umbrella? If it's the amount they pay the umbrella, then does that include VAT? Also the umbrella would have to deduct their fee and the employer's N.I. before they are left with what would be my gross PAYE salary. All this could make it difficult to know what rate of pay I would be earning.

2. Do I get to choose which umbrella company I use or do agencies insist on me using theirs (I'd rather choose one myself)?

For question 1, you'll need to ask the agency; it could vary from contract to contract.

For question 2, you'll also need to ask the agency. Lots of them will have a preferred supplier list, but they'll normally give you at least 2 choices. If there's a particular one you want to use which isn't on their list, there's no harm asking, but they might say no.

Are there any gotchas or pitfalls that I've missed?

Last summer, you posted about some of your frustrations:
Career direction for a C# (ex VB) developer - Contractor UK Bulletin Board
Did you find a resolution for that? I've found that people tend to be more picky about having specific skills when they're hiring for contract roles. E.g. an employer with a permie role might say "We use NoSQL, but if you've used MySQL then that's close enough and we'll train you up" whereas a client with a contract will want you to hit the ground running on day 1.

[northernladuk]

I'm thinking that my strategy will be as follows...

1. Get "inside IR35" contract work via agencies
2. Use umbrella company (agency might insist on this)
3. Get professional indemnity insurance (to cover risks such as breach of contract, negligence, defamation, data loss)
4. Get public liability insurance (to cover risks such as someone tripping over by rucksack or laptop cable when I'm on client site)
5. Use pension contributions into my own stakeholder pension if I can get higher rate tax relief on them (probably claim back via self assessment)
6. Only consider home based or within reasonable commute (don't want to pay for hotel out of my net pay)
7. Keep within the HMRC rules (I don't want the risk of being hit with demands for back tax, interest, penalties, loan repayments)

So not really being a contractor at all then.

3. You don't need indeminty insurance through a brolly. You are an employee so they cover that for you.
5. You'll have to use a brolly off the agencies approved list and not all allow pension payments in to your pension choice
6. In the old days this would depend on where you live and could severely restrict how much work you'll get in a year to the point you'd be better off perm. Definitely not an issue while the pandemic is on and not too much of an issue if we get back to normal but it's likely some clients will want you in their office a few days a week.
7. Via brolly you are an employee of the brolly so zero risk. HMRC rules will be the brollies problem, not yours.

[northernladuk]

Some things to think about:

1. Confusion over what rate of pay the agency are offering. For example: when agency quotes the rate of pay, is that my gross PAYE salary, or the amount they will pay the umbrella? If it's the amount they pay the umbrella, then does that include VAT? Also the umbrella would have to deduct their fee and the employer's N.I. before they are left with what would be my gross PAYE salary. All this could make it difficult to know what rate of pay I would be earning.

2. Do I get to choose which umbrella company I use or do agencies insist on me using theirs (I'd rather choose one myself)?

3. What if the umbrella company goes bust before they pay me?

1. Have a look around the IR35 reform and and future of contracting areas of the forum. There have been many many posts about this when IR35 changes hit. Should be some in this section I'm sure. Also try doing a google searc. Type <keywords> site:forums.contractoruk in to google to search the forums properly.

2. Very rarely. You'll have to pick from a list of 5 or 6 FCSA approved ones. There are many many posts in this section asking for recommendations from a list so if you use the google search method you'll be able to find them and see many of the same names.

3. You won't get paid. Just like a company going bust. You are now an employee of theirs. It's not your money until you have been paid it. There is a thread going on about this right now and Crystal went bust a few years ago. Long thread on that carry on as well if you search for it.

[hairymouse]

You've listed getting insurance (#3 and #4) like they are a big deal but those two tasks are just minor examples of the many tasks that you will have to do as admin when running your own company. Those are just two of the hundreds of things that will require reviewing or signing or filing. Just be aware that you may think you are gaining free time but you are also gaining lots of new things to do in that free time.

[eek]

You've listed getting insurance (#3 and #4) like they are a big deal but those two tasks are just minor examples of the many tasks that you will have to do as admin when running your own company. Those are just two of the hundreds of things that will require reviewing or signing or filing. Just be aware that you may think you are gaining free time but you are also gaining lots of new things to do in that free time.

If you are inside IR35 you aren't running your own company, you are simply a better paid temp with little to none notice period.

[jamsandwich]

hobnob, northernladuk - thanks for your comprehensive replies.

eek - what you said confirmed what I was thinking, thanks.

I would rather have my own Limited company and use that instead of using an umbrella company (even if still inside IR35), but it looks like that is not going to be an option unless I had enough bargaining power with agencies & clients to negotiate it, which I don't.

I would much rather have my own insurance to cover professional indemnity and public liability, instead of relying on the umbrella company. Imagine a hypothetical scenario:

1. Contractor screws up (e.g. incorrect calculation in trading system, or accidentally dropping a database).
2. Client looses money due to the screw up.
3. Client sues contractor.
4. Contractor finds out the umbrella company is dodgy.
5. Contractor doesn't get paid.
6. Contractor not covered by insurance (because umbrella company was dodgy and didn't have any, or had it but let it expire).
7. Contractor exposed to huge legal bill with no insurance cover and no limited liability.

I'm not a lawyer. I don't know what the legal pros & cons of it are. I just think I would feel more comfortable if I had my own insurance cover.

[northernladuk]

hobnob, northernladuk - thanks for your comprehensive replies.

eek - what you said confirmed what I was thinking, thanks.

I would rather have my own Limited company and use that instead of using an umbrella company (even if still inside IR35), but it looks like that is not going to be an option unless I had enough bargaining power with agencies & clients to negotiate it, which I don't.

I would much rather have my own insurance to cover professional indemnity and public liability, instead of relying on the umbrella company. Imagine a hypothetical scenario:

1. Contractor screws up (e.g. incorrect calculation in trading system, or accidentally dropping a database).
2. Client looses money due to the screw up.
3. Client sues contractor.
4. Contractor finds out the umbrella company is dodgy.
5. Contractor doesn't get paid.
6. Contractor not covered by insurance (because umbrella company was dodgy and didn't have any, or had it but let it expire).
7. Contractor exposed to huge legal bill with no insurance cover and no limited liability.

I'm not a lawyer. I don't know what the legal pros & cons of it are. I just think I would feel more comfortable if I had my own insurance cover.

Unfortunately you've a lot more learning to do. Absolutely none of that is relevant. You really don't want a LTD for inside gigs and it's very very unlikely you'll need it. It's pointless having one.

You aren't a contractor through an umbrella, you are an employee. Absolutely zero point having personal cover.

Eek nailed it. You aren't a contractor in the scenario you have put forward, you are an employee of the brolly and a temp to the client.

[jamsandwich]

I've had a look at some umbrella company websites and have seen them mention professional indemnity insurance, which does make me feel more comfortable with the idea of working through an umbrella company. However....

With software being so complex, it could take a while for any defect or bug to come to light, by which time the contractor may have moved on. What happens if a claim comes in after the contract has ended and the contractor is no longer working through the umbrella company?

I don't have much faith in the idea that the client would only sue the umbrella company. Clients are people, and knowing what people are like, I imagine they would think: "contractor screwed up.... therefore sue contractor." I imagine they would perceive the umbrella company as simply an administrative detail, as in "the umbrella company? Oh, they just do the payroll.". That's obviously just my opinion though. As stated earlier, I'm not a lawyer.

I thought I might be being paranoid to worry about this. However, an agent recently told me that clients are tending to be much quicker to blame contractors nowadays. Unless I misheard or misunderstood, the suggestion seemed to be that umbrella company contractors were particularly vulnerable. Not sure why that might be, except maybe the "claim after end of contract when contractor is no longer working through umbrella company" scenario I just mentioned?

[eek]

I've had a look at some umbrella company websites and have seen them mention professional indemnity insurance, which does make me feel more comfortable with the idea of working through an umbrella company. However....

With software being so complex, it could take a while for any defect or bug to come to light, by which time the contractor may have moved on. What happens if a claim comes in after the contract has ended and the contractor is no longer working through the umbrella company?

I don't have much faith in the idea that the client would only sue the umbrella company. Clients are people, and knowing what people are like, I imagine they would think: "contractor screwed up.... therefore sue contractor." I imagine they would perceive the umbrella company as simply an administrative detail, as in "the umbrella company? Oh, they just do the payroll.". That's obviously just my opinion though. As stated earlier, I'm not a lawyer.

I thought I might be being paranoid to worry about this. However, an agent recently told me that clients are tending to be much quicker to blame contractors nowadays. Unless I misheard or misunderstood, the suggestion seemed to be that umbrella company contractors were particularly vulnerable. Not sure why that might be, except maybe the "claim after end of contract when contractor is no longer working through umbrella company" scenario I just mentioned?

It still ends up going to the umbrella firm to claim from - but it's very unlikely anyone will sue as it's virtually impossible to pin the blame on a single developer - they would just point at the tester for not including the test case.....

You really are over thinking this.