The following information may be useful if you are considering working as a contractor for the first time.
Points to consider
The main advantages of contracting are:
greater earning potential
more control over the way that you work.
There are also potential disadvantages:
losing the security of permanent employment and benefits such as pension, private healthcare, paid holidays and training
periods of unemployment between contracts
costs and administration involved in running a business
you will no longer be part of a team in the same way that a permanent employee is.
Setting up
You can set up in business in one of several ways:
Limited company. You arrange to set up your own limited company and are responsible for all associated administration, tax calculation and legal compliance. If you own the company then you can decide the accounting split between profits and dividends, and you can reduce the tax bill by offsetting more business expenses than are allowable under the other options described below. A limited company can be set up quickly and easily, but there are associated ongoing costs and legal responsibilities that must be considered. Overall though, this is usually the most flexible option.
Umbrella company. You become an employee of an umbrella limited company that looks after general administration and the calculation and payment of your income tax and NI. Umbrella companies charge a fee for their services, either a percentage of your earnings or a flat rate. You are free to make your own arrangements with your choice of company, but the following are links to some websites of companies that our contractors have used:
Self-employed. Agencies will not usually enter into contracts with individuals, so this is rarely a realistic option.
PAYE. Sometimes a PAYE contract can be arranged but this may restrict your freedom of movement and the value of your net income.
The contract
In order to set up a contract you will need to provide the company name and registered company address as well as a copy of the company's Certificate of Incorporation and VAT number. You will be paid after the submission of an invoice accompanied by a timesheet signed by you and the line manager.
The contract will be between your limited company and Blues Point Ltd. It is important that you are happy with the contract terms and conditions before signing.
Limited Company Opt Out
The Conduct of Employment Agencies and Employment Businesses Regulations (the Agency Regulations), became law in 2004, replacing previous legislation.
The Agency Regulations appear to focus on PAYE and payroll contractors, rather than the usual limited company contractor business format. As a result contractors wishing to register with an agency may now go through a much longer registration process, which involve a number of additional stages, including:
confirmation of the full type & nature of work sought;
identity verification;
model contracts (altered later) agreed prior to cv submission;
experience and training verification prior to cv submission.
The Government have recognised that contractors using either their own limited companies or umbrella companies are a special case. As a result contractors operating specifically via limited companies can opt out of the Agency Regulations.
Effects of opting out of the Agency Regulations?
A contractor who operates as a limited company contractor will not be required to comply with certain procedural requirements of the Agency Regulations (e.g. identity confirmation). There will also no longer be any procedural requirement for the recruitment agency to obtain certain information from the client before placement of the limited company contractor. Also, certain contractual amendments need not be applied to the contract documentation to be agreed with both the limited company contractor and the client.
Why should a limited company contractor consider opting out of the Agency Regulations?
Some limited company contractors are taking the view that opting in to the Agency Regulations may place them at a disadvantage in securing a contract assignment with a particular client. In particular the additional procedural requirements imposed upon the employment business and the client may delay the evaluation of that limited company contractor relative to a contractor who has opted-out of the Agency Regulations. Also, some clients appear to be concerned about the additional employment risk of limited company contractors seeking to opt in to the Agency Regulations, and becoming treated in law as permanent staff. There have been a number of recent court cases where contractors have taken clients to court, when assignments have ended to obtain redundancy payments etc. Consequently, some clients fearing that a limited company contractor could be considered more akin to a temporary employee rather than an independent contractor may select only those contractors who have opted out of the Agency Regulations. Certain recruitment agencies are also suggesting that they will have to pass on additional administration costs directly to clients where there are additional administrative requirements for managing contractors who have opted in to the Agency Regulations. This would be handled in the form of a general increase in fees with a discount for those contractors who have opted out. As a result some clients may avoid the additional costs and have a preference to those limited company contractors who have opted out of the EAA Regulations.
The Professional Contractors Group - together with some other contracting groups - have suggested that those limited company contractors seeking to legitimately challenge the application of IR35 to their services could be more likely to be assessed within IR35 if the limited company contractor is subject to the Agency Regulations. This is because some view the Agency Regulations as principally applying to protect the supply of individual workers who are similar to temporary employees, which would undermine any arguments of a limited company contractor seeking to challenge IR35. The Professional Contractors Group has published a Guide to Agency Regulations; go to http://www.pcg.org.uk for more information.
What is Blues Point's view on deciding whether to either opt in or out of the Agency Regulations?
At Blues Point we are offering all of our limited company contractors the choice of opting in or out of the new regulations. At the time this document was produced, it appears that various contractor organisations and groups are suggesting to limited company contractors that they opt out of the Agency Regulations.
How should a limited company contractor opt out of the Agency Regulations?
Limited company contractors who wish to exercise their choice to opt out of the Agency Regulations must notify Blues Point in writing prior to their contract assignment or the renewal of their current contract assignment. Please email us stating your agreement to opt out. If you wish to opt back in later, let us know and we will then send you a revised contract and advise you of the additional procedures which will need to be applied.
Useful links
The following links are useful sources of further information.
