Do not make this mistake when IT contracting

I was forced into contracting. I had been made redundant from my two previous, so-called, perm roles.

Amazing picture

Burning money?

I decided contracting was the way to go. Nothing to lose, so I thought.

Getting the contract

After a fairly straightforward interview, my agency asked if I had a limited company. Whilst I had run a company before I did not have one currently running. As I the answer was no, I was asked if I would go through an umbrella company.

An umbrella?

It is a strange name, I will give you that. But what is it?

The UK government website says:

An umbrella company is a business often used by recruitment agencies to pay temporary workers.

In most cases, the umbrella company employs you and pays your wages through PAYE. It does not find temporary work for you, this is done by the recruitment agency (also known as an ‘employment business’).

Although the umbrella company is your employer and will pay you, the work you carry out will be for one of the recruitment agency’s clients. This work is often on a short-term basis.

You get paid as an employee of the Umbrella company. For this service they will:

  • send an invoice to your recruitment agency
  • look after the receiving of the remittance
  • umbrella company operating costs (sometimes called ‘margin’)
  • employer National Insurance contribution
  • employer workplace pension contribution
  • holiday pay
  • calculate taxes due on what is left
  • pay HMRC the tax
  • give you what ever is left

This mistake of going through an umbrella company is expensive to you, as you get paid last!

What is the solution?

If you want full control of the money, then having your own limited company is the way to do it.

This can be daunting if you have not dealt with this before, but believe me, once you have the know how and a little experience, the extra control you get is worth it.

Given my over 20 years as a contractor, I can guide you through this and other ‘features’ of IT contracting.

Come ask me and the community questions. You can find me on Slack.

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