Becoming a contractor – your working options

Becoming a contractor – your working options

Jul 28, 2017

Life as a contractor can be hugely rewarding.  You have the freedom to choose work that interests you, and the flexibility to work when it suits you.

When starting out as a contractor there is much to think about.

One of the most important first steps you will need to take is to determine how you wish to win your contract work. That can be done through a recruitment agency, networking environments or directly with an employer.

Of course, contracting gives you that free rein to choose the type and length of contract you want to work, though there may be some restrictions.  For example, in some circumstances the work you would like to perform may only be offered on a particular contractual basis.  The public sector, for example, introduced new off-payroll working rules in April 2017 which meant that in some instances contractors may no longer operate through their own limited companies.

This is why it’s important to consider what sort of working structure would be most suitable to you.


If you work in the public sector then your choices may be limited.  However, for contractors in the private sector, there are, in the main, four options available to you.

  1. You can set up your own business by forming a limited company (Personal Service Company).
  2. You can become an employee of an umbrella company.
  3. You can work as a self-employed sole trader.
  4. You can work through agency payroll.

There are benefits and matters of consideration with each option so you’ll need to carefully consider the implications of each before you decide what’s best for you – you can speak to a member of our expert team for advice and information.

Making the right choice

The right choice will depend upon a number of factors, including:

  • Whether you contract in the public or private sector.
  • Your personal circumstances such as your anticipated pay rate.
  • How much responsibility you are willing to take and the level of risk you are prepared to accept.
  • Whether you intend to work for yourself in the long-term and how long your contracts typically last.
  • What set-up costs you’re willing to incur and the amount of administrative effort you can/wish to take on.
  • Whether the contract you’re undertaking involves you working under Supervision, Direction or Control (SDC) or falls inside or outside IR35 rules – both will affect your tax position.

What’s involved in limited company contracting?

Contracting through your own limited company (or Personal Service Company as they are sometimes referred to) is often the most tax efficient and therefore financially rewarding way to work.

In choosing this route, you’ll need to become a company director and will therefore need to assume additional responsibilities including the submission of annual accounts to Companies House and tax returns to HM Revenue & Customs.

You could engage an accountant such as Crest Plus Accounting to undertake this work.

For more information, see Setting up a Limited Company.

What’s involved in umbrella company contracting?

Our umbrella company, Umbrella Plus, is another option to consider.

Umbrella Plus will calculate your pay after making the necessary deductions such as income tax and National Insurance.

Tens of thousands of contractors opt to join an umbrella company as they are then entitled to employee benefits such as holiday pay, sick pay and access to a company pension scheme.

Additionally, as an umbrella employee of Crest Plus, you would be covered by our public liability, personal accident and professional indemnity insurance. Read more about what is an umbrella company.

What’s involved in sole trader contracting?

Working on a self-employed basis as a sole trader may be less tax efficient than setting up a limited company (which operates outside the scope of IR35) but easier to administer because you will only have to register with HM Revenue & Customs and produce an annual tax return.

As a sole trader, you have the choice to appoint your own accountant.

Please note that if you work in the construction industry and are not subject to supervision, direction and control (SDC) you may wish to apply to operate under the Construction Industry Scheme (CIS). Take a look at our information on CIS Plus and get in touch with our team to find out more about how we can help you.

Working through agency payroll

When you work through an agency payroll you are taxed as an employee but only have the status of a worker and therefore are entitled to fewer statutory rights. For example, you will not have the right to be a member of a company pension scheme, neither will this way of working count as employment which may become an issue when looking for a loan such as a mortgage.

What to do next

You can use our Contractor Calculator to compare the difference in take-home pay when working as a contractor through your own limited company (PSC) or an umbrella company.

You can also download a free copy of Contracting Successfully with Crest Plus – a Guide to Your Working Choices or get in touch for more information about our specialist contractor accounting services.

About Crest Plus, specialist contractor accountants and umbrella company for contractors

Crest Plus is one of the UK’s longest-established umbrella companies and specialist contractor accountants, with almost 20 years’ experience in supporting 350,000+ contractors in a range of industries, from construction to healthcare.

The company provides all the key payment options required by contractors, whether operating through Crest Plus’s umbrella company, Umbrella Plus; a limited company or through the Construction Industry Scheme (CIS).

Reliability, excellent customer service and attention to detail lie at the heart of the Crest Plus approach. The team is proactive in helping contractors with all aspects of compliance and finance throughout the year.  For more information or support please call 01244 684700.

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